We are now in 2019, the fourth full year equity crowdfunding has been in existence. Looking back, many, including myself expected 2018 to be a breakout year…unfortunately that wasn’t exactly the case. As I described in an earlier blog, tokenized securities fueled by the Bitcoin and Ether craze created a fervor in the Reg A+ industry. Unfortunately, or fortunately depending on how you look at it, the SEC was not as enthusiastic, and anyone filing for a tokenized security got a heavy dose of regulatory reality. To date, no tokenized security Reg A+ has been qualified.
So, we continue to ask, what does the next year and next five years have in store for the equity crowdfunding industry, and more specifically Reg A+? My initial estimate was, it would take five years for the industry to pick up enough steam to become a more mainstream option, but one significant change is now in play, public companies will now be included in future Reg A+ filings.
Before we make predictions for 2019, let’s take a look back into the usage of Reg A+ in 2018 compared to prior years. The below information contains basic statistics found by downloading the historical data of all Reg A+ filings, then dissecting that data to get meaningful information, based only on the original filings rather than amendments. I cannot provide assurance that the information is complete or 100% accurate because each company may have multiple amendments that change information significantly, but I believe it to be reasonably reliable.
During 2018, 2017, 2016, and 2015, there were about 92, 87, 74, and 29 Regulation A+ (Tier 2) filings. The aggregate maximum raises of those offerings based on the original filings for 2018, 2017, 2016, and 2015 was approximately $2.3B, (yes billion) $2.4B $1.6B, and $860M respectively. While there was good growth in the first few years, 2018 was a relatively flat year and even though there were more filings, the total max raise was actually lower; indicating a lower per raise maximum. While real estate was still the predominate industry in 2018, the overall mix of companies was very diverse compared to prior years and there was a significant decline in financial services related companies.
In terms of states where the most activity is coming from during 2015 – 2018, the obvious states are there: California leading the way with 26% of all filings, followed by Florida 14%, New York 8%, and Texas 7%; all other states and districts are below 5%. Only 32 of the 50 States have a Company which has filed a Reg A+, plus DC and two districts in Canada.
In terms of service providers, based on public information (and it should be noted 17% of all filing information downloaded did not provide the necessary information), there are 5 law firms that worked on a healthy number of the filings making up nearly 17% of all filings, including CrowdCheck leading the way with more than double the nearest other firm.
For CPA firms there are 4 firms that make up nearly 26% of all Reg A+ filings; including dbbmckennon leading the way for CPA firms. dbbmckennon , along with one other firm made up over 8% of all filings each. Surprisingly, there is not one Big 4 firm that cracks the top 10 in number of Reg A+ filings. In 2018, dbbmckennon participated in almost double the number of issuer offerings with ten (11% of all filings in 2018), compared to the next closest firm.
Let’s see how 2018 predictions did:
Broker-dealer involvement will double – This didn’t come to fruition, mostly because of the Long Fin debacle which scared away the BD industry and made NASDAQ and NYSE think more about the Reg A+ companies they were allowing to list.
The $50M ceiling will be hit – This did not come true.
ICOs will be hot – This was true, but no tokenized security was approved in a Reg A+. Lots tried and/or contemplated. None were successful, but for a while, it was all anyone was talking about.
Regional brands going national – Although there was nothing high profile there are some of these in the works.
Filings will increase (predicted over 150) – These did increase but not as much as expected due to the issues with the crypto related efforts.
Now for 2019 Predictions
Public companies come online – Public companies will soon have Reg A+ available to them, and because they are already meeting reporting requirements, I expect them to utilize Reg A+ as opposed to a more onerous S-1. I believe public companies will play a substantial role for 2019 in Reg A+, although I think it won’t be until late 2019 or 2020 before quality public companies start utilizing this mechanism. I look for these to be about 25% of all new filings in 2019.
Follow on crowdfunding – Look for more companies that raised under Reg CF to utilize Reg A+.
Public company marketing – I wouldn’t be surprised if a public company used this Reg a+ for marketing rather than strictly fund raising. Industries that could utilize this are: food and beverage and retail. This effectively becomes a customer acquisition tool or a loyalty program. Domino’s pizza did a share reward promotion a few years ago.
Issuers will search for ATSs – Issuers want liquidity for their securities, but not many are ready for prime-time; and the prime-time players (Nasdaq and NYSE) no longer want pretenders. The OTC will likely start to get more issuers, but look for companies to seek out ATSs by going through a raise and then tokenizing their security. This is an effort to circumvent the SEC by going through a normal raise and tokenizing the security on the back end after the completion of the Reg A+. Then expect the SEC to not look fondly on that.
Don’t Expect a Significant Increase in Qualified Reg A+ - Any increases we may see will likely be subdued by the January government shutdown which is sure to create some backlog in