Advertised Private Placements – Insight from the Form D Data on 506(c) offerings

Now that it has been over two months since Rule 506(c) has been enacted allowing for advertised private placements to accredited investors, we at CrowdInspect wanted to explore what insights can be learned from these equity raises so far.  The current rules provide that any issuer relying on 506(c) must file a Form D notice filing within 15 days after the first sale of securities in the offering.  As of December 4th, there were 512 Form D filings made where the issuer indicated that they were relying on Rule 506(c). To put this into context during this same period 5,500 filings were made using the 506(b) exclusion.  Focusing just on the 506(c) Form D filings, here are some of our findings:

  • 60% are offering an equity security and 19% are offering a debt security.
  • 79% of the issuers were formed in the last five years.
  • 37% of the issuers have not made their first equity sale yet.
  • 24% of the issuers categorize themselves as some sort of pooled investment fund (i.e. hedge fund, private equity fund).
  • 10% of the offerings include non-accredited investors (for a total of 109 non-accredited investors).
  • There are roughly nine 506(c) filings by issuers each day.
  • 6,825 investors to date have participated in these offerings!

Percentage of 506(c) issuers by industry group

506(c) minimum investment amount
A closer look at the distribution of 506(c) issuers by industry group identifies concentrations in Pooled Investment Funds, Real Estate, and Technology.

A review of the minimum investment amount that issuers are requiring shows that 38% of the issuers are allowing a minimum investment of $25k or less.  On the other end of the spectrum, 13% of issuers are requiring a minimum investment of greater than $100k.

Looking at the breakdown of Issuers by state, not surprised to see that most issuers are based in California.  New York and Texas are second and third respectively.

States with most 506(c) Issuers

We will continue to review this data and issue regular reports updating our analysis.   In addition, if there are any questions or trends that you would like us to explore please do not hesitate to reach out to us at Info@crowdinspect.com.

 

Who Qualifies As An Accredited Investor And Why It REALLY MATTERS NOW!

Openinng doorNow that the SEC has removed the ban on advertising private placements (effective September 23rd) people will soon be exposed to this new breed of advertised investment opportunity.  This will cause many people to question, can I participate in this investment.  The answer to that question will depend on whether they are an ‘Accredited Investor’ as that term is defined by the Securities and Exchange Act.

For a natural person an ‘Accredited Investor’ must meet one of the following criteria: 1) a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; 2) a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;

For additional information on the definition of Accredited Investor visit www.sec.gov/answers/accred.htm.

New Rules Allow For Advertising Of Private Placements

Sept23On September 23rd the ban on advertising private placements will be lifted allowing accredited investors throughout the country increased access to private placement opportunities.  From this day forward start-ups, private equity funds and hedge funds will have the option to advertise their offerings under 506(c) which we predict will increase both access and transparency to a range of investments. This is truly a monumental day for both accredited investors seeking alternative investment opportunities as well as real estate entrepreneurs, start-ups and funds searching for new investors.

Here at CrowdMason we are thrilled with this new development and are working with start-up and fund clients to assist them in bringing to market offerings under these new rules.

Mark your calendar for September 23rd, equity raising as we know it will be changed.