The metrics are now largely in for capital market trends in Q2 and, at the lower end of the market at least, tell a compelling story of fundamental shifts in private capital raising. COVID-19 and the associated market panic tore contagion-like through the venture capital space, leading to significant belt-tightening. At the same time, crowdfunding activity got red hot.
Digging into the numbers a bit, overall venture deal volume dropped from 2,861 to 2,197 sequentially according to a recent report from Pitchbook, amounting to a 23% sequential decline. That number amounted to the worst VC deal volumes since Q4 of 2012. The comps got even worse at the lower end of the market, with seed through Series B rounds dropping 44% sequentially last quarter according to Crunchbase (down from Q1’s 964 deals to 541). But the greatest share of pain was experienced in seed rounds, which saw a 57% quarter-on-quarter decline (from 483 to 209). Pitchbook’s comps were similar, showing a drop from 570 seed deals to 316 (the worst quarter for seed volumes since Q3 of 2011) as seed dollars invested slipped from $1.4 to $1.0 billion (the lowest numbers since 2016). Overall early-stage VC volumes dropped significantly as well, from 848 to 630 (again, a near-nine year low), as early-stage VC funding dropped from $10.3 to $7.8 …
by Sean Levine
Finally, change for the better is officially afoot in the world of private placements. With the world engulfed in the COVID-19 pandemic, this exciting regulatory policy shift comes not only as a much-needed opportunity for the little guy, but could prove to be a significant driver of America’s economic recovery, as well.
On March 4, the SEC proposed sweeping changes to several rules covering private capital raise registration and regulation exemptions, in an effort to “provide a more rational framework, eliminate complexity and increase access to capital while preserving and enhancing important investor protections.”
Historically the go-to mechanism for most larger, institution and high net worth-focused capital raises is either Reg D 506b or 506c. Reg D will see only minor adjustments. The other expected changes will be to Reg A+, where the maximum annual cap raise limit will increase by 50%, from $50 million to $75 million and secondary shareholder participation will also increase by 50%, from $15 million to $22.5 …
Written by Jeff Gostovich
The U.S. government has been on a mission to reduce our country’s dependence on foreign oil and achieve energy independence. Increased domestic drilling to boost our own oil reserves is necessary to make this goal happen and, for decades, various administrations have taken steps to stimulate that action. However, contrary to what most of the public may think, the approach to making this a reality is not focused on incentivizing the supermajors (e.g. Exxon). Instead, the approach rests largely on many small-scale, privately funded oil and gas ventures.
Congress has offered oil and gas investors and small producers some of the most attractive tax incentives available in the U.S. tax code today — incentives unmatched in any other industry. With these substantial tax breaks, oil and gas investing has never looked better. …
by Ryan Reneau
Key Question: When an investor receives a token, what did she receive?
Securitizing assets through issuance of digital tokens raises numerous tax issues. The Internal Revenue Service issued guidance in 2014 stating digital tokens are property for purposes of US federal income tax. As a result, some issuers have reported the issuance of utility tokens as the sale of inventory.
Unlike the “initial coin offerings” launching utility tokens that receive substantially the same treatment from coin to coin, each digital token representing a securitized asset will be unique and require an independent analysis.
Despite being property, the issuance of security tokens may not be characterized as the sale of inventory. The tax treatment of a transaction should follow the economic substance. A digital security token representing a securitized asset is not the “it” sold in an issuance. The “it” is the bundle of economic rights tied to the digital token. …