One Year of Equity Crowdfunding: Initial Market Developments and Trends

Apr092018

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Crowdfunding

On May 16, 2016, the U.S. Securities and Exchange Commission’s new investment crowdfunding rule, Regulation Crowdfunding (Regulation CF), went into effect, marking an important step in the federal government embracing financial technology (FinTech) to increase access to capital for small businesses. Regulation Crowdfunding enabled small businesses to raise up to $1,000,000 annually by offering and selling securities through internet-based crowdfunding campaigns.

This issue brief analyzes all crowdfunding filings made pursuant to Regulation CF during the first year of activity (May 16, 2016 – May 16, 2017). It highlights key attributes of the firms that have attempted to raise capital through this financing method, including firm location, legal structure, age, employment, and gender. This analysis also describes trends among the online intermediaries responsible for hosting the campaigns as well as transactional characteristics, such as the type of securities offered and the amount of capital sought and raised. The paper concludes with a discussion of policy implications for small businesses seeking capital through crowdfunding and other innovative financing methods.

Key Findings

Mandated under Title III of the Jumpstart Our Business Startups (JOBS) Act, Regulation Crowdfunding was designed to provide smaller businesses and startups with an innovative method of raising capital while still balancing investor protections. This study analyzes U.S. Securities and Exchange Commission (SEC) crowdfunding filing data from May 16, 2016, to May 16, 20173 to shed light on initial market trends and small business uptake during the first year of this new capital raising mechanism becoming available. Key findings are highlighted below.

  • A total of 326 businesses attempted to raise capital through equity crowdfunding campaigns during the first twelve months of Regulation Crowdfunding taking effect. 17 businesses conducted more than one crowdfunding campaign, producing a total of 343 filings between May 16, 2016, and May 16, 2017.
  • In aggregate, crowdfunding firms raised investments totaling more than $30 million dollars during this one year period.
  • Crowdfunding firms reported employing a total of 1,574 people, with an average of five employees per firm.
  • About 83 percent of crowdfunding businesses listed a male as the issuer’s signing executive (with titles such as “Chief Executive Officer,” “Founder,” and “President”). 56 firms (17 percent) listed a female signing executive on their crowdfunding filing.
  • 43 percent of crowdfunding businesses were as young as one-year-old when they filed paperwork to initiate a crowdfunding campaign, and 88 percent were five years or younger

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Last updated: 04/09/2018 - 1:06pm