Data pertaining to online capital formation, or crowdfunding, can be hard to come by. Several providers provide good numbers when it comes to Regulation Crowdfunding (Reg CF), but when it comes to Reg A+ and Reg D 506c – it is a bit of a black hole.
Yes, the Securities and Exchange Commission (SEC) periodically provides some OK data on the various exemptions enabling crowdfunding, but these numbers tend to be delayed and difficult to pinpoint. And it is not the SEC’s fault, really; the current requirements for issuers selling private securities do not require final totals – only an initial filing and, for Reg A and Reg CF, periodic operational reports.
Recently, CI reported on Reg A+ offerings pointing to data provided by the SEC Office of the Advocate for Small Business aided by the SEC’s Division of Economic and Risk Analysis (DERA). According to their numbers for the period July 1, 2021, to June 30, 2022, Reg A+ raised $1.8 billion.
Filed documents indicate Reg A+ issuers sought up to $6.12 billion. The most active sector under Reg A+ was real estate by far at $755 million during the period followed by banking and financial services at $375 million.
So what about some more recent data? KingsCrowd, a data provider that is moving into providing more investor and issuer services, as affirmed with its acquisition of LawCloud (now raisepapers), shared some insight into Reg A+ during 2023.
First, Reg A+ has two tiers – 1 & 2. Tier 1 is lightly utilized, but Tier 2 has garnered some decent traction. Under Tier 2, an issuer may raise up to $75 million in an offering that requires significant diligence and review by the SEC. An issuer must file offering documents which must be “qualified” by the SEC. This can take some time – up to 6 months (but typically less) – and needs the assistance of a knowledgeable securities attorney. Unlike Reg D, an investor in Reg A does not need to be an Accredited Investor, and shares may trade immediately on a marketplace or exchange if the company chooses that option. Improvements to the Reg A ecosystem have helped to drive the growth of this sector of online capital formation.
As for KingsCrowds information the company shares that Reg A+ funding rounds that closed in 2023 raised $274.1 million, driven by more than 61 offerings, supported by 88,000+ investors.
There were another 39 Reg A+ funding rounds that closed in 2023, but that did not publicly disclose or allow them to share the funding amounts.
The company also notes that this does NOT include fractional offerings nor real estate offerings – the most popular segment of the exemption. KingsCrowd focuses on investments in private firms – so this is a partial view of the ecosystem.
KingsCrowd adds that there were another ~40 Reg A+ campaigns that closed in 2023 that they tracked but that did not publicly disclose funding data or investor counts. Many of those were via white-labeled or self-managed platforms, a strategy that has garnered traction by issuers as a self-hosted offering means the issuer can keep all of the data while not competing directly with another offering on the same platform. If the issuer has an already existing community or the ability to aggressively promote an offering, this can be a good option for issuers raising money online.
In tracking the first month of 2024, KingsCrowd shares that the aggregate valuation of all equity Reg A issuers was $3.5 billion. A decline of -9.7% from December 2023 and a year-over-year change of a whopping -70.5% from January 2023 which booked $11.7 billion. At the same time, the average valuation of an issuer in January increased by 11.8% from December, or $147.6 million, to $165 million, but for the year, valuations declined by 32.5%.
Obviously, the crappy venture capital and private securities markets are hitting the Reg A+ market too. Perhaps we will see a rebound in Reg A+ markets in 2024.