A new report by the US Securities Exchange Commission (SEC) reveals growing interest from companies and investors in equity crowdfunding under Regulation Crowdfunding.
Recently, the SEC published a report on the impact of Regulation Crowdfunding, a crowdfunding exemption that allows companies to raise a maximum of $1.07 million from accredited and non-accredited investors and offer them equity in return. The report revealed that between 2017 and 2018, the number of companies that initiated Regulation Crowdfunding offerings for seed capital funding increased from 292 to 502. In addition, the number of people who invested in successful Regulation Crowdfunding offerings increased from 77,558 to 147,448.
The Small Business Forum, an annual forum that gathers investors, business leaders, and government officials to discuss the challenges of raising seed capital funding, suggests that the number of investors could have been more. For two years, they recommended that the SEC remove investment limits for accredited investors. Accredited investors are individuals who earn an annual income of $200,000 or have a net worth over $1 million. They can invest a maximum of $107,000 over a 12-month period in one or more Regulation Crowdfunding offerings.
The forum highlighted that removing these limits would make Regulation Crowdfunding offerings more attractive to accredited investors and make it easier for companies to raise seed capital funding.
According to Waverly Deutsch, a professor at the University of Chicago Booth School of Business, some analysts project that “equity crowdfunding could surpass venture capital investments in the not-too-distant future.” In total, there are four crowdfunding exemptions with different rules and raise amounts: Regulation Crowdfunding, Regulation D – Rule 506(c), Regulation A+ – Tier 2, and Regulation S. Despite Regulation Crowdfunding allowing the smallest raise amount, “billions more dollars are already pouring into start-ups.”
The report concluded that while there’s growing interest in Regulation Crowdfunding, there’s still low participation from underrepresented companies choosing to raise seed capital funding this way. Some examples include companies operated by female entrepreneurs and companies in rural areas, as opposed to technology and finance hubs.
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