$10 Billion Crowdfunding Milestone: Implications for Private Markets
VerifyInvestor.com
In a previous post, we reported that the DERA (the Division of Economic and Risk Analysis of the Securities and Exchange Commission (SEC)) issued a market report providing updated statistics for the calendar year 2024 concerning exempt offerings under Regulation A, Regulation D, and Regulation Crowdfunding (“Regulation CF”).
Just recently, (May 28, 2025), the DERA published three more reports giving information on the capital formation and beneficial ownership of qualifying private funds. The three reports are:
The Analysis of Regulation A Market: A Decade of Regulation A
Analysis of Crowdfunding under the JOBS Act, and
Beneficial Ownership Concentration and Fund Outcomes for Qualifying Hedge Funds.
For purposes of this post, we will focus on only two of those reports: the analysis providing statistics on the use of Regulation A (“Reg. A”) in the past decade to raise capital, and the capital-raising statistics regarding Title III securities-based crowdfunding market (“Regulation Crowdfunding” or “Regulation CF”). There are other regulatory exemptions of note that have been analyzed by the DERA, for example, Rule 506(c) offerings under Regulation D, however, they were not the focus of this most recent statistical compilation.
To compile the reports, the DERA reviewed data for the periods of 2015 to 2024 for Reg. A, and from 2016 to 2024 for Regulation CF.
However, before we delve deeper into the reports, here’s the main takeaway: for the periods reviewed, these capital formation exemptions have allowed issuers to raise more than $10 billion USD in capital.
Now let’s see how the numbers break down.
Summary of the DERA Reports on Regulation A and Regulation CF
Regulation A
We will start with the statistics provided for Reg. A. But first, let’s review what this exemption is all about.
Regulation A was originally adopted in 1936 under the Securities Act of 1933 (“Securities Act”) to provide an exemption from registration for smaller public offerings. In 2015, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) significantly increased the exemption limits (at the time, $5 million USD), by amending the Securities Act to require the SEC to create an exemption for securities offerings of up to $50 million per year. Effective June 19, 2015, Reg. A created two tiers of offerings:
Tier 1, for offerings up to $20 million USD in a 12-month period, and
Tier 2, for offerings up to $50 million USD in a 12-month period.
Reg. A was amended several times after 2015. Most notably, in 2020, when it was amended to increase Tier 2 offerings from $50 million USD to $75 million USD.
So long as offerings meet all of Reg. A’s requirements, including certain investor criteria, and smaller public offerings do not have to be registered with the SEC. Issuers may find that the best way to ensure regulatory compliance with investor criteria is to have prospective investors complete an accredited investor verification form from a reliable third-party verification service.
Each Tier under Reg. A has its reporting requirements.
For Tier 1 offerings, companies have to issue a report on the offering’s final status. However, they don’t have to meet ongoing reporting requirements.
Tier 2 offerings, on the other hand, are required to produce audited financial statements and file continuing reports with the SEC.
Summary of DERA Statistics on Regulation A
According to the DERA report, while the use of Regulation A gained a little traction over time, it is still far less used than Regulation D (“Reg. D”). After Reg. A was amended in 2015 to increase the exemption limits to $50 million USD, (often called “Reg. A+”), it became a bit more popular, but it’s still not used that much — especially when compared to Reg. D.
In presenting its findings, the DERA notes that not all the information is perfectly accurate and cautions that estimates for offering proceeds in particular can be lower than stated. Nevertheless, the report finds that between 2015 to 2024, over 1,400 offerings qualified for Reg. An exemption under both Tiers.
There were only about 800 issuers using Reg. A during the time period analyzed. Although issuers sought an aggregate amount of over $28 billion USD in capital through Reg. A, they reported receiving far less — approximately $9.4 billion USD.
In its analysis, the DERA also looked at the type of issuer who most often uses Reg. A. They found that most of them tend to be smaller, young companies that do not have an established profitability record. They also tend to be non-reporting companies. Fewer than 20% had filed registration statements with the SEC at any point, and the overwhelming amount of Reg. A offerings were from unlisted issuers. About one-quarter of the offerings were from over-the-counter (“OTC”) quoted issuers (generally lower OTC market tiers).
About 95% of all Reg. A offerings involved equity securities, and very few (5%) reported sales by affiliated securities holders. Plus, over one-third of the qualified offerings “tested the waters.” In other words, issuers sent out communications — which the SEC considers an offer of a security — simply to determine if there was any interest in the offer.
It turns out that Tier 2 offerings are more popular than Tier 1 offerings — despite the fact that Tier 2 has greater compliance costs and more investment limitations for non-accredited investors. The report found that:
over 80% of qualified offerings,
over 90% of amounts sought in qualified offerings, and
over 95% of reported proceeds,
were all under Tier 2.
Finally, the report summarized data on the secondary market for Reg. A offerings, finding that for the majority of them, a liquid secondary market did not exist. The report finds that after completing their capital raise, there wasn’t a significant secondary market for their securities. While a small number did move onto higher tiers of the OTC markets or moved onto the stock exchange, the increase was very modest.
Regulation CF (“Regulation Crowdfunding”)
Capital formation is never easy for small and growing businesses. Understanding this, Regulation CF was created by the JOBS Act in 2012 to allow companies and startups to raise capital on the internet through equity crowdfunding platforms. Regulation CF became effective on May 16, 2016. As of 2024, under this exemption, companies can raise an aggregate of $5 million in a 12-month period.
Regulation CF allows non-accredited investors to be part of the capital raise. However, investor criteria for Regulation CF offerings limits how many non-accredited investors may invest within a 12-month period. In addition, companies must meet the SEC’s eligibility requirements and can be disqualified by the rule’s “bad actor” provisions.
Crowdfunding trends include a move towards using crowdfunding platforms to raise capital to fund more socially and environmentally conscious projects. Reports indicate that crowdfunding is growing on a global scale. Technological advancements, such as blockchain and AI (artificial intelligence), are contributing to the growth and popularity of crowdfunding.
Summary of DERA Statistics on Regulation CF
The DERA crowdfunding report points out that the analysis presented concerns securities-based crowdfunding (which we will call “Title III crowdfunding” or “Regulation CF crowdfunding”) and not non-securities-based crowdfunding (for example, donations-based or lending-based crowdfunding). Although the two types of crowdfunding share some similarities, they should not be confused. Regulation CF crowdfunding is subject to regulatory rules and limitations that do not apply to non-securities-based crowdfunding. Therefore, one cannot assume that what applies in non-securities-based crowdfunding will apply to a securities-based, Title III crowdfunding capital raise.
Regulation CF has specific rules that apply to securities-based crowdfunding. It is distinguished from other regulatory exemptions because it involves:
internet-based financing,
the use of intermediaries, and
participation of an unlimited number of non-accredited investors.
The report notes that a decline of 18% occurred between 2023 and 2024 in the number of companies using Regulation CF. Nevertheless, Reg. CF appeared to hold its own in competitive capital markets.
According to the report, between May 16, 2016 (the effective date of Reg. CF) and December 31, 2024, approximately 7,000 issuers initiated 8,500 crowdfunding offerings. The minimum aggregate amount companies sought to raise through these offerings was $560 million USD. The maximum aggregate amount sought was $8.4 billion. In the end, issuers reported receiving about $1.3 billion USD in proceeds from 4,000 offerings. Although it is possible these estimates are a little low, the report indicates that the average successful offering reported raising about $346,000 USD — an amount well below the $5 million USD allowed, but pretty close to that raised through Regulation A.
Regulation CF has gained traction over time, but it is mostly used by small and early-stage companies raising capital for the first time.
Issuers using Reg. CF generally had:
3 employees,
$80,000 USD in assets ($13,000 USD in cash, $60,000 USD in debt), and
$10,000 USD in revenue.
The law requires Title III crowdfunding securities to be offered either through a registered broker-dealer or a funding portal. The DERA report found that, although some registered broker-dealers participated, for the most part, the market was dominated by funding portals. There were a total of 83 funding portals registered with the SEC and FINRA by the end of 2024. Five (5) of the 83 funding portals dominated the market — garnering over half of all Reg. CF offerings.
What All This Means for Startups, Private Investors, and the Future of Capital Formation
Raising capital has always been — and continues to be — difficult for small companies and startups. While challenges certainly remain, the DERA report highlights the way in which the Reg. A and Reg. CF exemptions can assist smaller companies to raise money more cost-effectively.
The $10 billion USD raised by these exemptions between 2015 and 2024 points to a major shift in how startups and small companies access capital — and how private investors can participate in such offerings. Both exemptions provide alternative methods for raising capital, reducing the need to rely on venture capital or angel investors. Having alternatives to the traditional means of raising capital allows companies to be more flexible in the way they structure their offerings and how they raise capital.
Regulation crowdfunding in particular has democratized access to investments for investors. At the same time, because of its ability to make use of the internet, it has expanded the investor pool for small companies and startups.
Another advantage of the crowdfunding exemption is that investors can more easily diversify their portfolios. Because Reg. CF allows investors to make smaller investments, it opens up investing to more retail investors. In addition, it can help issuers build their online reputation and a community.
In a move away from traditional means of raising capital, both Reg. CF and Reg. A give issuers the opportunity to raise capital from accredited and non-accredited investors — broadening the investor pool and allowing greater access to investment opportunities for everyone.
In spite of the challenges presented by fluxuations in the effectiveness of these exemptions and market volatility, both Reg. A and Reg. CF have proven to be resilient. Experts anticipate that these regulatory exemptions will continue to evolve and grow — making it easier for small companies and startups to raise capital.
Whether it is capital formation, 506(c) offerings, crowdfunding trends, investor criteria, investor accreditation forms, or more, understanding the securities laws and their requirements is critical for issuers and investors alike. The securities laws touch on a vast number of financial and investment issues of importance to all investors and issuers. VerifyInvestor.com makes verifying accredited investors easy, cost-effective, secure, and reliable. Our services (which also include qualified purchaser and qualified client verification) are always code-compliant and confidential. We help companies fully and easily comply with their legal obligations to verify accredited investors.