Reg CF outlook bright amid upcoming SEC turnover
Bye Bye, Gary. Donald Trump’s election means the certain exit of SEC Chair Gary Gensler. The controversial Biden appointee sees the writing on the wall and will reportedly exit by Thanksgiving. Many people will cheer this news. Gensler’s anti-crypto stance chafed the burgeoning community of Web3 entrepreneurs, coders, and wonks. For example, Trump drew raucous cheers at a Bitcoin conference, when he announced he would fire Gensler “on day one.”
Gensler departure means Reg CF outlook bright
But while crypto gets the attention, other parts of the emerging decentralized economy are also cheering new blood at the stodgy commission. Regulation Crowdfunding (Reg CF) got a revamp in the closing days of the first Trump administration. The regulator increased offer limits, increased investor limits, loosened communication rules, and allowed cap-table-friendly special-purpose-vehicles (SPVs). These moves as well as a generally business-friendly administration helped boost Reg CF’s profile and prowess according to Crowdfund Capital Advisors (CCA)—the leading Reg CF data curation outlet:
- From 2016 to 2020, the percentage of successful campaigns grew from 49% to over 70%
- Investor participation also surged, with investor checks increasing from 21,750 in 2016 to 360,702 by 2020
- From 2019 to 2020, the industry saw a jump in total funds raised from $133 million to $247 million, correlating with Trump’s tax policies and deregulation efforts
Of course, some of this surge is due to COVID and investors becoming more comfortable with online investing. Nonetheless, hopes are high for Trump’s second term for Reg CF and investment growth in general.
Industry insiders see bright outlook for Reg CF in second Trump term
When asked about Trump’s second term prominent industry lawyer Doug Ellenoff told Crowdfund Insider:
Obviously, the speed and expressions of change will be determined in part by the specific new replacement [for Gensler], but directionally, I believe that the impact of deregulation will be seismic. . . The activity level of capital formation transactions will accelerate off of a nicely forming 2024 base. I would fully expect broad support for many crowdfunding changes to advance and expand it as a useful marketplace. I would begin to push now.
Among the proposals that may come with the push, CCA suggests increasing the Reg CF offer cap to $20 million. (Good). This would likely toll the death knell for Reg A+ Teir 1, which has a similar cap but forces issuers to deal with shuddersome state regulators.
CCA also suggests creating a $2 billion “co-investment fund” whereby retail investors would invest alongside the government so as to “[mitigate] risk for individual investors.” (Bad). As I have written before this is a terrible idea and the opposite of a deregulatory stance. The government has no business using taxpayer dollars as public venture capitalists. Startups should rise or fall on the benefits they bring to the market, and individuals should not invest money in these relatively risky ventures they can’t afford to lose.
America First for the private capital markets
Overall, however, along with the rest of the capital markets, the Reg CF future looks bright. CCA estimates Reg CF investments could “jump from an estimated $563 million in 2024 to nearly $750 million in 2025.” This would mean more jobs, more innovation, and more robust economic growth. “America First” in the private capital markets looks “Great Again.”
If you’re ready to explore how Reg CF can help your business sign up for a free 30-minute consultation: https://www.thecrowdfundinglawyers.com/cfl-scheduler/
By Jossey PLLC
