[co-author: Carlos Juarez]*
On May 28, 2025, the U.S. Securities and Exchange Commission (the “SEC”) released several reports produced by its Division of Economic and Risk Analysis (“DERA”) detailing data and statistics regarding the use of the exemptions from Securities Act registration provided by Regulation A and Regulation Crowdfunding, or Regulation CF. Regulation A consists of two offering tiers: Tier 1 permits issuers to raise up to $20 million in any 12-month period, while the offering cap for Tier 2 offerings is $75 million in the same time period. Tier 2 offerings are subject to more stringent financial statement requirements, as well as more fulsome ongoing reporting requirements than Tier 1 offerings. However, securities sold in these offerings are “preempted” from state blue sky regulations, while those sold in Tier 1 offerings are not. Regulation CF caps offering proceeds at $5 million in any 12-month period. Securities must be sold through intermediaries, such as a broker-dealer or funding portal. In their reports, DERA identified key characteristics of offerings and issuers utilizing both exemptions, as outlined below.
Regulation A
In the ten-year period between adoption of amendments to Regulation A (sometimes referred to as “Regulation A+”) on June 19, 2015, and December 31, 2024, DERA found that there were more than 1,400 offerings conducted in reliance on the exemption, seeking to raise an aggregate of more than $28 billion in capital. During that time, approximately $9.4 billion in proceeds was reported by an aggregate of more than 800 issuers, with Tier 2 offerings raising, on average, $12.5 million. DERA noted the substantial discrepancy between the amount sought and both the total proceeds reported and the $75 million offering cap, and theorized as to the following possible causes: (i) the high frequency of best-efforts offerings, where there is no guarantee that any securities will be sold, (ii) the commonality of self-underwritten offerings and (iii) an overall lack of institutional investor participation and research coverage.
DERA found that Tier 2 offerings accounted for the vast majority of proceeds raised in Regulation A offerings, raising over 95% of reported proceeds, despite the higher compliance and reporting costs associated with these offerings. This is possibly due to the higher offering cap and preemption of state blue sky laws.
DERA also analyzed issuers utilizing Regulation A, finding that a typical Regulation A issuer is generally a small, young company, without an established record of profitability. Fewer than 20% of such issuers had filed registration statements under the Securities Act at any point, while a similar percentage filed reports under the Exchange Act at some time. In other words, Regulation A issuers are generally not reporting companies, perhaps supporting the idea that such companies are indeed smaller and less established. Additionally, the overwhelming majority of offerings were from unlisted issuers, although about 25% of offerings were conducted by OTC-quoted issuers (generally lower OTC Market tiers).
Overall, issuers that most successfully raised capital in reliance on the exemption (defined by DERA as having reported at least $1 million in overall proceeds as of December 31, 2024, constituting slightly more than half of the issuers in DERA’s sample) were generally larger companies (measured by total assets) that exhibited greater reliance on testing the waters and the use of intermediaries, although it is not clear that these characteristics actually impacted offering outcomes. DERA also found significant industry concentration, with financial sector issuers seeking approximately 46% of aggregate financing and 64% of reported proceeds. Business service-focused issuers and real estate companies, including REITs, also reported high amounts of capital sought and raised.
Regulation Crowdfunding
Based on DERA’s findings, between May 16, 2016 (the effective date of Reg CF) and December 31, 2024, there were approximately 8,500 crowdfunding offerings initiated by around 7,000 issuers, seeking between a minimum aggregate amount of approximately $560 million and a maximum aggregate amount of around $8.4 billion in capital. Overall, issuers reported approximately $1.3 billion in proceeds across around 4,000 offerings (likely a low estimate of the amount of capital actually raised due to variations in Form C-U filing practices). The average successful offering reported raising approximately $346,000, which, similar to offerings under Regulation A, is far below the offering cap of $5 million. The amount of capital sought is based on minimum target offering amounts disclosed by issuers in Form Cs filed with the SEC at commencement of the relevant offerings. Most offerings were structured with a minimum-maximum format and accepted oversubscriptions.
DERA also analyzed the types of issuers conducting Regulation CF offerings. The median issuer had approximately $80,000 in total assets, median revenue of $10,000 and employed three people. While most issuers had some assets and revenue at the time of the offering, the vast majority had not recorded a net profit. Like Regulation A issuers, most crowdfunding issuers were new to the capital markets, although approximately 20% of offerings involved issuers that had previously conducted a Regulation D offering. Further supporting the idea that Regulation CF issuers are early stage companies is the fact that only eight issuers (0.25%) that reported proceeds on Form C-U during this period conducted an initial public offering, or IPO. Issuers that successfully raised capital tend to be older, larger and more established, with higher revenues and more assets and employees. Offerings with reported proceeds also had shorter average durations and were perhaps less likely to have offering deadlines extended (potentially reflecting that less successful offerings were more likely to have their deadlines extended).
As of the end of 2024, there were 83 funding portals registered with the SEC and FINRA. The five largest intermediaries, based on the number of offerings, accounted for approximately 70% of initiated offerings and approximately 75% of offerings reporting proceeds, reflecting significant market concentration.
Read DERA’s report on Regulation A here and the report on Regulation CF here.
*Practice Administrator
[View source.]
