The SEC’s Risk Fin Division has issued a 9-page report entitled “Capital Raising in the U.S. the Significance of Unregistered Offerings Using the Regulation D Exemption” using the numbers from Form D filings since early ’09. Their goal was to understand the amount of capital raised.
The results are what we’ve seen from drafted private placements for over twenty-five years — most issuers utilize a Regulation D, Rule 506 offering only to accredited investors. In fact, the report found approximately 90% of the offerings had only accredited investors and no unaccredited investors.
The median offering was small, only $1 million dollars. This must be because the report looked at all Reg D offerings, Rule 504, 505 and 506. Since most of our clients utilize a 506 offering, we have found the median around $3 million.
More and more companies must be using Reg D as the report found capital raised through Reg D offerings is more than twice as large as public equity offerings as well as each other category of unregistered offerings.
Less than one-third (29%) of issuers are pooled investment funds such as hedge funds or private equity funds. Most companies (excluding hedge funds and other types of investment funds) tend to be small, most have revenues of less than $1 million (of those that reported earnings). Only 1.8% of all new offerings are by companies that report more than $100 million in revenues. The report shows that a Reg D 506 to accredited investors is a valuable exemption that will become even more powerful now that the JOBS Act will allow companies to advertise. However the SEC has warned that until the final rules are released, issuers cannot advertise.