Wealthy investors continue to pour money into crowdfunded securities, with capital commitments for Title II offerings rising nearly 18 percent in the second quarter of 2015. The number of deals grew more slowly though, at just under 5 percent, as companies assessed a shifting regulatory landscape. Investors are gobbling up technology, services and real estate offerings, and they prefer equity over other forms of securities.
Those are among the findings of the latest report by Crowdnetic, which has been tracking what it calls “private companies publicly raising” since September 2013, when Title II of The JOBS Act went into effect. That law created a new rule under the existing Regulation D exemption. Called Rule 506(c), it allows private companies to publicly market their equity and debt offerings (although only wealthy, or “accredited” investors can buy them). Previously, public solicitation was prohibited.
To date, 5,878 companies have received $765.15 million in capital commitments through Title II offerings, according to Crowdnetic.
That pales in comparison to conventional private placements under other Regulation D rules, which numbered more than 18,000 and raked in more than $900 billion in 2012. But public offerings of private companies under Reg D have been legal for less than two years, so the market is still very young.
Fringe No More
Overall, the report paints a picture of continued momentum. “What was disregarded by some as a fringe industry has proven itself to be a viable and beneficial part of the capital raising process,” the authors write.
And the market for these public-private hybrid investments could soon take flight.
In June, another option became available to companies seeking funding: Title IV of the JOBS Act, or Regulation A+. Often called the mini-IPO, Regulation A has always allowed companies to publicize their offerings and sell to the general public. But under the revised Reg A+, the amount they can raise has been increased to $50 million from $5 million.
There are other advantages. Under Reg A+, companies can “test the waters” before they decide to go ahead with an offering, and those raising more than $20 million can bypass the state-by-state review process.
The timing of Regulation A+ may account for the slower growth in the overall number of deals tracked by Crowdnetic, as the market sorted out details of this new option. Reg A+ deals will likely show up in the company’s next quarterly report in the fall.
The quarterly snapshot, culled from 18 leading crowdfunding platforms, gives an indication of what kind of deals are attracting investors, and where.
The Services and Technology sectors continue to lead in terms of the number of offerings. However the Financial sector grabbed the lion’s share of capital commitments. The Financial sector also had one of the highest success rates: 223 finance companies successfully completed their raises, or 40% of the sector. (Active campaigns are also included in the study).
The Finance sector performance was driven by strong interest in real estate, with $154 million being raised for real estate investment and development—more than all other industries combined. (Sectors are broken down into industries). Wearables, a newly added category, also made the top 10.
Geographically, California, particularly the San Francisco/Silicon Valley area, continues to lead with 1,740 offerings to date, almost three times as many as #2 New York.
Equity offerings have outpaced other security types, both in the amount of capital commitments and number of offerings, followed by convertible debt. The recently added real estate category now comprises 7% ($55 million) of capital commitments, while still only accounting for 1% of the number of offerings. The other newly-added category, SAFE (“Simple Agreement for Future Equity”) a simplified structure structure created by Y-Combinator as an alternative to convertible notes, has been used in 12 offerings which have collectively received $400,000 in capital commitments. Revenue sharing deals remain scarce.
You can view the full report here.
Entrepreneurs, learn about your crowdfunding options here.