Liquidity for the crowdfunding market webinar: key takeaways

By Vanessa Malone

This week, Horizon, Crowdie Advisors and the Crowdfunding Professional Association (CfPA) hosted a webinar to discuss the state of liquidity in the crowdfunding market.

Crowdfunding pioneer and Horizon President, Mark Elenowitz; and JOBS Act lawyer and Crowdie Advisors Principal, Maureen L. Murat, Esq., discussed progress for the crowdfunding industry, the legislation that has created opportunities and roadblocks, and a revolutionary use case aimed at unlocking liquidity in the market.

The webinar is now up on our YouTube channel to watch here. Below please find some key takeaways.

Reg A+ and Reg CF by the numbers

  • $1.3 billion was raised through Reg A+ offerings and $88 million was raised through Reg CF offerings from July 1, 2019 to June 30, 2020.¹
  • Since 2016, over 2600 companies have conducted over 3000 crowdfunding offerings raising an average of $342,000
  • During July and August of 2020, companies raised the same amount of capital using crowdfunding ($48 million) as the first full year (2016–2017) of online fundraising.³

Access to funding

  • Reg A+ and Reg CF gives companies the opportunity to raise meaningful capital from fans, turn them into shareholders, and create brand ambassadors through their journey.
  • One obstacle with equity crowdfunding is that there aren’t many opportunities for investors to get a return. The company would need to IPO or get acquired. At some point investors do want a return.
  • Traditional exchanges are not typically built for small cap issuers.

ATSs and secondary markets for crowdfunding

  • Companies like North Capital and Start Engine who have ATSs are a great step towards liquidity in the equity crowdfunding market.
  • Regulators have not been in a position to approve live trading for crowdfunded securities. We believe this goes against what today’s traders are used to in the era of Robinhood, E*trade, and other userfriendly retail trading apps.
  • Reg A+ and Reg CF are exemptions that allow issuers to sell securities to non-accredited investors across state lines without violating what are known as Blue Sky Laws. These are state-level, anti-fraud regulations that require issuers to be registered and to disclose details of their offerings. This ability to sell securities to non-accredited investors across state lines during the primary offering does not apply to secondary markets. This can create hurdles for secondary trading venues.
  • There have been new guidelines at the end of 2020 surrounding digital securities and blockchain-based securities. When it comes to Reg CF securities, there needs to be guidance from regulators on whether crowdfunded securities fall into the digital securities category, uncertificated securities category, or traditional securities category. Further, there is a question of whether uncertificated securities fall into the same category as traditional securities.
  • Current exchanges are T+2, which means that if you buy a stock on a Monday, the settlement date would be Wednesday, but the digital world is moving towards T+0 trading and settlement. Upstream (expected Q2 2021)is a T+0 exchange with instant trades and settlements.

Fintech use case for the crowdfunding market

  • This is why Horizon built Upstream, a joint venture between Horizon and MERJ Exchange, an affiliate of the World Federation of Exchanges, set to be one of the first exchanges dedicated to the $4.9-billion-dollar global equity crowdfunding market.
  • Upstream is an investor-driven marketplace with best bids and offers transparently displayed. Investors of all levels can buy, sell, and settle securities in real-time directly from the userfriendly trading app.
  • Upstream doesn’t allow U.S. investors to come in and trade but if a U.S. issuer lists on Upstream, those investors can liquidate their stocks, they just can’t participate in other opportunities on the exchange.
  • Because we’re part of the World Federation of Exchanges, companies can dual-list, which could be a great opportunity for issuers to widen their investor pool.

Latest favorable regulation

  • The SEC updated the accredited investor rule to enable investors to qualify as accredited investors based on defined measures of professional knowledge and experience or certifications, in addition to the existing tests for income or net worth.

Concluding thoughts

We hope you enjoyed these insights into the state of the liquidity for the crowdfunding market.

To hear more insights, we invite you to watch or listen to the full conversation here. If you’re a crowdfunding market participant interested in unlocking liquidity for your investors on Upstream, please visit upstream.exchange or reach us at hello@upstream.exchange.

Sources:

1,2 OASB annual report

Horizon licenses and operates global securities exchanges.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store