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Assessing the Title III Crowdfunding Market – Ten Weeks Later
Observations about the Title III (Regulation CF) crowdfunding market, ten weeks into the launch of this new asset class.
Assessing the Title III Crowdfunding Market – Ten Weeks Later
Observations about the Title III (Regulation CF) crowdfunding market, 10 weeks into the launch of this new asset class:
Stratifund Rates 55 Crowdfunding Investments
Stratifund currently rates fifty Title III (Regulation CF) offerings and five Title IV (Regulation A+) offerings. Both exemptions, derived from the Jumpstart Our Business Startups Act of 2012, allow all investors, non-accredited as well as accredited, to participate. Stratifund uses a proprietary algorithm, based on five broad criteria, to rate offerings on a scale of 0 to 5.
Who Should Invest in Seed-Stage Companies Under Reg A+?
Nobody, in our opinion, should invest in seed-stage companies that raise capital under Regulation A+. This new securities exemption, based on Title IV of the JOBS Act of 2012, is structured primarily for growth- and later-stage companies.
45 Crowdfunding Deals Rated by Stratifund
Stratifund aggregates and rates Title III (Regulation CF) and Title IV (Regulation A+) crowdfunding offerings, pulling from 9 different funding portals and broker-dealer platforms. Stratifund currently lists 44 Title III offerings and rates 39 of them; and it lists and rates 6 Title IV offerings.
SAFE: Simple Agreement for Future Equity
Y Combinator, a well-known tech accelerator, created the SAFE (simple agreement for future equity) in 2013, and uses it to fund most of the seed-stage startups that participate in its three-month development sessions. With an emphasis on simple, this new equity security works for seed-stage startups.
SAFE Discounts Should Be 50% At Least
The SAFE is like a warrant entitling investors to shares in the company, typically preferred stock, if and when there is a future liquidity event, i.e., if and when the company next raises “priced” equity capital, or is acquired, or files an IPO. Like convertible debt, SAFE deal terms can include valuation caps and share-price discounts, to give early (CF) investors a lower price per share than later (VC) investors or acquirers get for the same equity.
Wefunder Dominates Equity Crowdfunding
When “true” equity crowdfunding launched on May 16, 2016, Wefunder led the new asset class with 10 Title III offerings. Within a few days it added 11 more offerings. No other funding portal that I know of has half as many Title III offerings as Wefunder.
Stratifund Aggregates & Rates Equity Crowdfunding Deals
If you want to exercise your new right to invest in innovative startups and growing small businesses, where will you start — which funding portals will you visit to find the best offerings of private securities? For many people who have little or no experience evaluating angel investment opportunities, the best place to start is a website like Stratifund.
The Basics of Convertible Debt
Many of the companies that sell securities via Title III crowdfunding portals, at least in the first year or two, will be early-stage startups with little or no history of profit or even positive cash flow.
“In many cases, issuers can avoid thorny disagreements over valuation by offering hybrid securities known as convertible notes to crowdfunding investors”…
