The U.S. Securities and Exchange Commission (SEC) has released new data highlighting the state of equity crowdfunding and Regulation A (also known as Reg A) offerings. These two fundraising methods were introduced and expanded under the 2012 JOBS Act with the goal of giving startups and smaller businesses new ways to access capital. A decade later, the SEC’s findings suggest these tools are still developing slowly, raising questions about whether regulatory changes might be on the horizon.
Who Uses These Options, and What Do They Involve?
Equity crowdfunding and Reg A are intended to provide alternatives to more traditional methods of raising money, especially for early-stage businesses that can’t afford the costs of a full securities registration. Crowdfunding enables companies to raise as much as $5 million annually through online platforms, usually with fewer regulatory requirements. Reg A allows for larger offerings—up to $75 million each year—with a streamlined filing process compared to a standard initial public offering.
From 2015 to the present, Reg A has been used in 817 offerings, raising a total of $9.4 billion, while equity crowdfunding has seen 3,869 offerings bring in about $1.3 billion. However, most of these fundraising rounds fall well short of their maximum allowed amounts. The SEC notes that many of the businesses using these tools are small, lack profits, and often do not attract attention from professional investors or underwriters.
When and Where Has Activity Shifted?
Both Reg A and crowdfunding saw consistent growth until 2022, but activity has since declined. This slowdown followed a spike in 2021, which some regulators attribute to increased fundraising limits that year. Offerings tend to be conducted online, bypassing traditional capital markets and institutional investor channels, which may explain the challenges in reaching funding goals.
Notably, many Reg A campaigns rely on a “best efforts” model, meaning there’s no guarantee all shares will be sold. Without committed underwriters or analyst coverage, companies struggle to build awareness and credibility—factors that typically help with investor interest. Only a small percentage of Reg A issuers have gone public; for example, Newsmax Inc. raised $75 million and listed on the NYSE, but this is an outlier.
What Can Be Learned From the SEC’s Findings?
The SEC’s latest updates suggest that while equity crowdfunding and Reg A have opened doors for smaller issuers, significant barriers still limit their effectiveness. Low liquidity, limited investor interest, and funding caps continue to restrict growth. Some legal professionals and policymakers believe that reforms—such as increasing offering limits or relaxing the definition of accredited investors—could help more companies benefit from these programs.
That said, any move to loosen rules will likely face debate, especially regarding investor protections. SEC Commissioner Mark Uyeda has publicly supported reevaluating certain limits, while others on the Commission express concern about weakening oversight.
For law firms working with startups or emerging companies, understanding these funding mechanisms and how they may evolve is crucial. Equity crowdfunding and Reg A can be viable alternatives to more complex capital-raising methods, but businesses need careful legal and strategic guidance to make the most of them under current regulations.