The two-year-old Jumpstart Our Business Startups (JOBS) Act was supposed to make it easier to raise capital as it relaxed SEC rules on solicitation. The idea was that smaller enterprises could access a wider circle of financing, including the crowdfunding platforms. So what’s happened? Crowdnetic uncovered some surprising results.
Signed in April, 2012, the JOBS Act required the SEC to lift its prohibition on general solicitation, provided that all purchasers of securities are accredited investors and that issuers take certain steps to verify investor accreditation.
Last September, the JOBS Act resulted in an amendment of Rule 506(c) of Regulation D under the Securities Act, creating exemptions that permitted issuers of securities to raise capital without an SEC registration. This is known as Title II of the JOBS Act.
In the 10 months since Title II went into effect, Crowdnetic has been collecting market data on private issuers publicly raising investment, or PIPRs.
PIPRs are playing
Data from 4,093 PIPRs (“Private Issuers Publicly Raising”) were aggregated and normalized from intermediary platforms, including AngelList, EarlyShares, EquityNet, Crowdfunder, Patch of Land, Realty Mogul, Alchemy Global, MicroVentures, Return On Change, SeedInvest, and Wefunder.
Crowdnetic’s four industry reports to date analyze data by sector, industry, geographic distribution, recorded capital commitments and capital structure, among other characteristics.
They include special sections on women-owned and led companies, Form D filings, and data analysis by state. The findings indicate that there has been a steady upward trend of PIPR activity over the past eight months.
Since Title II went into effect last September, Rule 506(c) offerings have occurred in all 50 states, across all sectors, and in most major industries.
According to a special report released on June 12 by Crowdnetic, of the 4,093 PIPRs surveyed, 3,256 were still active as of May 31, 2014. These active PIPRs raised a combined total of $150.6 million.
Accounting for PIPRs that have secured capital commitments, the average raised across all sectors is $315,826.
Crowdfunding is clearly in play, with capital derived from a large crowd of individual investors as opposed to big institutions and government entities.
The flow of capital is becoming increasingly more democratized through rising asset classes such as peer-to-peer and peer-to-business lending as well as equity crowdfunding.
As seen in the chart below, the services and technology sectors continue to garner the largest share of capital commitments, accounting for 33.6% and 24.7%, respectively, across all sectors.
Sector melodies
Services and technology also drew the highest number of PIPRs, with 1,395 (42.8%) and 1,042 (32.0%), respectively, of the aggregate total.
The financial sector rounds out the top three, with 18.6% of total capital commitments. Note that this amount was generated by just 5.8% of PIPRs, showing the significantly higher per-issuer capital commitment amounts consistently achieved by PIPRs in the financial sector. The same trend was seen at the close of the previous quarter.
The chart below shows that real estate achieved two of the top three industry positions, compiled and ranked according to recorded capital commitments. This is consistent with results from the first quarter of 2014.
Developing the theme
Real estate development figures were buoyed by one private real estate investment fund from San Mateo, Calif. that was listed four months ago and has received commitments of $12 million. E-commerce also maintained its position in the second highest spot, with $7.3 million in capital commitments.
The chart below shows that five states dominate in the number of PIPRs and recorded capital commitments—California, Texas, New York, Florida and Illinois.
Tunes by state
California leaped far ahead in the number of PIPRs as well as amount of recorded capital committed, outpacing Texas, New York, Florida and Illinois combined. This is particularly impressive given that the four other states also posted strong numbers during the previous eight months. California benefits from a large population and the well-established entrepreneurial culture of the San Francisco Bay and Silicon Valley area, which attract start-ups and account for a significant percentage of the California statewide figures.
Previous reports released by Crowdnetic display a steady progression in PIPR activity since the implementation of Title II, and this one follows the same trend.
Click here to access a list of Crowdnetic’s PIPR reports, available for purchase.
Join us in New York on Oct. 16, 2014 for Wall Street’s second annual Crowdfinance Conference, where financial veterans and industry leaders will provide participants with the resources necessary to capitalize in a financial services industry undergoing rapid transformation.
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