The 2012 Jumpstart Our Business Startups (JOBS) Act established provisions that allow early-stage businesses to offer and sell securities to the public with relatively light regulation. Both Regulation A+ and Regulation Crowdfunding help startups crowdfund equity investments from unaccredited and accredited investors.
In recent years, crowdfunding websites like Kickstarter and GoFundMe have become a popular way for people to solicit charitable contributions or raise money for projects. Now, companies can use crowdfunding for a whole new purpose: to offer and sell securities to the investing public. Anyone has the ability to invest in these companies, something that has traditionally been reserved for the elite few. For startups, it provides another fundraising avenue, a benefit particularly for those unable to obtain seed financing from angel or venture capital investors. Though the numbers here are very small compared with the funds received through IPOs and even traditional private offerings, as companies and their attorneys acclimate to the new regulatory environment, these relatively new regulations will likely play an outsize role in companies' future funding plans.
We prepared a detailed report covering equity crowdfunding in the US during the first half of this year. Here is are some brief highlights:
- Between January and June 2017, 309 companies filed forms to conduct new offerings under Regulation A+ or Regulation Crowdfunding. The latter was the more widely used, with 80 percent of those issuers conducting a Regulation Crowdfunding offering.
- Approximately 44 percent of the companies that submitted initial filings under Regulation Crowdfunding were incorporated in the state of Delaware. In contrast, just more than 60 percent of the issuers to conduct a Regulation A+ were incorporated in that state.
- Common stock and debt each accounted for 31 percent of the offerings under Regulation Crowdfunding, while Simple Agreements for Future Equity (SAFEs) were issued in just less than 24 percent of the offerings. Common stock was issued in 81 percent of Regulation A+ offerings, which makes sense since Regulation A+ allows companies to conduct mini initial public offerings (IPOs) and virtually all IPOs are common stock issuances.
To read the full report, click here.
The detailed research can be accessed here.