Capital Raising in the U.S.: An Analysis of Unregistered Offerings Using the Regulation D Exemption, 2009‐2012

An update of the February 2012 study2 JULY 2013 VLADIMIR IVANOV AND SCOTT BAUGUESS Division of Economic and Risk Analysis (DERA) U.S. Securities and Exchange Commission

SUMMARY OF MAIN FINDINGS
  • Capital raised through Regulation D offerings continues to be large – $863 billion reported in 2011 and $903 billion in
  • Since 2009, hedge funds reported raising $1.3 trillion through Regulation D offerings. Private equity funds reported $489 billion; non‐financial issuers3 reported $354 billion. Foreign issuers account for 19% of the total amount
  • Since 1993, the number of Regulation D offerings is highly, positively correlated with market performance, suggesting that the health of the private market is closely tied to the health of the public
  • Because there is no Form D closing filing requirement, the amount of capital raised through Regulation D offerings may be considerably larger than the amounts disclosed. Only 63% of capital sought since 2009 is reported as sold within 15 days of the first
  • Rule 506 accounts for 99% of amounts sold through Regulation D. More than two‐thirds of non‐fund issuers could have claimed a Rule 504 or 505 exemption based on offering size, indicating that issuers value the Blue Sky law preemption allowed under Rule
  • Consistent with the original intent of Regulation D to target the capital formation needs of small business, there have been more than 40,000 issuances by non‐financial issuers since 2009 with a median offer size of less than $2
  • Form D filings report that more than 234,000 investors participated in Regulation D offerings in 2012, of which 91,000 participated in offerings by non‐financial issuers, more than double the number of investors participating in hedge fund offerings. Non‐ accredited investors were present in only 10% of Regulation D
  • Only 13% of Regulation D offerings since 2009 report using a financial intermediary (broker‐dealer or finder). The real estate issuers use intermediaries the most (27% of offerings), while hedge funds use them the least (6% of offerings).
  • When an intermediary is used, commissions or fees are 6% of the offering, on average, for offerings under $1 million. The rate monotonically declines to less than 2% for offerings greater than $50