$1.8 Trillion Raised Via Regulation D Offering in 2017
In August, the Securities and Exchange Commission (“SEC”) issued its annual survey and statistical research regarding Regulation D. The annual report is compiled by the SEC’s Division of Economic and Risk Analysis (“DERA”) and this report provides data regarding unregistered securities offerings through the end of 2017. See PDF of report here.
The highlights of the report are very interesting. Of particular note, $1.8 trillion — yes, with a “T” — in funding was raised through Regulation D offerings. This was substantially higher than the $1.5 trillion raised in public offerings. According to the 2017 DERA report, more than $3 trillion was raised in unregistered securities transactions in 2017 ($1.8 trillion being Regulation D offerings). Here is a quick rundown of the major findings:
- In 2017, there were 37,785 Regulation D offerings reported on Form D filings
- About 398,000 investors participated in Regulation D offerings in 2017
- 91% of the investors were “accredited” investors; only 9% were non-accredited
- Most of the Regulation D offerings were made by non-financial issuers
- The median size of the non-financial offerings was less than $1 million — which, according to the Report was “… consistent with the original intent of Regulation D to target the capital needs of small-to-medium sized” firms
- 22% of the total raised were by foreign-based issuers mostly from the UK, Cayman Islands, and Canada
- Filings under Rules 506(b) and 506(c) accounted for nearly all of the capital raised and sold through Regulation D
- 93% of the Regulation D capital raised was from offerings with a maximum of $1 million
- 98% of the capital raised was less than $5 million — the limit under amended Rule 504; this suggests offerors prefer Rule 506 over the new 504 or, alternatively, that small capital raises are preferred
- The elimination of the ban on general solicitations under amended Rule 506(c) did not see a significant uptick in subsection (c) offerings/sales (only 4% were offered under subsection (c))
- Market success is positively correlated with Regulation D capital raises
- Success of firms that raise capital through Regulation D is also positively correlated with larger market trends — that is, the strength of the unregistered market is closely tied to the strength of the economy in general
San Diego Corporate Law: What is Regulation D?
Regulation D is a set of rules that allow for businesses to raise small amounts of capital — under $5 million — without the full registration and reporting requirements normally required by federal and California securities laws. In general, if you are offering or selling securities, you must register the securities with the SEC before offering them for sale. Failure to do so can result in civil and criminal penalties. There is a tremendous amount of paperwork involved and, as such, registering is very expensive.
Regulation D was established to help small firms and businesses raise capital through a more streamlined process. The cost of full registration is too high for small startups. Thus, Regulation D allows the private placement of securities with a minimal number of filings. Regulation D requires some filings and a good amount of information must still be disclosed to investors. But these are much less than full registration. There are also limits on the amount that can be raised, who may invest — these are the “accredited investors” — limits on how many investors, limits and rules on general solicitation of investors, and many other specific requirements under Regulation D. If you are a small to medium-sized business wanting to raise capital, you need to retain an experienced Regulation D attorney.
Contact San Diego Corporate Law
If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides legal services related to business law, private securities offerings/sales, the sale/purchase of a business, and mergers and acquisitions. Mr. Leonard has been named a “Rising Star” by SuperLawyers.com for four years running. Mr. Leonard can be reached at (858) 483-9200 or via email.