The Securities and Exchange Commission, Department of Economic Risk Analysis (DERA), has posted a report reviewing exempt offerings under Reg D, Reg A, and Reg CF. According to DERA, 2024 was a down year across the board as investment activity drooped.
The three exemptions all enable online capital formation or securities crowdfunding. Reg D 506b (old Reg D) does not allow for general solicitation. Reg D 506c enables an issuer to promote a securities offering online. Reg D is only open to Accredited Investors. Reg A and Reg CF are both open to Non-Accredited Investors, with both exemptions allowing general solicitation.
The number of offerings by exemption for 2024 is as follows:
Reg D (new filings only) – 32,544
Reg A – 102
Reg CF – 552
Reg D offerings peaked in 2021, with 46,558 new filings submitted to the SEC. This is inclusive of all new Reg D filings.
Reg A offerings have cratered in recent years. The exemption reached its peak in 2022, with 307 filings. An issuer using this exemption must have its offering qualified by the SEC, and thus, the process is longer than a Reg D offering.
Reg CF also reached its high in 2022, with 899 filings submitted. Reg CF is a notice filing and does not need an SEC qualification.
Regarding funds raised, DERA shares:
Reg D 2024 – $2.148 trillion
Reg A 2024 – $896 million
Reg CF 2024 – $179 million.
Reg D is very difficult to estimate, as filing requirements do not compel an issuer to post its final funding amount.
Reg A funding amounts are gleaned from other SEC filings. The exemption peaked in 2022 when issuers raised $1.846 billion.
Reg CF amounts are taken from Form C-U and may underestimate the total raised, but DERA reports the exemption peaked in 2022 when $329 million was raised.
All venture markets have been subdued in recent years due to the challenging market and heightened inflation concerns. Private securities offerings fuel entrepreneurship and innovation. This leads to more jobs and wealth creation. Access to capital is one reason the US is a leader in global innovation.
Reg D is a huge market, and the simplicity of its reporting requirements is one of the reasons private markets have performed well in the US.
Reg A and Reg CF are newer and still very much evolving. Funding caps on the exemption limit the viability of these offerings. There is legislation in the works that could help boost these markets.
One change that may occur later this year is an update to the Definition of an Accredited Investor. An update that eliminates the current discriminatory definition, based on a wealth metric, could open up activity to a broader pool of investors, not just the very wealthy.
