The SEC staff has issued a report entitled “Capital Raising in the U.S.: the Significance of Unregistered Offerings Using the Regulation D Exemption.” The report is dated February 2012 and therefore predated the JOBS Act.
The report presents an analysis of the information extracted from Form D filings received by the SEC since the beginning of 2009. The results are intended to inform the Commission on the amount and nature of capital raised through unregistered offerings claiming a Regulation D exemption, and to provide some preliminary perspective on the state of competition and regulatory burden in capital markets.
Some highlights of the report include:
- The median Reg D offering is modest in size: approximately $1 million.
- Both Rule 505 and Rule 506 (the most frequently used exemption in the Reg D filings) allow an issuer to sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors. The average amount of non-accredited investors in the Reg D offerings over the entire period is 0.1, while the median is 0. In fact, in approximately 90% of the offerings there are no non-accredited investors.
- 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 (i.e. hedge funds, private equity funds and the like), of which a little more than half (55%) are hedge funds (i.e., 16% of all Reg D offerings are by self-reported hedge funds).
- Excluding hedge funds and other investment funds, issuers of private offerings tend to be small. Although a significant number of issuers decline to disclose their sizes (50%), for those that do, most have revenue of less than $1 million. Only 1.8% of all new offerings are by issuers that report more than $100 million in revenues.