Oscar Jofre  00:01

All right, welcome back everyone. Well, this is the one you’ve been waiting for. Right? So, for me, there’s nothing better than seeing and putting a spotlight, putting a flashlight into this market. And there’s one individual who’s had the passion right from the beginning. You know, you’ve met David weild, you met Sarah Hanks. This is the other name that I keep always reminding people, you need to be reminded who was there right from the beginning, creating and not just participating in the Jobs Act, but also seeing what the Jobs Act would need in order to continue flourishing. And I’m really excited to have Sherwood Neiss from Crowdfund Capital Advisors who’s going to give you both a glimpse of what happened, but more importantly, going forward. Sherwood it. Great to have you and the floor is yours.

Sherwood Neiss  00:49

Thank you, Oscar. It is great to be here. I am humbled, as always, by your comments here, very generous in what you say. So I’m just going to do a deep Data Dive, I collect a bunch of data. And I think it’s, instead of just listening to me just rants you might as well just see what the data has to say. I just thought it was interesting though the themes of today’s conference, they revolve around the possibilities, inspiration and dreams, which is funny, because when we and we meeting Jason [uncertain], Cassidy Dorian, and I showed up in Washington DC with the framework for investment crowdfunding, those were actually the same things that were driving us. So it’s during my first congressional testimony in September 2011. I told members of the House Financial Services Committee, and that’s where we introduced the original bill, that this legislation has the power to spur entrepreneurship, innovation and jobs all across the United States. And in particular, outside of Silicon Valley in New York City. Quite frankly, that is where our government was looking to create jobs and was interested in focusing attention and economic prosperity. On April 5 2012, Jason Zach and I were a select few individuals who were invited to the White House by President Obama, for the bill signing ceremony for the work that we did lobbying Congress to enable the industry. Right after that, we were interviewed on Bloomberg Television. And they planted in our head the idea that the industry needed a data aggregator. So that’s what we built, we were going to build an investment platform. But we decided that we wouldn’t do that and build one of these data aggregators, so that we can monitor all activity that was taking place in the industry. Since then, we’ve been collecting data on all the offerings on all online investment platforms. And we transmit that data on a daily basis to Bloomberg. So it’s available on Bloomberg terminal. We’re now six years in, almost six years into the industry. But I really truly believe we can check the box for successfully spurring entrepreneurship, innovation and jobs. And today, I’m going to share with you what the data is proving in relation to those three things and some predictions for 2022. So first, let’s jump in with entrepreneurship. Since 2016, there have been 4131 companies that have filed to raise money online. And I’m I just want to highlight I’m talking about regulation crowdfunding, in particular, I’m not going to be talking about RegA, RegS, or reg D, I’m really focused on what are we seeing in reg CF offerings. And in particular, I do that just so you know, because with a reg D offering, you can be raising money, but you don’t have to do it publicly. Actually, you can’t. But reg CF, you have to do it all in a very transparent online fashion. And because it’s all taking place online, we can collect most of the majority of the information about these offerings online. If it’s a private offering, again, that’s done through one another exemption, we’re not going to be able to see that. So we focus our data collection on reg CF and our data analysis for this on reg CF. The vast majority of these issuers, these companies are startups and small businesses. These issuers have launched 4683 offerings. So you can see that there’s been multiple offerings by companies, almost a third of the offerings have taken place in 2021. And we still have to finish out December. So we’ll see that number increase the average success rate industry success rate, meaning issuers hit a minimum funding target. So they exceed that minimum funding target is 64%. This rate began initially at 49% in 2016, and 2021 has reached a high of 70%. So 70% of the campaigns in 2021 have been successful. Now. Sara, I’m sure will point this out so I’ll jump on it and beat her to it. I’ll put the caveat out there that there is a the the companies that are raising money are artificially setting low expectations for the amount that they need to to hit. So if you look at the data, the median funding target is low at about $25,000 Now the average raise of all the companies right now is about $342,000. So if issuers were to be more realistic and say, You know what I needed much more than $25,000? Because quite frankly, what are you going to be able to accomplish with $25,000, that would increase the minimum funding targets, and it’s most likely that the success rates would decrease. That being said, even if there was a reduction in the success rates, I would, I would tell you that it’s hard to find such success rates in any other parts of the private capital markets when it comes to capital formation. So jumping on, we have this map of the United States. This is what I think is great about reg CF, we talked about democratizing access to capital. And you can see by looking at this map in front of you, we’ve been able to do that there have been over 1300 cities that have had successful offerings, that’s across all 50 states, and 95% of them are taking place in urban areas. So that’s great, because you’ve got all these population centers and many businesses in these urban areas, I personally would like to see more attention take place and more opportunities in rural parts of the United States. Nonetheless, we are seeing these companies in these issuers raising money all across the United States. These businesses are the definition of entrepreneurs, they produce products and services that serve local regional communities, and our nation as a whole. And they generate more than $1.7 billion in revenue. That’s, and by the way, that’s just looking at the most recent fiscal year revenue reported. So all those companies that were startups that hadn’t actually produced, any revenue could have gone on to revenue producing companies, right after they did the round of financing. So this 1.7, I think, is a very conservative figure of the amount of money that’s actually being generated by these companies that have used regulation, crowdfunding. What’s an interesting data point, if you separate out 2021 from the entire industry in the entire time that this industry’s been going is in 2021, alone, issuers that raised money online and were successful with that had more than $775 million in revenue. So 45.6% of all the revenue generated by the industry took place in 2021. I mean, that’s an outstanding figure, in itself. And I think that’s just going to increase over time. If we start to dig into innovation, now, there’s many ways to measure innovation, we can look at companies multiple rounds of financing capital deployed by investors, capital invested into local communities, and overall economic value generated by these firms. But first, let’s look at new companies that just launched with a new or different product or service and then raise money online. So since the industry launched, the average percent of pre revenue issuers has been 43.8%. So pre revenue, yes, that means that they haven’t generated revenue, post revenue means that there have sales and customers. So 43%, of of all the issuers have been 43.8% have been pre revenue. What’s interesting is what happened during COVID? Well, during COVID, we see the number of pre revenue issuers drop to an all time low of 39%. So a couple things are probably happening a these pre revenue issuers are probably like, it’s a little too risky for me to go out and peddle my new business to the crowd, because I can’t show that there’s traction, or the crowd was actually not interested in funding pre revenue startups. So the two sides of the equation right there. However, in 2021, we’ve actually seen the number of pre revenue startups that were successful rebound and bounce back up to 42%. So I think that’s really positive. And what I like out of this number two is when we first got started with it, one of the negative things that we heard from people that were opposes legislation is this would be the worst ideas coming online adverse selection means that these issuers would be coming to the crowd rather than going to traditional VCs or something. But well, over 50% of the companies that are using reg CF to raise money are actually post revenue. So they’ve got customers, they’ve got traction, they probably could go to more traditional sources, but for one reason or another, and that probably comes down to access to capital from their customers, and I call them investomers is driving them online to raise capital. And I only believe that that’s can continue to grow over time. The final data point related to this is I think, really interesting. 37% Of all the capital raised since the launch of the industry went to pre revenue startups in 2021. That amount was 34%. So think about it this way. 1/3 of all the capital invested, it goes into innovative startups. So that’s great, because, you know, we’ve got a billion dollars that’s been raised by this industry now. So 1/3 of it that’s gone into startups, is really the innovation startups, these are companies that have new ideas and need the capital to actually get their, their company, you know, out there doing sales and all that stuff. Again, there’s logic in the system, because two thirds of the money is going to companies that already have sales. So it’s a little less risky for investors to be putting their their money into companies that are generating revenue. Another way that we consider innovation, as how many of these issues have gone back to the crowd, to seek capital to continue to innovate. So you did around online, jump immediately to VCs? Do you try and get, you know, in banks to give you money now? Or do you go back to the crowd? I think it’s been really interesting to look at the data and follow the companies that are doing these follow on rounds, not only because you can see how much money they’re raising from how many more investors but you can track valuations over time. So you can start to see who are going to be the future winners, the future unicorns may be out of this space. Of the 4131 companies that have raised money online, over 2700 were successful, and now have capital innovate. 474 did a follow on round and are now proving their value to investors. What’s interesting is I’ve dug in a little more, well, how many did two, how many, three, how many more than 3. 96 have done three rounds online, and I think are right for some serious VC attention. And I’m going to talk about that in my predictions. So let’s talk about another way that we can measure innovation. Another way to measure innovation is by capital deployed, there’s been over $1 billion raised by more than 1.3 million investors. Now, I’ll put a caveat in there. Again, I believe that 1.3 million is a conservative figure why? Well, not all platforms disclose the amount of investors in a deal. Now the biggest ones do. So I believe that side of the data is very accurate. But not everyone does. So I think there’s been well over 1.3 million probably like 1.35, or closer to 1.4 investors in these reg CF offerings. There have been over 293 offerings that have raised over $1 million. So that’s a minimum of $293 million that has gone into it. Those are innovative companies, they are seriously getting capital from investors that are very intrigued with what they’re doing. Many of them have, you know, 500 to 1000 Investors. And I know, we talked about the challenges that might come from that, in terms of a cap table and that solution of the SPV. But you know, still, like brought up in the last panel, you have to send out 1,000k ones. Um, there’s been, you know, we’ve had the cap move from 1 million to 5 million in March last year, you would think that that’s driving more companies into the marketplace. And the answer to that is yes, it is. But the data doesn’t show that all the companies are raising $5 million. So again, there’s logic in the system, just because you can raise $5 million doesn’t mean you will raise $5 million. And the data shows that there’s been about seven reg CF offerings that have raised over $5 million. Now I say over two because we do track parallel offerings. So if you’re doing a reg, skip a reg CF, and, you know, a reg, the accredited investor, crowdfunding, then you will and we actually see both of those in this dataset here. But at the end of the day, the more money raised more capital that these issuers have to innovate, and scale. And I apologize for this cough, I’ve got seasonal allergies that are just going crazy. Um, another way to measure innovation is what these businesses are doing for local communities. So let’s dig into the financials to understand how they are spending their money. And when we dig into all the financials for all these companies, we can see that they’re pumping conservatively $2.5 billion into local economies. So that’s $2.5 billion that’s spread across these 1300 cities all across United States. You want to talk about an economic engine, Reg CF is an economic engine. I mean, how where else can you see billions of dollars like this that is not poured into states or the federal level, but really at a granular state, local zip code level? That’s the power of reg CF. And finally, and I love this one, what are these companies worth? So let’s let’s add up their you know, valuations, their most recent valuations for the companies that have raised money and been successful online. Not that all these companies are going to sell for the amount that they have disclosed in terms of their pre money valuation or what their post money is. If you add in the amount that they’re that they raised. But it adds up to a significant amount, it adds up to about $32 billion. Right now, I think that’s a data point that speaks volumes as to why more institutions should be paying attention to this industry. What’s really fascinating when I dug into the data, is 50% of all the economic value was generated in 2021. So we think this is a leading indicator for activity that’s going to happen in 2022. With mergers and acquisitions, we’re gonna see these companies going out raising more capital VCs getting the deal than being acquired. And I believe we’re ripe for an exit at some point soon. So let’s dig into the last part that I think is the part that Washington cares most about, which is jobs. Investment crowdfunding has been a jobs engine, period. We estimate that over 250,000 jobs have either been created or supported by companies that have successfully raise money online. This includes direct hires, seasonal hires, includes those startups that are hiring employees to help them scale and grow their operations. And this is just going to continue over time. So I think that’s that’s a phenomenal figure. What’s key about these jobs being created in these communities across the United States is in many cases, this is in cities and towns where quite frankly, we need the jobs most we don’t need them in New York and San Francisco, we need them spread around the country. So reg CF is proving that it can do that. These these jobs, not only provide it, you know, employees, for the companies to actually do the work that needs to be done. But they provide income to individuals so that they can support their livelihoods. They can pay their rent, they can buy a house, they can buy a car, everything that we need to our economy, go go go go go. But what else do they provide important tax revenue for our state or local and our federal government. So hey, if our you know, you’ve got anyone from Washington listening, do whatever you can to help promote reg CF, because it’s only benefits you in the end. I think what’s fascinating about this, and honestly, this part has just blown me away, because when we showed up in Washington, DC, we were three Silicon Valley trained entrepreneur whose mindset was very focused on Silicon Valley alternatives to VC type of funding. And we were thinking software applications, health tech, you know, you know, that type of stuff would be, you know, very interesting. But we also thought Main Street would benefit from this, because they’re the ones that are hit hardest by the banks and all the regulations they face. When I look at the data of companies that are raising money online, their jobs are being created in 466 different industries. So we track industries by Nissa code. And I think it’s been fascinating to see what’s going on. What I love is 28% of all the jobs are in the manufacturing sector. And I was blown away by that. So what does this prove it proves that we can still make things in America, that number is still going to continue to increase. And I think that’s another reason why we should get behind reg cf. 24% of all the jobs are in information technology, which are creating software products that quite frankly, are going to drive our future. And it’s fascinating just to sit in front of the computer, look at all these offerings that come in on a daily basis and go, Wow, that’s going to change the way I live my life. So let’s talk about predictions. All right. I think if you look at this chart that’s going to appear next.  What’s happening here. Okay, let me go back. Okay, this chart on the left shows you the amount of offerings, the active investments on a daily basis, or monthly basis in this chart, every month, and you can see how that’s just going up. That’s just going to continue to go up. When we went to Washington and the we’re really excited about the potential for regulation crowdfunding and one of the people that we work closely with on Capitol Hill said you know what, don’t get your hopes too excited. For the next five years, I see this playing out the way medical savings accounts paid out. Now, it’s a multi billion dollar industry on a yearly basis. But for the first five years, it was very slow and steady. People need to understand it, there had to be logic and how they were used, and the media had to get behind it. I believe we’re at that point now where we’ve been at it five years, and now we’re going to start to see the scale that’s going to take place. So I believe that it’s time for the industry to scale. And I think we’ve got all the players there. We’ve proven ourselves in industry, and we’re ready for that. I believe that there will be a significant exit that leads to material returns for investors over the next 12 months. That’s going to lead to media coverage that’s going to talk about the excitement of all these retail investors that got in and the exit that they experience that’s going to bring what I believe are going to be many more investors into the space, many more issuers into the space seeking capital. And it’s just going to scale the industry. I think in 2022, we’re going to have about 2500, at least offerings, there’s going to be probably a billion dollars that’s raised in 2022, from more than 1 million investors. So you know, I told you there was a billion dollars that’s been raised, we hit that target, I think in October, I believe in 2022. Alone, we will raise a billion dollars. So I, you know, the data is just pointing on that direction, I think there’s going to be a bifurcation between smaller issuers that raise on average $100,000 and larger issuers that raise more than 500,000. I think, you know, the more sophisticated companies are going to be looking towards RegA. Costs much more to do a RegA offering, than it does a RegCF offering. But hey, if you’re, you know, a small midsize company, and you’re looking for one to $5 million of capital, and you’ve got a customer base that’s engaged in what you’re doing, this is going to be a great way for you to do it. I believe we’re going to continue to see the manufacturing sector grow as a supply chain issues force more items be produced in the United States, we’re also going to see what I believe our institutional investors begin to enter the space. And I believe we’ll see a handful of funds deployed on platforms in 2022. So what does that mean? That means that we’re going to start to see Wall Street, finally paying attention to what’s happened in this marketplace, not by investing in the individual deals by by saying, how do we wrap a fund around an investment vehicle that can go into many of these offerings, and hopefully, most likely the best ones, so that there can be attractive returns for investors. So just to sum it up, net net, the industry’s move to a growth phase, we’ll start to see the scale that we were expecting all along, the platforms are going to continue to consolidate. I think we all saw the Republic announcement. With cedars, I think it’s fascinating from a global perspective, on on what this means as a global opportunity. I think media coverage will expand. And we’ll have much more institutional coverage of what’s going on. And at the end of the day, I think a year from now, when we’re talking, I’ll be telling you about some institutional investors that are staking a claim on the space. So Oscar, that is what I have, I will toss it back to you and see if there’s questions because I just ranted.

Oscar Jofre  22:25

No, that was great. You know what, thank you, you know, it is so important for people to understand how important this data is, how powerful it is. Because, you know, what do you recall? 12 years ago, we had nothing, we were just projecting or not even projecting, we had to deal with all the naysayers. It’s never gonna work. Now we have data. And I think the most powerful slide, I gotta be honest with you. I mean, David, the whole idea of the Jobs Act is to create jobs, or sustain jobs. And that’s, that’s the key. And I think everybody here, yes, it’s giving you a regulation to raise capital to, to, to bring your reality your dreams to the market. But keep in mind why this was all done, the the ownership is back on you. That’s why we’re seeing such a variety of investors 40 Plus, minorities, everything. So it’s a great equalizer. I can’t wait to see your next report. And, and you’re right, I do believe that we’re, I think we’re gonna see five unicorns this year in 2022. In our sector, I think we’re going to see it, but one from the frontline. Because that’s what people see, there’s going to be an infrastructure play that has to be there. There’s no other way for the ecosystem to grow. And then of course, there’s going to be some in between, but we’re finally seeing that kind of level of eye coming into the sector. So for everyone coming in, you’re coming in at one of the best times, and in the in the area of JOBS Act and regulations CF. Please, Sherwood.

Sherwood Neiss  23:59

You know, I couldn’t agree with you more. You know, funny little story when we went to Washington right before we started going there. I was telling my father, I was just like, so you know, we’re going there, you know, pushing access to capital. And my father goes, they don’t buy access to capital, what’s jobs? And I was like, Oh, that’s a good point. And so we went started walking the halls and we were straight in. We’re like, we’re here to about to talk about jobs, and everybody listened.

Oscar Jofre  24:28

Yeah, of course. Everybody’s district matters. You want to get voted. You got to create jobs. I love this. Alright, so everyone, we’re going to end the session. I know we came over a little bit. I think it was important for you to, you know, get this information so you can get pumped up. You saw the stats. I mean, I agree with him. We’re going to hit a billion in 2022. We’re going to see it and just so you know, I know five companies that hit 5 million reg CF. That was one of our clients. They did it in three and a half weeks. I mean, so I just want everybody to know it is possible. There’s a game plan out there to do it and you’re using reg CF and RegA, Reg CF and RegA. That’s the new model in the USA. So thank you. We’re going to end this session and get the other session started right away. Thank you Sherwood.

Sherwood Neiss  25:17

Thanks, everyone. Thanks, Oscar.