The SEC’s Office of the Advocate for Small Business Capital Formation (“OASB”) recently released its Annual report 2021 (the “Report”), which reviews the capital raising activities of a variety of businesses, from startups and emerging companies to small public enterprises. The OASB, in collaboration with the Economic and Risk Analysis Division of the SEC, provided updated data (July 1, 2020 to June 30, 2021) on the use of various exempt offer alternatives. Public offerings represented more than $ 1.7 trillion in raised capital, while exempt offers represented more than $ 3.2 trillion in raised capital. We highlight notable trends from the report below.
Initial public offerings. 2020 and early 2021 saw a significant increase in initial public offering (“IPO”) activity. The companies have raised $ 317 billion in IPOs, with a median deal size of $ 225 million. The IPO activity, compared to the period 2019-2020, resulted in 3.6 times more IPOs, raising 2.8 times more capital. Increases in the amounts raised in all sectors were noticeable. For example, tech companies raised $ 57 billion in IPOs during the period 2020-2021, compared to $ 7 billion between 2019-2020. Venture-backed companies continued to account for the majority of publicly traded IPOs, as shown in the following diagram:
Source: OASB Report, p. 35
Other offers recorded. $ 1.4 trillion was raised through other registered offers, including follow-up and secondary public offerings. The median transaction size for the other registered deals was $ 350 million.
Alternatives to the IPO: special purpose acquisition companies (“SPAC”) and direct listings. From July 1, 2020 to June 30, 2021, there were 1,005 entrants to the public market; more of these companies entered the market through SPAC offerings (compared to traditional IPOs), as shown in the following diagram:
Source: OASB Report, p. 35
Settlement offers D. Firms that raise capital through private placements made under Rule 506 (b) of Regulation D have raised more than $ 1.9 trillion, with a median deal size of $ 1.8 million. dollars. Rule 506 (c) offers raised $ 124 billion (median $ 850,000); and the Rule 504 offers raised $ 313 million (median $ 160,000). Notably, tech companies have raised $ 33 billion, which is a significant drop from the $ 92 billion raised during the 2019-20 period.
Crowdfunding Regulation. Crowdfunding activities raised $ 174 million, with a median deal size of $ 130 million. The number of regulatory crowdfunding offerings grew 61% year-over-year in 2020, with 40% of companies completing regulated crowdfunding offerings having women or under-represented minority founders.
Regulation A. Settlement A offers have raised more than $ 1.7 billion, with a median transaction size of $ 2.3 million. This is a relatively constant increase from the 2019-20 figures. Real estate companies remain the top emitters under Regulation A, raising $ 923 million, while other sectors collectively raised $ 854 million over the period 2020-2021.
Other exempt offers. Section 4 (a) (2), Regulation S and Rule 144A private placements accounted for $ 1.3 trillion of the capital raised during the reporting period.
Trends in financing for small and emerging businesses. Among the financing options available to small businesses, equity investments accounted for only 6% of external capital financing, with loans and lines of credit being the main source used. During the pandemic, COVID-19 emergency assistance was integral to the survival of many small businesses, with 91% of employers seeking help by applying for loans through the Paycheck Protection Program.
Advanced corporate finance trends. Capital raised through venture capital (“VC”), private equity and other investment funds continues to increase year over year. The value of venture capital transactions reached $ 164 billion in 12,084 deals in 2020, with 2021 on track for a record year with $ 150 billion raised in 7,058 deals through June 30, 2021.
Source: OASB Report, p. 29
During the pandemic, many companies focused their resources on late stage businesses rather than angel / early stage businesses. Late stage private placements raised $ 110 billion in 2020 and $ 109 billion was raised in 2021 through June 30. Cross-investors also continue to bring strategic value to companies. 74% of IPOs, by number, were backed by cross investors. Venture-backed exit activity in 2021 surpassed that of 2020, with $ 373 billion in exits raised in total.
Trends in environmental, social and governance (“ESG”) investments. The report identified trends related to ESGs in 2020-2021, including the launch of more than 20 ESG-focused SPACs, raising more than $ 5 billion in total in 2020. In 2020, companies hired a marked increase the number of IPO subscribers classified as minority shareholders. , women-owned or veteran-owned businesses, as shown in the following diagram:
Source: OASB Report, p. 36[View source.]