Company presidents and marketing directors love the new trends in raising private capital for $5-$50 million dollars.

Some want it to expand their businesses.

Some want it for marketing, and other programs.

Some want it for a fast track to become a public company — though you can stay a private company.

Since Caleb and I have helped close to 100 companies market and advertise to investors to raise capital, I thought you’d benefit from 7 new trends.

It’s been 10 years since the JOBS Act was passed in April of 2012. It was an amazing bill that was passed by a Republican congress and signed by a Democrat president.

The Act made it easier for entrepreneurs and companies to market their need for capital and advertise, to raise capital to start businesses, but also for existing businesses to raise operational and expansion capital. Private capital has helped companies who want to raise funds for product expansion, growth, manufacturing, more retail space, their marketing budgets — or whatever their needs might be.

While it’s been very slow in fulfilling the promise, because of the SEC, the JOBS Act has created an industry with a market value to date of over $12 billion in the U.S. alone and is projected to double by 2027.

When the Act came out, I began helping companies with the most advanced marketing techniques to identify and advertise to investors to invest in private, pre-IPO companies… and it worked.

Shortly after that, in 2018, I came out with my book 23 Equity Crowdfunding Secrets to Raise Capital and wrote the first book on how to raise funds through a marketing campaign. To order, CLICK HERE.

Things have changed somewhat since then, and some of the marketing strategies we used in the early days have been restricted. The marketing of private capital to investors demands the use of direct response marketing strategies highly defined targeted audiences. Hopefully, things will open up in the future, with more relaxed SEC regulations.

I’ve identified 7 new trends CEO’s and Marketing Directors should be aware of.

Trend #1 — A Record Breaking Number of Investors are Taking a Hard Look at Equity Crowdfunding

Millions of Americans are participating in this investing space. Crowdfunding platforms such as WeFunder and StartEngine, uses a provision in the 2012 JOBS Act which allows unaccredited investors to purchase equity in early-stage private companies.

Both claim to have 1.5 million investors in their communities. New York based Republic isn’t far behind. In 2021, the 3 of them accounted for nearly 85% of the $457 million invested and 79% of total deal flow.

Trend #2 — The Future of Equity Crowdfunding is Growth — Big Growth

I expect crowdfunding to continue to grow at a 50% to 100% annual rate. That’s an easy prediction. However, what else is in store for this still emerging investing space? The global crowdfunding market share is expected to increase by $239.78 billion from 2022 to 2026.

Trend #3 — The Three Types of Equity Crowdfunding Regulations Special to Equity Investors Will Keep Getting Better

The JOBS Act created several tiers and regulations. The 3 categories of Equity Crowdfunding my firm focuses on is for entrepreneurs and companies are:

  • Regulation A+
  • Regulation 506C, and
  • Regulation CF

These regulations have opened the floodgates for crowdfunding at all levels.

Regulation A+ is in my opinion the best way to raise capital for businesses and is great for investors. Reg A+ enables small businesses and companies to raise funds from any investor (accredited or unaccredited). Private companies can raise up to $50 million dollars. Companies can offer shares to the general public, like an IPO. Under Reg A+ companies have to file with the SEC and the paperwork is not as daunting as filing for an IPO.

It’s a fast-track way to become public, with less expense and regulatory hassles.

Regulation 506C took the ban off companies seeking capital to advertise/market directly to the general public. Now companies can use direct marketing strategies to reach accredited investors. I’ve worked with many companies to raise unlimited funds from accredited investors- the cap for the company is that you can only have 2,000 investors in your capital raise. However, Regulation 506C is still a great way to raise capital without a lot of red tape.

Regulation CF allows for a smaller capital raise with a cap of $5 million dollars, regardless of accreditation, however, the investor is capped at between $2,200.00 and $107,000.00 per year, which is based on the investor’s income and net worth.

Trend #4 — Equity Crowdfunding is Going Global at a Fast Rate

Unfortunately, as the law stands now, non-U.S. companies are not permitted to use Regulation Crowdfunding to raise capital for their businesses. However, foreign investors may invest in U.S. companies. The only provision is that they must follow the securities laws governing the countries they are from.

Things are starting to change on the international front. As crowdfunding continues to boom in the U.S., the market is raising the eyebrows of other countries. Given the success of the JOBS Act, it’s only logical that international investors put pressure on their respective countries to follow America’s lead and enact their own version of the JOBS Act.

Currently, Italy has their own version opening the doors to equity crowdfunding, and the European Union is working with over 27 countries to create a more universal blanket of regulations to allow countries in the EU to have cohesive rules regarding crowdfunding and to “blend” them with the U.S.

Given the international pressure, it’s a good bet that within the next few years, U.S. equity crowdfunding will go global.

Trend #5 — Institutional Fear of Missing Out (FOMO) is Escalating — Don’t Let it Happen to You

Let’s face it. Taking a risk is sometimes a hard pill to swallow for investors, especially if the market or the economy isn’t doing well. No one likes to take risks on their own but investing with a group of investors is a little less scary in the skittish investor’s eyes.

But Private Equity is independent of the stock market.

So, Equity Crowdfunding campaigns are becoming more and more appealing to traditional or institutional investors. GS Growth, a division of Goldman Sachs, has been working with outside investors, raising over $3 billion dollars to buy equity stakes in start-ups.

It’s also a lot easier to invest using a crowdfunding platform. You don’t need to go through a broker, and you can pick and choose which company or project you want to invest in and how much you’re going to invest, giving you a very diverse portfolio.

You also get to be involved with companies and projects you can feel passionate about, giving them their seed money to grow and become successful.

There may also be several tax benefits for investors involved in crowdfunding.

For example, investors may not have to pay any capital gains taxes, depending on the investment, and whether the money made was reinvested in another venture. The laws are very sketchy in this area, but with time the tax code will catch up to the industry.

Trend #6 — The Unreasonable Regulatory Requirement of what is an Accredited Investor Will Eventually Disappear

The government defines an accredited investor as a person with a net worth of
$1 million or more, or an individual with a gross income of $200,000 a year for two consecutive years (or longer), or couple with a combined income of $300,000 or more, for two consecutive years or longer.

This has been the criteria for any kind of securities investing, like stocks, bonds, etc. However, as of 2016 and the passing of the JOBS Act, anyone can now invest through crowdfunding platforms, as long as they are not investing in a regulation crowdfunding that requires accredited investors.

The SEC now allows investors who make less than $100,000 per year, the ability to invest $2,000, or 5 percent of their annual income, in equity crowdfunding. Investors making more than $100,000 can invest up to 10 percent of their income.

However, things may change within the next few years, especially during a new administration favorable to investing and investors. Such changes might open the playing field even more for unaccredited investors or do away with any accredited investor requirements. Time will tell.

Trend #7 — Private Equity is Ahead. Crowding Out the Competition

There are currently four different types of crowdfunding:

  • Donation Based, which is the most common.
  • Equity Based, where investors get a small amount of equity in the company they invest in.
  • Rewards Based, which gives investors of different levels, donation tiers. In return for their investment, the investor will get some type of reward, like the first product the company produces, or a small cameo in their film.
  • Debt Based crowdfunding requires the borrowing companies to repay their investors, plus interest.

As of this date, there are approximately 1,500 crowdfunding platforms in the United States, with new platforms popping up every year. And as the industry grows, and regulations for crowdfunding adapt and change, there will surely be winners and losers in the space.

Most likely the largest and most established platforms will survive, and most likely buy out the smaller and medium-sized platforms, squeezing out any newcomers.

Interested in equity capital? We’d be glad to talk to you about the pros and cons and answer your questions and explain how we can help.

What do you think? Email me at craig@cdmginc.com

Note: Interested learning about Crowdfunding Secrets to Raising Capital?

Read my book 23 Equity Crowdfunding Secrets to Raising Capital.

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