Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Reg CF Update: Interview with Sherwood Neiss on Investment Crowdfunding
Crowdfund Insider | | Aug 3, 2021
Reg CF was bumped up to $5 million
in March. We quickly saw issuers jump in to raise more than the prior funding cap of $1.07 million. Are you surprised as to how the market reacted to the improved environment?
Woodie Neiss: I’m not. If you study capital formation like we do and interview issuers you constantly hear of the challenges related to access to capital. This particularly affects women and people of color (POC). In our last report we interviewed issuers that had raised over $1 million and we found that 40% of them were run by women and POCThose that are most negatively impacted have to find alternatives and Reg CF is clearly one of them.
See: European Government Funds May Get Distributed by European Crowdfunding Platforms
We knew when we created this framework that the $1 million cap was the starting point for the industry. We needed to get everyone comfortable with online capital formation, show them how investors are protected through the system and have data to back it up. We also knew that the $1 million cap was insufficient for many hyper growth startups and small/medium businesses. So when the cap was increased it only made sense that those issuers who needed more capital or those minority entrepreneurs that are shunned by the traditional capital markets would turn to Reg CF as their solution.
What are your expectations for the rest of 2021? Are specific industries using CF more than others? Is it more consumer-focused offerings?
Woodie Neiss: I think we will continue to see more issuers enter the space. I also believe we will start to see our first exits from the industry. With 5 years of successful growth by many early issuers, the time is approaching for us to see some of them get acquired. Outside of that, we’ve seen a huge explosion in Software Applications, Internet Connection & Information, Agriculture, Manufacturing, Electric Gaming, Specialty Finance, and Recreational Vehicles. I have to be honest, when we went to Washington with the framework for Reg CF I never would have thought there would have been over 450 industries represented in the data.
See: Doug Ellenoff on US Reg CF Increasing Issuer Caps to $5 million: Investment Crowdfunding Will Challenge Traditional Venture Capital
To see traditional ones like Agriculture, Manufacturing, and Finance be at the top proves that Reg CF wasn’t built for only Main Street but Startups that will change the way we live our lives because I’m seeing companies that may disrupt industries across the board being funded. I would agree, most of these offerings have products or services that target consumers and will benefit them via market efficiencies (software to increase personal savings), technology advances (better ways to build), and better information (healthcare technology to improve patient outcomes).
Does your data show improving geographic distribution of access to capital? What about underserved markets?
Woodie Neiss: I created a set of data to include Silicon Valley, San Francisco/Marin, Manhattan, Boston, Cambridge, and inner suburbs. According to Bloomberg, these represent the leading areas for Venture Capital deals. Then I compared this to the overall dataset and this is what I found. 92.4% of all Reg CF offerings took place outside of the dataset. So obviously, the biggest benefactors of Reg CF are issuers outside of areas where VCs deploy capital. If VCs aren’t going to do it (mainly because they only invest within a 2-hour drive of their office), someone else has to. Interestingly, the success rate for issuers within Silicon Valley was only 4% greater than those outside. There were 32 cities represented in the Silicon Valley dataset. There were 1,175 represented outside of that. By charting offerings and investments by file date, I can see the amount of capital increasing dramatically in areas outside of the Silicon Valley dataset.
See: GOOD NEWS: Canadian securities regulators adopt new nationally harmonized start-up crowdfunding rules
And yes, underserved markets are big beneficiaries. We ran a study on the impact of Reg CF in Rep Maxine Waters (CA-D) District. Her district is overwhelmingly underserved in many different aspects. We were able to see how Reg CF is serving entrepreneurs right in her own backyard by highlighting success stories. This is what should be driving policy in Washington, DC, and seeing that the JOBS Act was one of the most bi-partisan pieces of legislation when it passed, it only makes sense to bring further attention to it as a viable source of capital for underserved communities!
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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