At the end of February 2017, the Securities and Exchange Commission (SEC) published a white paper studying crowdfunded offerings from May to November 2016. The report highlighted that during these first six months following the effective date of Regulation Crowdfunding, the fundraising method was attracting many issuers that had not extensively raised money before. The white paper also makes the following observations:
- There were 163 separate offerings by 156 issuers, seeking a total of approximately $18 million. The average offering amount was approximately $110,000, however, including oversubscriptions (typically close to $1 million) the total amount was approximately $101 million.
- As of January 15, 2017, approximately $10 million was raised in 33 offerings by issuers. The median amount raised in these offerings was $171,000 and the average amount raised was approximately $303,000.
- For offerings initiated in 2016, 24 were withdrawn by issuers or associated with an intermediary whose FINRA membership was terminated and funding portal registration withdrawn. These offerings sought a total of approximately $2.3 million (approximately $19.5 million if oversubscriptions are included).
- Most of the offerings solicited in all states.
- The most popular type of security was equity, followed by “simple agreements for future equity” and debt.
- The most popular state of incorporation for issuers was Delaware and the most popular principal place of business for issuers was California.
- The median issuer had under $50,000 in assets, under $5,000 in cash, $10,000 in debt, no revenues, and three employees. Approximately 40% of the issuers reported positive revenue and approximately 9% of the issuers reported a net profit in the most recent fiscal year. Among the issuers that reported non-zero assets in the prior fiscal year, the median growth rate was approximately 15%.
- 21 intermediaries, including 13 funding portals and 8 broker-dealers, were involved in the offerings. As of December 31, 2016, 21 funding portals have registered with the SEC and FINRA and one funding portal had its FINRA membership terminated and withdrew its SEC registration. The median intermediary percentage fee was 5%, and intermediaries took a financial interest in the issuer in approximately 16% of the offerings.
Crowdfunding continues to grow and be used as a viable way to raise early stage capital. We expect this trend to continue, despite some challenges and are excited to work with companies and portals.