Horizon’s President Mark Elenowitz led the first Reg A+ IPO to list on NYSE. Where does he see the future of equity crowdfunding going?
By Vanessa Malone
The SEC reports that the amount of new capital raised through exempt securities offerings (e.g., Reg D, Reg A+, and Reg CF offerings) has outpaced capital formation raised through traditional, registered securities offerings. In 2019, registered securities offerings accounted for $1.2 trillion of new capital while exempt securities offerings accounted for $2.7 trillion. Reg A+ and Reg CF offerings alone brought in ~$2.4 billion since the exemptions came into effect in 2015 and 2016, respectively.
As the trend continues, we wanted to get some insights into how we got here and where the market could be headed. We thought who better to ask than JOBS Act Pioneer and Horizon’s own President, Mark Elenowitz.
For those who don’t know, Mark Elenowitz is a Wall Street veteran with over 27 years experience. He co-founded a boutique investment bank that was based in Manhattan and its online capital formation platform BANQ®, which have both been instrumental in laying down the framework for Regulation A+ crowdfunding offerings. The methodology Mark structured is what led the first successful Reg A+ IPO to list on a National Securities Exchange — the New York Stock Exchange — with other Reg A+ offerings following the blazing trail. He is a noted speaker at Small Cap and Reg A events, including the SEC Small Business Forum and has been profiled in BusinessWeek and CNBC, as well as several other publications.
Please enjoy this interview with Mark Elenowitz.
Vanessa Malone: To jump in, what sparked your interest in equity crowdfunding and the promise of the JOBS Act?
Mark Elenowitz: What drew me to the JOBS Act and initially Reg A+ was the opportunity to bring back the small cap IPO. The framework allowed issuers to bring private placements to retail investors, and not just to people they had preexisting relationships with. Before the JOBS Act, most early stage investment opportunities were limited to high-net worth individuals. The equity crowdfunding framework created an immense opportunity for small companies to not just cast a wider net for interested investors, but to also tap into their fanbase and give supporters the opportunity to invest and benefit from any success the company has going forward. I believe that the everyday investor should be able to invest alongside accredited investors which is what equity crowdfunding supports.
Vanessa Malone: Why do you think more companies are choosing to stay private and raise capital through exempt securities offerings?
Mark Elenowitz: Historically, the IPO has been viewed as the gold medal of accomplishment for a private company, but now more companies are staying private longer than they have in the past. I think this trend can be attributed to a number of factors including high costs, stringent regulatory and disclosure requirements, and ongoing compliance costs that come with going public. Today, companies are finding access to the capital they need to grow in the private market without all those hurdles. The JOBS Act also came with flexibility as to when a company has to disclose financial statements which increased flexibility on their IPO timeline.
For smaller companies, I think they’re realizing that equity crowdfunding can be part of a valuable and strategic growth plan. An equity crowdfunding campaign is simultaneously a major marketing campaign for the Company’s products. But instead of just getting sales, a company can gain lifelong customers with a vested interest in their business and future success. Your investors become your brand ambassadors. I think that the strategic consequences behind equity crowdfunding is helping it gain more interest.
Vanessa Malone: What do you think will continue to fuel this wave of capital formation?
Mark Elenowitz: A few things: 1. Positive regulatory action. The SEC’s capital formation report earlier this year outlined a set of amendments to simplify and improve common securities exemptions. They proposed to raise the capital raising limit from $1.07 million to $5 million for Reg CF securities offerings and from $50 million to $75 million for Tier II Reg A+ offerings. The proposed amendments would also simplify investor eligibility and other requirements for Reg D offerings. 2. Quality issuers. Going off of the SEC’s recent proposal, I think these updates will entice more established companies to take a serious look at equity crowdfunding and in turn bring in more investors. 3. And lastly, technology infrastructure. When equity crowdfunding first got its stride , there were so many players and moving parts that needed to be involved to make an offering successful. I think companies like us that are working to digitize and make the investment process more efficient on the issuer and investor side are going to make participants more comfortable with the experience and fuel growth.
Vanessa Malone: What do you think is missing in the current infrastructure for equity crowdfunding?
Mark Elenowitz: I think it’s important to note that the industry is only about 5 years old and has made incredible strides in proving equity crowdfunding as a viable capital formation tool.
The biggest flaw in today’s crowdfunding market is a lack of liquidity and secondary trading options for investors. $2.4 billion has been raised in Reg A+ and Reg CF offerings since their inception in 2015 and 2016 with no liquid secondary market available to exit these positions. Only a handful of offerings are listed on a trading venue. For the industry to continue to thrive, I believe secondary trading catering to this market specifically needs to be the focus.
Vanessa Malone: Going off that missing link, how is Horizon working to solve for this?
Mark Elenowitz: In forming the methodology that made it possible for a handful of companies to find liquidity through traditional exchange listings, I saw areas of improvements when it came to investor onboarding, compliance, transfers, and secondary trading. I took these observations and my Wall Street know-how and went to the smartest technologist I had in my Rolodex, Brian Collins, and together we like to say we married Wall Street and Silicon Valley to create a tech stack that addresses an offering from issuance through to secondary trading.
We started with secondary trading technology and worked backwards from there to create a true one-stop shop for the equity crowdfunding market. Our vision is to power a global network of regulated trading venues that support assets that were traditionally illiquid.
Our flagship trading technology, Open Order Book, is offered to regulated financial entities to provide next generation trading for investors through a userfriendly smartphone app. This technology is supported by a streamlined onboarding and compliance software suite that connects all the moving pieces for a successful offering. The entire tech stack is live and in use today and we look forward to sharing more news about the marketplaces we aim to power in the future.
Vanessa Malone: Where do you think we’ll see movement for equity crowdfunding in the near future?
Mark Elenowitz: With the COVID-19 pandemic, many companies and organizations are seeking new and innovative revenue streams. Equity crowdfunding began during the recovery years that followed the 2008 financial crisis. It makes sense that in this economic downturn, we’d see companies turn to the internet and their supporters for support.I think we’ll see a lot of interesting asset classes that have a large fan base tap into equity crowdfunding.
Thank you Mark for sharing your insights. Please connect with Mark Elenowitz on LinkedIn here. To learn more about Horizon’s one-stop-shop for securities issuance and trading technology, please visit https://www.horizonfintex.com/
Horizon offers a suite of integrated securities software applications for compliant issuance through secondary trading of electronic securities. Truly a compliance-first business, our solutions combine Wall Street and Silicon Valley to power the next generation of exchanges and securities offerings in the U.S. and globally. Visit us at https://www.horizonfintex.com.