Regulation Crowdfunding, the law that ushered in mainstream crowdinvesting, turns three today. And while it might not be growing by audacious leaps and bounds, it’s not a slacker, by any means.
Regulation Crowdfunding, a centerpiece of the 2012 JOBS Act also known as Title III, allows small businesses and startups to raise up to $1.07 million from everyday investors. Before the JOBS Act, such investment was generally limited to wealthy “angel” investors, with a few exceptions. Since the law went into effect on May 16, 2016, 1,688 separate investment crowdfunding campaigns have been launched—with 778 of those taking place in the last 12 months.
More than 243,000 individual investors have been moved to invest close to $230 million into these ventures, according to Crowdfund Capital Advisors (CCA). By comparison, there are roughly 300,000 active angel investors in the U.S. The actual amount invested is less, as only campaigns that successfully reach their minimum funding target receive the funds. Roughly 60% of investment crowdfunding campaigns are successful.
The average amount raised by a business via Regulation Crowdfunding to date is $221,000, slightly down from last year’s average of $246,000. California leads in activity, both in number of deals and amount raised, followed by New York, Texas, Florida and Colorado. All but three states—North Dakota, Kansas and Nebraska—had Reg CF offerings.
CCA estimates the Reg CF has supported more than 9,000 jobs to date.
Fulfilling its Potential
Still, some lament that Reg CF, as its called for short, hasn’t lived up to the expectations many had in 2012, when the nation was still recovering from the financial crisis and there was pent up demand to move money from Wall Street to Main Street.
Collectively, Americans have $22 trillion in corporate stocks and bonds, according to a recent Fed report, and another $26 trillion in retirement accounts. If just 1% of that was shifted to Main Street businesses, that would be $480 billion—with a B—for the small businesses and startups that energize the economy and might otherwise not get funding from traditional sources.
“The Reg CF market should continue to grow each year,” predicted Ryan Feit, the founder and CEO of New York-based SeedInvest, one of the more prominent investment crowdfunding sites. However, startups and funding portals are currently constrained by the $1.07 million limit on capital raises, he said. “In order for it to truly scale, we need to increase the cap.” Thousands of people have signed a petition started by SeedInvest to raise the limit.
Other provisions of the JOBS Act, such as Regulation A (Title IV) and Regulation D 506c (Title II) allow for larger amounts to be raised, but at more cost for issuers, in the case of Reg A, or restricted to wealthy investors in the case of Reg D. Others say the problem lies with stringent caps on individual investments, including by accredited investors, under Regulation Crowdfunding.
Advocates have also lobbied for more flexibility for funding portals to “curate” companies that list on their sites (right now only broker-dealers can do that) and to group crowd investors into a single entity. Bills to address these perceived flaws have been kicking around Congress, but have not been a top priority.
Women and Mom & Pops
Still, there continue to be new entrants attracted to the investment crowdfunding space. There are now 43 funding portals currently regulated by FINRA and the SEC, up from 41 last year. […]
The full and original article can be viewed on Locavesting.com
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