Early Numbers Show that Companies are Using Rule 506(c) to Raise Funds
If you are as curious as we are about the consequences of the new Rule 506(c), I’ve got some good news for you. There’s some early data that points to how issuers are taking advantage of the recent SEC rule changes.
Keith Higgins, the newly appointed director of the SEC’s Division of Corporate Finance, recently commented on the preliminary effects Rule 506(c) on the investment landscape. For those of you that have been following the JOBS Act and its various moving parts, you are well aware of Rule 506(c) and the fact that the SEC lifted the ban on general solicitation for securities offerings. For the rest of you, here’s a primer on Rule 506(c) and the lifting of the ban on general solicitation.
In footnote 18 (page 10), Higgins provides hard numbers for the number of new offerings under the new rule 506(c), as well total amount raised, median amount, etc. as compared to offerings under the old Rule 506(b). Here’s a rundown of the numbers since September 23, 2013 (when the rules was implemented), according to Higgins’ remarks:
- 170 new offerings made under new rules
- $911 million in total amount sold in these offerings
- $6.1 million is the average offering size for 506(c) offerings (compared to $22.8 million for Rule 506(b) offerings)
- $1.3 million is the median offering size for 506(c) offerings (compared to $1.8 million for Rule 506(b) offerings)
Can we draw any conclusions from this?
It’s very early in the game, but these numbers reveal three important things:
- It is clear that companies are using the new rule to raise funds—a question some folks were wondering about when the law was passed.
- Offerings made under Rule 506(c) seem to be raising smaller amounts than traditional private placements under the old Rule 506.
- These numbers are likely not telling the whole truth since there are likely hundreds of other offerings under Rule 506(c) that have not been filed with the SEC yet since companies have 15 days from the first sale to file Form D. There’s a good chance that these numbers will double or triple in the next few months as companies continue to make sales and file their Form D.