Crowdfund Capital Advisors (CCA) has published a report updating readers on the status of securities crowdfunding. The founders of CCA were deeply involved in the creation of the JOBS Act of 2012, the legislation that legalized online capital formation with three different securities exemptions. Since then, CCA has provided keen insight into the evolving online capital formation environment with a focus on Regulation Crowdfunding (Reg CF).
For the purpose of the report, the authors are addressing Reg CF and parallel offerings under Reg D 506c. Issuers leveraging the Reg CF securities exemption may raise up to $5 million from anyone. Reg D is currently only available to Accredited Investors but may raise an unlimited amount. Reg D 506c allows an issuer to generally solicit (advertise) while requiring a step to validate that investors are accredited. It is common to pair the two exemptions together to enhance the amount of money raised in an offering. Both exemptions require a notice filing with the Securities and Exchange Commission (SEC).
As for Reg A, another popular crowdfunding exemption, data on this market is not included in the report. Some have described Reg A as a mini-IPO type offering. Offering documents must be filed and “qualified” by the SEC. This process can take months to accomplish. At the same time, an issuer may choose to trade any shares issued on an exchange or marketplace immediately after a funding round closes. Currently, an issuer using Reg A may raise up to $75 million in a securities offering.
Meanwhile, 2024 delivered a decline for the year as new deals fell by 2.9% from 1,466 in 2023 to 1,424 in 2024. This reflects the overall challenging venture market due to a choppy economy and high interest rates. CCA says the market “remains a vital channel for issuers seeking capital outside traditional markets” despite the decline.
Since the launch of investment crowdfunding (Reg CF) in 2016 (it took a few years for the SEC to get it together), CCA reports the following baseline data:
- Issuers: 7,894
- Offerings: 9,376
- Cities across the United States: 2,234
- Funded capital: over $2.8 billion
- Investors: over 2.1 million
- Jobs supported: over 437,000
- Economic Stimulus: $27.1 billion injected into the economy
- Enterprise value: just under $100 billion of potential liquidity
CCA states that these numbers highlight the impact of the market on the US economy. And this is not just about jobs created and wealth generation; it supports innovation and creativity – a key element in enabling an innovation-driven economy.
Other key indicators of success include:
- Economic Decentralization – greater access to capital in underserved regions
- Growing Investor Trust – there has been minimal fraud along with heightened transparency
- Market Maturity – issuers, investors and platforms continue to evolve and adapt to improve the ecosystem
- Economic impact – around $9.5 billion is contributed to the economy annually
- Regulatory validation – the exemption balances investor protection and funding
There is a reason why Apple, Meta, Google, etc., were created in the US and not somewhere else. It is access to risk capital and support for risk-taking entrepreneurs.
CCA anticipates even greater support in the coming years as the Republican administration will bring a pro-business sentiment to the government, aiding smaller firms and supporting founders. While there are always economic risks, we have already seen changes at the Securities and Exchange Commission designed to support more significant financial innovation.
New technology, like digital assets and the tokenization of securities, could also help to improve the investment crowdfunding sector, as some are advocating for Reg CF to “serve as a foundation for regulators to develop a structured pathway for digital securities.”
Digital assets can support more novel assets by removing intrinsic friction to the securities process.
The report requests that the Reg CF funding limit be raised from its current $5 million to $20 million. Others have called for the exemption to be boosted far higher. There is legislation in the works that will bump it up to at least $10 million.
Recommendations provided in the report to support the market include:
- Market Education – there is a need for better education in the market
- Engage Leading Financial Institutions and Service Firms – this would enhance credibility, scalability, and operational efficiency.
- Use Investment Crowdfunding Frameworks for Blockchain Regulation – create a compliant approach to token offerings.
- Create a Unified Industry Message
- Consider the Buy vs. Build Strategy – this refers to platforms or funding portal.s
- Increasing funding cap to $20 million
To open the document, CCA highlights the global marketplace, which is an excellent starting point. Online capital formation exists in many markets around the world, but rules differ in each jurisdiction.
For example, in the EU, ECSPR or European Crowdfunding Service Provider regulations allow an approved platform to sell securities in all member states. Issuers may sell securities with a max value of €5 million. Some want this funding cap to be increased.
In the UK, the market has evolved more as more principles-based, and in some respects, regulators have taken a lighter touch approach. Effectively there is no limit on the amount funded but a prospectus requirement at €8 million has historically been a funding speed bump. The UK is currently looking to boost access to capital and the private securities markets in general to support innovative young firms. This includes a new private securities marketplace called PISCES (Private Intermittent Securities and Capital Exchange System).
The report includes a wealth of data on the market, its development, and expectations for the future. Including data on Reg A and Reg D 506c beyond side-by-sides would have been helpful but market data on these exemptions are difficult to glean.
CCA offers the report for free on their website, which is available here.