Trends In Capital Formation: The SEC’s OASB Annual Report – Corporate/Commercial Law

Irina Baranova

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The SEC’s Office of the Advocate for Small Business Capital
Formation (“OASB”) recently issued its 2021
Annual Report
 (the “Report”), which reviews the
capital raising activities of a variety of companies, from startups
and emerging businesses to smaller public companies. The OASB,
together with the SEC’s Division of Economic and Risk Analysis,
provided updated data (for July 1, 2020 through June 30, 2021) on
the reliance on various exempt offering alternatives. Public
offerings accounted for over $1.7 trillion of capital raised, while
exempt offerings accounted for over $3.2 trillion of capital
raised. We highlight notable trends from the Report below.

Initial public offerings.  2020 and the
beginning of 2021 saw a significant increase in initial public
offering (“IPO”) activity. Companies raised $317 billion
in IPOs, with a median deal size of $225 million. IPO activity,
compared to the 2019-2020 period, resulted in 3.6x more IPOs,
raising 2.8x more capital. Increases in amounts raised across
all sectors were noticeable. For example, technology companies
raised $57 billion in IPOs within the 2020-2021 time period,
compared to $7 billion between 2019-2020. Companies backed by
venture capital continued to comprise the majority of
exchange-listed IPOs, as shown in the following diagram:

Source: OASB Report, p. 35

Other registered offerings.  $1.4 trillion
was raised through other registered offerings, including follow-on
and secondary public offerings. The median deal size for other
registered offerings was $350 million.

IPO alternatives: Special purpose acquisition companies
(“SPACs”) and direct listings. 
From July
1, 2020 through June 30, 2021, there were 1,005 entrants into the
public market; more of these companies entered the market through
SPAC offerings (as compared to through traditional IPOs), as shown
by the following diagram:


Source: OASB Report, p. 35

Regulation D offerings.  Companies raising
capital through private placements made in reliance on Rule
506(b) of Regulation D raised over $1.9 trillion, with a
median deal size of $1.8 million. Rule 506(c) offerings raised
$124 billion ($850k median); and Rule 504 offerings
raised $313 million ($160k median). Notably, tech companies raised
$33 billion, which is a significant decrease from the $92 billion
raised in the 2019-2020 time period.

Regulation Crowdfunding.  Crowdfunding
activities raised $174 million, with a median deal size of $130
million. The number of Regulation Crowdfunding offerings
increased by 61% year-over-year in 2020, with 40% of the companies
completing Regulation Crowdfunding offerings having women or
underrepresented minority founders.

Regulation A.  Regulation A offerings
raised over $1.7 billion, with a $2.3 million median deal size.
This was a relatively steady increase compared to 2019-2020
numbers. Real estate companies remain the primary issuers
under Regulation A, raising $923 million, while other sectors
collectively raised $854 million in the 2020-2021 time period.

Other exempt offerings. Section 4(a)(2),
Regulation S and Rule 144A private placements accounted for $1.3
trillion of the capital raised within the Report’s time

Trends in small and emerging company
Of the financing options available to
small companies, equity investments accounted for only 6% of
external capital funding, with loans and lines of credit being the
primary source used. During the pandemic, COVID-19 emergency relief
was integral to the survival of many small businesses, with 91% of
employers seeking relief by applying for loans through the Paycheck
Protection Program.

Trends in late-stage company financings. 
Capital raised through venture capital (“VC”), private
equity and other investment funds continues to increase
year-over-year. VC deal value reached $164 billion in 12,084 deals
in 2020, with 2021 on track for a record-breaking year with $150
billion raised in 7,058 deals through June 30, 2021.


Source: OASB Report, p. 29

During the pandemic, many firms focused resources on later-stage
companies over angel/early-stage companies. Late stage private
placements raised $110 billion in 2020 and $109 billion was raised
in 2021 through June 30. Crossover investors also continuing to
provide strategic value to companies. 74% of IPOs, by count, were
backed by crossover investors. VC-backed exit activity in 2021
surpassed that of 2020, with $373 billion of exits raised in

Trends in environmental, social and governance
(“ESG”) investing. 
The Report identified
ESG-related trends in 2020-2021, including the launch of more than
20 ESG-focused SPACs raising over $5 billion in aggregate in 2020.
In 2020, companies hired a marked increase in the number of IPO
underwriters classified as minority-, women- or veteran-owned
firms, as shown in the following diagram:


Source: OASB Report, p. 36

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