Monday, August 22, 2016
A Bit More Title III Crowdfunding Data . . . .
We are now more than three months into the Title III crowdfunding experiment. I have been wanting to get back to posting on Title III crowdfunding since my "LIVE" post back in May, but so much other fun stuff has been going on! So, to make me feel a bit better on that point, I will share some current crowdfunding data with you all in this post based on publicly available information obtained from a Westlaw search performed yesterday (Sunday, August 21, 2016). [Note to the powers that be at the SEC: EDGAR makes it hard to find the aggregated set of Form C filings unless you are collecting data on an ongoing basis. I hope that changes as EDGAR continues to improve . . . .]
At the outset, I will note that others have offered their own reports on Title III crowdfunding since I last posted (including here, here, and here). These reports offer some nice summaries. This post offers a less comprehensive data dump focusing in on completed offerings and withdrawn offerings. At the end, I offer some limited observations from the information provided here about crowdfunding as a small-business capital-raising alternative, the need for EDGAR adjustments, inferences about the success of Title III crowdfunded offerings, and platform disclosure about withdrawn offerings.
First, however, the top-level Westlaw-based summary:
Total Form C filings: 85 (275 filings show on Westlaw, but only 85 are non-exhibit filings representing distinct offerings)
Total Form C/A filings (amendments, including exhibit filings): 153
Total Form C-U filings (updates): 4
Total Form C-W filings (withdrawals): 2
The remainder of this post takes a shallow dive into the updates and withdrawals. Filings in each case are presented in reverse chronological order by filing date. All referenced dates are in 2016. Issuer names are copied from filings and may not be the actual legal names of the entities.
August 18: Hops and Grain Production, LLC (a Texas limited liability company) reports "$1,000,000.00 in investments. Payments are still being processed; final number is yet to be determined. The deadline date was set to today to work around an EDGAR glitch but the offering actually closed on 08-12-16." Hops and Grain Production filed its Form C on June 3 to offer/sell $50,000 in aggregate principal amount of debt in $1 units and filed Form C/As on June 13 ("Including CPA reviewed financials and increasing maximum offering amount to $1,000,000") and August 8 ("Updating deadline [to August 12 from December 1] and business plan").
August 16: TAXA Biotechnologies Inc (a Delaware corporation) reports "$335,111 in investments. Payments are still being processed; final number is yet to be determined. The deadline date was set to today to work around an EDGAR glitch but the offering actually closed on 08-09-16." TAXA filed its Form C on May 16 to offer/sell 400,000 SAFEs (Simple Agreements for Future Equity) at a price of $1 per unit of interest (each convertible into one share of common stock). Two Form C/As were filed on June 1 (to include an "updated SAFE contract where major investor threshold is $10K instead of $25K" and to lower the "target offering amount to $200K" and "include revenue share for the first $200K" and an "updated business plan."), and two Form C/As, one an exhibit filing, were filed on August 2 (adding a podcast transcript as an exhibit, changing the offering deadline from November 12 to August 9, and filing an "updated Form C, updated business plan").
August 15: Legion M Entertainment, Inc. (a Delaware corporation) reports "Total Investment: $999,999.00. Shares Sold: 142,857. Due to a glitch in Edgar, C-U filings are not accepted once the deadline date has passed. Therefore, the deadline date was set to today (in this filing) but the offering actually closed on 08-14-16." Legion M filed its Form C on May 16 to offer/sell 71,429 shares of common stock at a price of $7 per share, and noted as follows with regard to the offering process: "We'll offer 42 shares to each investors [sic], and divide the remainder pro rata based on total purchase. If it's still oversubscribed, we'll do the same with 15 shares. If it's still oversubscribed, first come first served, 15 shares per person." No form C/A was filed.
August 3: MobileSpike, Inc. (a Delaware corporation) reported "Issuer reached Offering Deadline (7-22-16). Total Investment: $92,036.00. Shares Sold: 184,072. Filing delayed due to technical glitch in Edgar filing system. This filing is made pursuant to documented instructions received from the SEC Filer Tech Unit." A Form C/A also filed on August 3 reports "Amendment is made pursuant to instructions received from the SEC Filer Tech Unit. We have been instructed to amend the Offering Deadline to a later date, which will allow for Form C-U filing. Records of this correspondence/instruction have been retained." MobileSpike filed its Form C on May 17 to offer/sell 100,000 shares of preferred stock at a price of $.50 per share.
August 2: Content Launch Solutions, Inc. (a Delaware corporation) - Content Launch Solutions filed a Form C on June 17 to offer/sell 238,834 shares of preferred stock at $0.41870 per share. It then filed a Form C/A on June 27 to report "[c]hanges in offering terms associated with dates; [a]dditional company disclosures made in definitive investment documents; [c]hange to Disclosure Requirements (Short Term Debt adjusted); [c]hange to shareholder name in Disclosure Questionnaire." A quick internet search turns up two crowdfunding campaigns, one on crowdfunded.com (which looks old) and one on flashfunders.com (which apparently is the Title III campaign). Oddly, the flashfunders.com campaign looks active (with an expiration date of September 5, different from the Form C deadline of August 26) to an unregistered viewer even though the withdrawal was filed several weeks ago . . . .
June 23: Kindred Brands, Inc. (a Delaware corporation) - Kindred Brands filed a Form C on May 17 to offer/sell 20,000 units of SAFEs at $1 per unit. A quick internet search turns up the firm's wefunder.com campaign site (under the firm's brand name, Troupe), which also looks active to an unregistered user.
Big-picture outtakes from these filings? I have a few to highlight. They are, perhaps, obvious.
Overall, at an average of about 30 filings per month, Title III crowdfunding is attracting some, but not overwhelming, attention as a financing alternative. Drinker Biddle & Reath LLP reports that the first 50 filings were made on or before June 30. This means 35 filings have been made in the interim, indicating that average daily filings decreased overall in the past 45-or-so days as compared to the first 45-or-so days. This should be expected, imv, since early excitement/pent-up demand (as issuers awaited the effective date) may be expected to generate more filings.
Obviously, the SEC still has some EDGAR work to do with respect to Title III offerings if filers cannot file their Form C-U update forms after the completion of their offerings. I assume a software upgrade will fix that problem. I also assume that adjustment will be made soon.
The Form C-U filings indicate that four issuers have successfully completed offerings since Title III crowdfunding went live in May. This limited number of completed offerings may indicate a small successful market for Title III crowdfunding. However, it is likely that other issuers have met their minimum threshold targets and could successfully complete their offerings; they may just be waiting to see if they can get closer to their maximum targets. Offering duration plays into the assessment of offering success, too. The general wisdom for crowdfunded offerings not involving the offer and sale of securities is to keep the offering period relatively short (see here for a version of that story) since interest in an offering dissipates over time (although specific duration periods may vary based on the type of firm). Yet, Drinker Biddle's recent study found that, of the first 50 Title III offerings filed, "announced offering durations range from 21 days to one year, the median period that issuers say they will keep their offerings open is just under six months, with about half electing an offering duration between 166 and 182 days." So, with a longer campaign duration, we may not be able to judge success just yet. The fact that Drinker Biddle's reported median and prevalent time periods are longer than what one might expect (based on the wisdom gained in the non-securities crowdfunding sphere) may result from the different regulatory environment, the types of issuers and intermediaries involved in each market, or other differences in the two crowdfunding markets. I want to think more about all that.
I may be missing something in perusing the campaign sites, but should it not be at least a best practice (if not a regulatory requirement) to indicate on a Title III crowdfunding platform that an offering has been withdrawn? Ongoing offers to sell securities are being made otherwise (even if sales cannot/will not be processed). This seems non-trivial . . . .
Other observations? Post them in the comments. I look forward to continuing to follow this story.