CapitalRaisingintheU.S.

:AnAnalysisofUnregistered OfferingsUsingtheRegulationDExemption,200920121
AnupdateoftheFebruary2012study2 JULY2013 VLADIMIRIVANOVANDSCOTTBAUGUESS DivisionofEconomicandRiskAnalysis(DERA) U.S.SecuritiesandExchangeCommission

ABSTRACT
In2012,weissuedareportoncapitalraisingintheU.S.throughunregisteredofferings,using informationextractedfromFormDfilingsreceivedbytheU.S.SecuritiesandExchange Commissionsincethebeginningof2009throughthefirstquarterof2011.Inthisreportwe updateouranalysisthroughtheendof2012andprovideadditionalanalysisonthetypesof issuers,investors,andfinancialintermediariesthatparticipateinsuchofferings.Aswithour previousreport,theresultsareintendedtoinformtheCommissionabouttheamountand natureofcapitalraisedthroughunregisteredofferingsclaimingaRegulationDexemption,and toprovidesomeperspectiveonthestateofcompetitionandpotentialregulatoryburdenin capitalmarkets.Inparticular,wecomparetheamountofcapitalraisedinrelianceon RegulationDtocapitalraisedfromregisteredandotherunregisteredofferingmethods.This informationmaybeparticularlyusefulinassessingthepotentialneedforcurrentorfuture rulemakingactivity.ThisanalysisisnotintendedtoinformtheCommissionaboutcompliance withorenforcementoffederalsecuritieslaws.

ThisstudywaspreparedforCraigLewis,DirectorofDERAandChiefEconomist,andisafollowuptoa2012study byasimilarname.ThedocumentwasreviewedbyGeraldLaporteandKarenWiedemann,DivisionofCorporation Finance.ResearchassistanceprovidedforbyRossGoetz.TheU.S.SecuritiesandExchangeCommission,asa matterofpolicy,disclaimsresponsibilityforanyprivatepublicationorstatementofanyofitsemployees.The viewsexpressedhereinarethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheCommissionorof theauthorscolleaguesonthestaffoftheCommission. 2 Seehttp://www.sec.gov/info/smallbus/acsec/acsec103111_analysisregdoffering.pdf

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SUMMARYOFMAINFINDINGS
CapitalraisedthroughRegulationDofferingscontinuestobelarge$863billion reportedin2011and$903billionin2012. Since2009,hedgefundsreportedraising$1.3trillionthroughRegulationDofferings. Privateequityfundsreported$489billion;nonfinancialissuers3reported$354billion. Foreignissuersaccountfor19%ofthetotalamountsold. Since1993,thenumberofRegulationDofferingsishighly,positivelycorrelatedwith marketperformance,suggestingthatthehealthoftheprivatemarketiscloselytiedto thehealthofthepublicmarket. BecausethereisnoFormDclosingfilingrequirement,theamountofcapitalraised throughRegulationDofferingsmaybeconsiderablylargerthantheamountsdisclosed. Only63%ofcapitalsoughtsince2009isreportedassoldwithin15daysofthefirstsale. Rule506accountsfor99%ofamountssoldthroughRegulationD.Morethantwothirds ofnonfundissuerscouldhaveclaimedaRule504or505exemptionbasedonoffering size,indicatingthatissuersvaluetheBlueSkylawpreemptionallowedunderRule506. ConsistentwiththeoriginalintentofRegulationDtotargetthecapitalformationneeds ofsmallbusiness,therehavebeenmorethan40,000issuancesbynonfinancialissuers since2009withamedianoffersizeoflessthan$2million. FormDfilingsreportthatmorethan234,000investorsparticipatedinRegulationD offeringsin2012,ofwhich91,000participatedinofferingsbynonfinancialissuers, morethandoublethenumberofinvestorsparticipatinginhedgefundofferings.Non accreditedinvestorswerepresentinonly10%ofRegulationDofferings. Only13%ofRegulationDofferingssince2009reportusingafinancialintermediary (brokerdealerorfinder).Therealestateissuersuseintermediariesthemost(27%of offerings),whilehedgefundsusethemtheleast(6%ofofferings). Whenanintermediaryisused,commissionsorfeesare6%oftheoffering,onaverage, forofferingsunder$1million.Theratemonotonicallydeclinestolessthan2%for offeringsgreaterthan$50million.

AllissuersthatarenotpooledinvestmentfundsandthatarenotinthefollowingFormDlistedindustries: commercialbanking,Insurance,Investing,investmentbanking,andotherbanking&financialservices.
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I. ThesizeoftheRegulationDmarket
Inour2012reportoncapitalraisingthroughunregisteredofferings,wedocumentedthat thetotalamountsoldthroughtheRegulationDmarketwaslargeduringcalendaryears2009 and2010,afindingconsistentwithpriorreportsontheanalysisofRegulationDfilingsbythe OfficeofInspectorGeneral(OIG).4Ourupdatedanalysisofissuerselfreporteddatathrough electronicFormDfilingsinTable1revealsthatthenumberofunregisteredofferingsand correspondingamountsraisedcontinuetobelargethroughtheendof2012,althoughthepeak capitalraisingyearremains2010.5
Table1.CapitalraisedthroughRegulationDandRegulationD/A(amended)offerings* RegulationD RegulationD/A Total Mean Median filings filings amountsold amountsold amountsold* Year (number) (number) ($Billions) ($millions) ($millions) 2009 13,764 7,077 595 36 1.5 2010 17,581 11,864 1,025 26 1.4 2011 18,174 12,536 863 28 1.5 2012 18,187 13,284 903 27 1.5
*Meanandmedianamountsoldbasedoninitial(new)FormDfilingsonly.Totalamountsoldincludesadditional amountsraisedandreportedinamendedfilings,recordedatthetimeoftheamendment.

Theseestimatesarebasedonthetotalamountsoldatthetimeoftheoriginalfiling requiredwithin15daysofthefirstsaleaswellasanyadditionalcapitalraisedandreportedin amendedfilings.Theseestimateslikelyunderreporttheactualamountsoldduetoseveral factors.First,becauseelectronicfilingswerephasedinthroughtheendofMarch2009,paper filingsin2009arenotcapturedintheanalysis.Underreportingcouldoccurinallyearsbecause RegulationDfilingscanbemadepriortothecompletionoftheoffering,andamendmentsto reflectadditionalamountssoldgenerallyarenotrequirediftheofferingiscompletedwithina yearandtheamountsolddoesnotexceedtheoriginalofferingsizebymorethan10%.Finally, whileRule503requiresthefilingofanoticeonFormDofallofferingsunderRegulationD, duringthesampleperiodfilingaFormDisnotaconditiontoclaimingaRegulationDsafe harbororexemption,anditispossiblethatsomeissuersdonotfileFormDsforofferings intendedtobeeligibleforreliefunderRegulationD.6

The2004OIGreport,SmallBusinessRegulationDExemptionProcess,ReportNo.371,documentsthatthe Commissionrecordedunregisteredofferingsof$1.2trillionbetweenJanuary2000andMarch2001.The2008OIG auditoftheCommissionsRegulationDExemptionProcess,RegulationDExemptionProcess,ReportNo.459, issuedonMarch31,2009estimatedunregisteredofferingsof$609billionduring2008basedonasampleof323 electronicformDfilingsmadebetweenSeptember15,2008andDecember31,2008. 5 Werevisedupwardsthenumbersreportedinourpreviousreportfor2009($587billion)and2010($906billion). TherevisionisduetoourmoreaccurateaccountingforamountsfromamendedFormDfilings.SeeAppendixfor detailsonthemethodologyusedtocollectandanalyzetheFormDinformationinthisreport. 6 SeparateanalysisbyDERAstaffofFormDfilingsbyfundsadvisedbyregisteredinvestmentadvisersandbroker dealermembersofFINRAsuggeststhatFormDfilingsarenotmadeforasmuchas10%ofunregisteredofferings eligibleforreliefunderRegulationD.
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AlthoughtheaggregateamountofcapitalraisedthroughRegulationDofferingsislarge, theaverageofferingsizeismodest,ontheorderof$30millionineachyear.Themedian offeringsizeissignificantlylower,around$1.5millionineachyear,indicatingalargenumberof smallofferings,consistentwiththeoriginalregulatoryobjectivetotargetthecapitalformation needsofsmallbusiness.7ThesummarystatisticsinTable1alsoindicatethatalargefractionof offeringsareamendmentstopreviouslyfiledofferings,mostlyattributedtothecontinuationof privatefundofferingsdiscussedinmoredetailbelow.Underscoringtheimportanceofthe RegulationDmarketasasourceofcapitaltosmallerfirms,asignificantnumberofissuershave reliedonthismarketoverthelastfouryears.Therewere49,740uniqueissuersofnew RegulationDofferingsoverthefouryearsunderconsideration.Thisnumberincreasesto 56,968withtheinclusionofongoing(amended)offerings. Whiletheseestimatesdonotreflecttheactualamountsold,weestimateinFigure1an upperboundforissuersreportingonFormDbasedontheirreportedtotalofferingamount, whichfornonfundissuersrepresenttheamountofcapitalsoughtatthetimeofthefiling.This isthestatisticusedintheOIGreportsandtheonlystatisticavailableonnonelectronicFormD filingspriorto2008.8Thestatisticislessrelevantforfundissuersthatseekanindefinite amountofcapital.
Figure1.Totalamountsofferedandsoldbynonfunds
400 350 300 250 200 150 100 50 0 2009 2010 2011 2012 Amountsoldbynonfunds Amountofferedbynonfunds

TheCommissionstatedintheRegulationDadoptingreleasethatanimportantpurposeoftheFormDfiling requirementwastocollectempiricaldatawhichwillprovideabasisforfurtheractionbytheCommissioneitherin termsofamendingexistingrulesandregulationsorproposingnewones.Further,theproposedFormwouldallow theCommissiontoelicitinformationnecessaryinassessingtheeffectivenessofRegulationDasacapitalraising deviceforsmallbusinesses.ReleaseNo.336389(Mar.8,1982)[47FR11251](adoptingFormDasareplacement forForms4(6),146,240and242). 8 SeeElectronicFilingandRevisionofFormD,ReleaseNo.338891(Feb.6,2008)[73FR10592].
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Figure1reportstheamountsoldfornonfunds,andtheadditionalamountsoughtbutnot soldatthetimeoftheoriginalfiling.Weexcludeneworiginalfilingsthatindicatezeroamounts soldatthetimeofthefilinganddonotsubsequentlyreportanyamountsold.Fortheyears 2009through2012,63%ofthetotalcapitalsoughtbynonfundswasreportedassold. However,becauseofferingsmaynotbefullysubscribed,thetotalofferingamountisbest viewedasanupperboundoftotalcapitalraisedamongthoseissuersthatreportonFormD.

a. Cyclicality
Figure2presentsamorecomprehensivetimeseriesofRegulationDofferingactivity basedonthenumberofofferingsbycalendaryearstartingin1993.Thesenumberscorrespond toallnew(nonamended)FormDfilingsontheEDGARfilingsystem.Whilethesenumbersdo notindicatetheaggregateamountraisedthroughtheseofferings,Table1suggeststhat offeringsizesoverthemostrecentfouryearsarefairlyconstant,suggestingthatyeartoyear changesinthenumberofofferingsarelikelytoalsotrackchangesintheamountssold. Figure2.NumberofRegulationDofferings,19932012
25,000 20,000 15,000 10,000 5,000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1,600 1,400 1,200 1,000 800 600 400 200 0

NewRegDofferings

S&P500

Thetrendshowsthat2009wasanabnormallylowyear,consistentwiththeonsetofthe financialcrisis.Morebroadly,thereisastrong,positivecorrelationwiththeeconomiccondition ofthepublicmarket.Inparticular,thelevelofRegulationDofferingactivitycloselyfollowsthe leveloftheS&P500index.TherewerepeaksinthenumberofRegulationDofferingsin2000 and2007,consistentwithheightenedstockmarketvaluations.Hence,privateofferingsinthe RegulationDmarketareprocyclical,suggestingthatthehealthoftheprivatecapitalmarketis closelytiedtothatofthepubliccapitalmarket.Thisresultisinconsistentwiththeviewthat privatecapitalmarketsstepinduringtimesofpublicmarketstress.

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b. PrevalenceofRule506
MostRegulationDofferingsareissuedunderRule506,94%since2009(Figure3),which providesasafeharborfortheprivateofferingexemptionunderSection4(a)(2)oftheSecurities Act,andisoneofthreeexemptiverulesforlimitedandprivateofferingsunderRegulationD. Rule506offeringsaccountformorethan99%ofthereportedcapitalraisedthroughRegulation Dofferingssince2009.ThecurrentRule506permitssalesofanunlimiteddollaramountof securitiestobemade,withoutregistration,toanunlimitednumberofaccreditedinvestorsand upto35nonaccreditedinvestors,solongasthereisnogeneralsolicitation,appropriateresale limitationsareimposed,anyapplicableinformationrequirementsaresatisfiedandtheother conditionsoftherulearemet.9Inaddition,securitiesissuedunderRule506areconsidered coveredsecuritiesunderSection18oftheSecuritiesAct,thusexemptfromBlueSkylaw registration.Incontrast,alternativeprivateofferingexemptionsRules504and505offerings arelimitedto$1millionand$5millionrespectively,andaresubjecttostateBlueSky registrationlaws.10WhileRule505limitstheparticipationofnonaccreditedinvestorsto35per offering,Rule504allowsforunlimitednumberofnonaccreditedinvestors.Lastly,issuers relyingonRule504may,undercertaincircumstances,usegeneralsolicitationandalsosell unrestrictedsecurities.
Figure3.FractionofofferingsandamountraisedbyRegulationDExemption,20092012

Rule506 Rule504* Rule505 Missing 0.0% 4.0% 0.1% 1.4% 0.7% 0.3%

99.2% 94.2% AmountRaised NumberofOfferings

Table2showsthatRule506isthedominantofferingmethodevenamongthoseofferings eligibleforRules504and505.Almost50%ofallRule506offeringsbynonfundssince2009 werefor$1millionorlessandthereforemayhavequalifiedfortheRule504exemptionbased onofferingsize,butissuerselectedtoclaimtheRule506exemption.Anadditional20%of offeringswereforbetween$1millionand$5millionandthereforecouldhaveclaimedaRule 505exemptionbasedonofferingsize.ThisevidencesuggeststhattheBlueSkylawpreemption featureuniquetoRule506offeringshasgreatervaluetoissuersthantheuniquefeaturesof Rule504orRule505offerings.WiththeadoptionofrulesunderTitleIIoftheJOBSActthat

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SeeSECReleaseNo.339211,page4andfootnote8. Seediscussionofrules504,505,and506orRegulationDathttp://www.sec.gov/answers/regd.htm

removethebanongeneralsolicitationandallowissuerstogenerallysolicitandadvertiseto everyoneinRule506offeringssoldonlytoaccreditedinvestors,therewillbeevengreater incentiveforissuerstouseRule506.

Table2.Numberofofferingsbynonfundissuers,bysizeandexemptionclaimed,20092012* Offeringsize <$1 $15 $550 >$50 million million million million Rule504 1,997 Rule505 705 229 Rule506 19,424 11,957 8,103 1,268 *Considersonlynewofferingsandexcludesofferingswithamountsoldreportedas$0onFormD.

c. Sizerelativetoregisteredofferings
Inourpriorreport,wereportthatthetotalcapitalraisedannuallythroughRegulationD offeringsislargewhencomparedtoothercommonsourcesofcapital,including: Publicdebtandequity(registered)offerings11 Rule144A(resaleofunregisteredsecurities)12 RegulationS(offshorecomponentof144Aofferings)13 OtherSection4(a)(2)privateofferings14

Figure4illustratesthattheamountofcapitalraisedthroughRegulationDofferings remainslargerelativetootherprivateofferingexemptionsandiscomparable,butlarger,than theamountofcapitalraisedunderRule144A15.Registeredofferings(debtandequity combined)accountformorecapitalformationthattheRegulationDmarketalone,butnot whenallprivateofferingmethodsarecombined.In2012,registeredofferingsaccountedfor $1.2trillionofnewcapitalcomparedto$1.7trillionraisedthroughallprivateofferingchannels. Moreover,forthereasonsdescribedearlier,theamountraisedthroughprivateofferingsis likelyunderstatedduetoourinabilityobserveallprivatecapitalactivity.

DataforregistereddebtandequityofferingsfromThomsonFinancialsSDCPlatinum. DataonnonABSRule144AofferingscollectedfromThomsonFinancialSDCnewIssuesdatabaseandthe Mergentdatabase.DataonABSRule144AofferingsarecollectedfromtheAssetBackedAlertandCommercial MortgageAlertpublications. 13 DataforRegulationSofferingscollectedfromThomsonFinancialsSDCPlatinumservice. 14 DatacollectedfromThomsonFinancialsSDCPlatinum,whichusesinformationfromunderwriters,issuer websites,andissuerSECfilingstocompileitsPrivateIssuesdatabase.TheseincludeofferingsunderSection4(a)(2) oftheSecuritiesActthatdonotclaimaRegulationDorRegSexemptionandthatarewithoutafollowonRule 144Asale.ThesenumbersareaccurateonlytotheextentthatSDCisabletocollectsuchinformation,andmay understateactualtheamountofcapitalraisedunderSection4(a)(2)ifissuersandunderwritersdonotmakethis dataavailable. 15 ByitstermsRule144Aisavailablesolelyforresaletransactions.However,marketparticipantsuseittofacilitate capitalraisingbyissuersbymeansofatwostepprocess,inwhichthefirststepisaprimaryofferingonanexempt basistooneormorefinancialintermediaries,andthesecondstepisaresaletoqualifiedinstitutionalbuyersin relianceonRule144A.
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 Figure4.Aggregatecapitalraisedin20092012byofferingmethod($billions)
1,250 1,000 750 500 250 0 Publicdebt Publicequity 2009 2010 RegD 2011 Rule144A 2012 RegS+Sec4(a)(2)

Table2showsthatRegulationDofferingsoccurwithfargreaterfrequencythananyother offeringmethodsurveyed.Nootherofferingmethodhasbeenusedevenatenthasmuch duringthesameperiod,indicatingthattheaccumulationofcapitalraisedthroughRegulationD occursbywayofmuchsmallerofferingdenominationsthanothermethods,andisfurther evidenceofitbeingaprimarytoolforsmallerentities.

Table2.Numberofofferingsbytypeofofferingandyear Year 2009 2010 2011 2012 RegulationD Publicequity 20,841 942 29,445 1,072 30,710 863 31,471 954 Publicdebt 1,445 1,930 1,465 1,473 Rule144A 1,240 1,607 1,148 1,302 RegS 294 262 97 13 Other 4(a)(2) 648 668 863 518

TheimportanceoftheRegulationDmarketismagnifiedwhenconsideringthat approximatelytwothirdsofRegDofferingsrepresentnewequitycapital(Figure5),whichisa morepermanentsourceofcapitalthandebt,andthusmorelikelytoreflectnewinvestmentas opposedtotherefinancingofexistinginvestment.Putdifferently,totheextentthatdebt offeringsareattributedtotherollingoverofexistingdebtduetoanexpiringtermor refinancingduetoachangeininterestrateenvironment,suchtransactionsdonotreflectthe financingofnewinvestment.16Inaddition,alargerfractionofnonfinancialissuersrelyonReg DforraisingcapitalcomparedtotheRule144Amarket,wherethevastmajorityofissuersare financialinstitutionsandover99%ofsecuritiesaredebtsecurities.

ItispossiblethatequityissuancesinRegulationDofferingsreflectdeleveragingconversionofdebttoequity, whichmaynotreflectnewinvestment.
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 17 Figure5.NumberandpercentofRegDofferingsbytypeofsecurityissued
Equity PooledInvestmentFundInterests Option,WarrantorOtherRightto AcquireAnotherSecurity Debt 15,897 9,012 13.3% 8,749 12.9% 44,525 23.5% 65.8%

SecuritytobeAcquiredUponExerciseof 5,672 8.4% OptionorWarrant

Combined,theevidencefromFormDfilingssuggestsanactiveandvibrantmarketfor privateofferingscomparedtoregisteredofferings,andisinconsistentwiththeviewthatthere aresignificantfrictionsinthecapitalraisingprocessthatpreventissuersfromfunding investmentthroughprivateofferingchannels.18Moreover,theestimatedamountofcapital raisedthroughRegulationDofferingsineachyearsince2009issimilarinmagnitudetothe estimatedamountofcapitalraisedin2000priortostartoftheSarbanesOxleyregulatory environment($960billion19).Inthisrespect,andgiventhepaceofRegulationDofferingsfrom 2009until2012,thereisnoevidencethattheRegulationDofferingmarkethasshrunkoverthis period.

II. RegulationDmarketparticipants
a. IssuersofsecuritiesunderRegulationD
ThelargestissuersintheRegulationDbyamountsoldmarketarepooledinvestment funds,classifiedintheFormDfilingsashedgefunds,venturecapitalfunds,privateequity funds,andotherpooledinvestmentfunds.Thepredominantentitiesamongotherpooled investmentfundsareregisteredinvestmentcompaniesandcommoditypools.20Sincethe inceptionoftheelectronicFormDfilings,beginningin2009,pooledinvestmentfundshave

Thereare83,855issuesreferenced,whichisgreaterthanthetotal67,688newissuesinTable1.Thisisdueto multiplesecuritieslistedinthesamefiling. 18 Seee.g.,JosephMclaughlin,HowtheSECStiflesInvestmentandSpeech,WallStreetJournal,February3,2011. 19 Seefootnote4anddiscussioninSectionI. 20 Registeredinvestmentcompaniesareentitiessuchasmutualfundsthatissuesecuritiestoinvestors,holdpools ofsecuritiesandotherassetsandareregisteredwiththeCommissionundertheInvestmentCompanyAct. Commoditypoolsareinvestmenttrusts,syndicates,orsimilarenterprisesthatareoperatedforthepurposeof tradingcommodityfutures.

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accounted$2.8trillionofnewcapitalraisedthroughRegulationDofferingsandreportedon FormD(Figure6a),comparedto$623billionraisedbynonfunds.Hedgefundsarethelargest fundissuer,accountingfor$1.26trillionofnewcapital,ofwhich$386billionwasraisedin2012 (Table3).Nonfinancialissuers,typicallyprivatecompanies,raised$354billionduringthefour yearperiod,ofwhich$91billionwasraisedin2012.Financialservices,includingbankingand insurance,accountedfor$180billionraisedduringthefouryearperiod.

Figure6a.Aggregatecapitalraised(amountsold)duringtheperiod20092012byissuertype($billions)
HedgeFunds OtherInvestmentFunds PrivateEquityFunds NonfinancialIssuers FinancialServices RealEstate VentureCapitalFunds $64 $56 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $180 $354 $489 $986 $1,257

Althoughnonfinancialissuersraisedsubstantiallylessthanfundissuersinaggregate, theyaccountforthemajority(60%)ofallnewofferingsandFormDfilings(Figure6b). Consistentwiththis,themedianofferingsizefornonfinancialissuersissubstantiallylower thanthemedianofferingsizeforhedgefunds.In2012,themedianamountsoldbynon financialissuerswas$1.6millioncomparedto$100millionforhedgefunds,and$50millionfor privateequityfunds(Table3).Thedifferencesinmeanofferingsizeareevenlarger.The amountssoldbynonfundissuersaresubstantiallysmallerthanwhattheysoughttoraisein 2012(about49%),whichsuggeststhateithertheamountsreportedinFormDfilings understatethefullamountofcapitalraisedinthemarket,ortheofferingsaregenerally undersubscribed. Almost99%ofthecapitalraisedunderRegulationDin2012($898billion)wasbyissuers relyingontheRule506exemption,ofwhichpooledinvestmentfundsandnonfinancialissuers accountfor$725billionand$173billionrespectively.Thisrepresentsasignificantincreasefor nonfinancialissuerscomparedto2011whentheyreportedraisingonly$71billionunderRule 506.Inthesameyear,pooledinvestmentfundsraisedapproximately$778billion.
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 Figure6b.Numberofinitial(new)offeringsduringtheperiod20092012byissuertype
NonfinancialIssuers HedgeFunds RealEstate FinancialServices OtherInvestmentFunds PrivateEquityFunds VentureCapitalFunds 8,009 5,617 4,791 3,800 3,483 1,056 0 10,000 20,000 30,000 40,000 50,000 40,950

Table3.AmountssoughtandsoldthroughRegulationDincalendaryear2012byissuertype* Amount sold Amount Mean Median Number Amount Rule506 sought offersize offersize of sold offerings ($Billions) ($Billions) ($Billions) ($Millions) ($Millions) HedgeFunds 1,952 386 385 N/A 359 100 PrivateEquityFunds 1,083 159 159 N/A 307 50 VentureCapitalFunds 365 19 19 N/A 89 15 OtherInvestmentFunds 1,055 165 163 N/A 198 20 FinancialServices 1,069 63 63 165 62 4 RealEstate 1,900 20 20 48 15 2.3 NonfinancialIssuers 10,763 91 91 136 9 1.6 *Numberofofferingsincludesonlyinitial(new)FormDfilings;amountsoldincludescapitalraisedand identifiedthroughbothnewandamendedFormDfilings;meanandmedianoffersizearebasedon amountsoldreportedininitial(new)FormDfilingsonly.

Amongnonfundissuers,thelargestindustrygroupbydollaramountsoldisBanking, followedbyTechnology,HealthCare,RealEstate,andEnergy(Figure7).However,issuersfrom theTechnologyindustrygrouparethemostactive,making24%ofallreportedofferings.A largefractionofofferings(22%)donotspecifyanindustryonFormD.Issuerrevenueranges reportedinFigure8showthatissuersofprivateofferingstendtobesmall.Althougha significantnumberofissuersdeclinetodisclosetheirrevenues(55%),forthosethatdo,most haverevenuesoflessthan$1million.Only1.4%ofallnewofferingsarebyissuersthatreport morethan$100millioninrevenues.21Bywayofcomparison,50%ofSECreportingcompanies withpubliclytradedequityreportrevenuesofgreaterthan$100millionattheendof2011

FormDalsocontainsinformationonnetassetvalue(NAV)ofhedgefundsandotherinvestmentfunds.Since 2009,morethanthreequartersofissuershavedeclinedtodiscloseNAV,butofthosethatdo,atrendsimilarto revenueisreportedthelargestsetofissuersisinthesmallestNAVcategories.

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fiscalyear22,evidencethatissuersseekingcapitalthroughRegulationDofferingsare significantlysmallerthantheaveragepubliclytradedcompany.
Figure7.Mostactivenonfundissuersbyamountsold(20092012)
24.9% 9.3% 18.3% 22.1% 14.0% 24.2% 11.2% 10.9% 11.2% 14.2% 11.1% 9.7% 4.7% 3.3% 2.2% 1.9% 1.0% 0.6% 0.8% 1.8% 0.4% 1.3% 0.2% 0.6% No.ofOffers

Banking Other Technology Realestate Healthcare Energy Manufacturing Retailing Agriculture Businessservices Restaurants Travel AmountRaised

CalculatedbasedonanDERAanalysisof6,760SECregistrantsinwhohadaclassofequitysecuritywitha reportedmarketpricereportedbyStandardandPoorsCompustatdatabaseattheendoffiscalyear2011.
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 Figure8.Distributionofnonfundissuersbyreportedrevenue(20092012)
Notapplicable DeclinetoDisclose Over$100mil $25mil$100mil $5mil$25mil $1mil$5mil $1$1mil NoRevenues 1.4% 1.6% 3.4% 4.9% 12.3% 17.3% 3.7% 55.4%

IssuersthatfileperiodicreportswiththeCommissionundertheSecuritiesExchangeAct of1934oftenconductprivateofferings.Figure9reportsthenumberofofferingsconductedby nonfundissuers(leftaxis),andthefractionofthoseofferingsconductedbySECreporting companies23orbyissuersthatsubsequentlyinitiatereportingwiththeCommissionbyfilingan S1registration(rightaxis).Overthefouryearanalysisperiod,13%ofRegulationDnonfund offeringswerebySECreportingcompanies.Inaddition,about2.5%ofnonfundofferingswere byissuersthatsubsequentlyregisteredanofferingwiththeCommissiononFormS1.Forthese issuers,aRegulationDofferingwasaprecursortogoingpublic.

Figure9.OfferingsbynonfundRegulationDissuers,andthefractionthataremadebySECreporting companiesorissuersthatsubsequentlyregisteranofferingwiththeCommission
18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2009 2010 2011 2012 Offeringsby10K/20F/40Ffilers 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

OfferingsbynonfundRegDfilers OfferingsbyfutureS1filers

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WeidentifiedreportingcompaniesasthosethatfiledonForms10K,20F,or40Fduringtheanalysisperiod.

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b. InvestorsinRegulationDofferings
RegulationDallowsbothaccreditedandnonaccreditedinvestorstoparticipateinprivate offerings,withthenumberofnonaccreditedinvestorslimitedtomaximumof35forRule505 andRule506offerings.24BasedoninformationcollectedfromFormDfilings,mostparticipants areaccredited.Forexample,in2012,only10%ofnewofferingsincludenonaccredited investors(Table4).OfferingsbyfinancialissuersandREITsaremorelikelytohavenon accreditedinvestors(14%ofofferingshaveatleastonesuchinvestor),whileofferingsbyVC fundsonlyrarelyincludenonaccreditedinvestors(0.6%ofofferingshaveatleastonesuch investor).AlthoughRule506allowsfortheparticipationofnonaccreditedinvestors,theyonly participatedin11%oftheRule506offeringsconductedbetween2009and2012.Only8%of theofferingsbyfundissuersincludednonaccreditedinvestors,comparedto12%ofthe offeringsbynonfundissuers. AggregatedFormDinformationalsorevealsmorethan234,000investorsparticipatingin RegulationDofferingsin2012,ofwhichmorethan90,000participatedinofferingsbynon financialissuers,triplethenumberofinvestorsthatparticipatedinofferingsbyhedgefunds. However,becauseaninvestorcanparticipateinmorethanoneRegulationDoffering,this aggregationlikelyoverstatestheactualnumberofuniqueinvestorsintheprivateoffering market,andwehavenomethodofestimatingtheeffect.Themeannumberofinvestorsper offering(13)issignificantlylargerthanthemedian(4),indicatingthepresenceofasmall numberofverylargeofferings.OfferingsbypooledinvestmentfundsandREITshavethe largestaveragenumberofinvestors(bothaccreditedandnonaccredited)peroffering,while thosebynonfinancialissuershavethesmallest.
Table4.InvestorsparticipatinginRegulationDofferingsin2012 Totalnumber ofinvestors 29,646 19,374 5,275 26,893 15,591 47,135 90,758 234,672 Mean investorsper offering 15 18 15 26 15 25 8 13 Median investorsper offering 3 5 3 5 5 7 4 4 Fractionof offeringswith atleastone nonaccredited investor 7% 5% 0.6% 7% 14% 14% 10% 10%

HedgeFunds PrivateEquityFunds VentureCapitalFunds OtherInvestmentFunds FinancialServices RealEstate NonfinancialIssuers Total

InofferingsunderthenewRule506(c)thatpermitstheuseofgeneralsolicitation,onlyaccreditedinvestorswill beeligibletopurchasesecurities.
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III. TheRoleofFinancialIntermediariesintheRegulationDmarket
Whilefinancialintermediariescommonlyunderwritepublicofferings,thereisrelatively littleinformationaboutintermediaryparticipationinprivateofferings.Onepossibleroleforan intermediaryinaprivateofferingistohelpissuerslocatepotentialinvestorswithoutviolating thebanongeneralsolicitation,aconstraintofcurrentRule506offerings.Usingapreexisting andsubstantiverelationshipbetweentheintermediaryandpotentialinvestorsisonemethod fortheissuertoensurerulecomplianceandpreservetheRule506safeharbor. InformationcollectedfromFormDfilingsrevealsthatintermediariesareusedrelatively infrequentlyintheRegulationDmarket.Only13%ofallnewofferingssince2009usean intermediarysuchasafinderorbrokerdealer(Figure10).Approximately11%ofnewofferings reportsalescommissionsgreaterthanzero,whileapproximately3%reportfinderfeesgreater thanzero.Issuersfromtherealestateindustryarethebiggestusersofintermediaries(27%of allofferings)whilehedgefundsuseintermediariestheleast(6%ofallofferings).Nonfinancial issuersrelyonintermediariesin12%ofofferings.Whenanintermediaryisused,mostclasses ofissuersusebetweentwoandfourintermediaries,althoughVCsthatuseintermediaries typicallyengageabout11intermediariesperoffering.
Figure10.UseoffinancialintermediariesbytypeofRegulationDissuer,20092012

Commissionorfeesasa%ofamount sold

7.0% 6.0% 5.0% 4.0%

30% 25% 20% 15%

3.0% 2.0% 1.0% 0.0%

HedgeFund Private Venture Other EquityFund CapitalFund Investment Fund Financial Services RealEstate Nonfinancial

10% 5% 0%

Brokercommissions

Finderfee

%0fferingswithIntermediaries

%ofofferingswithintermediaries

Whenabrokerorfinderisused,thereissignificantvariationincommissionsorfees acrosseachclassofissuer.InformationfromFormDfilingsrevealsthatcommissionsandfinder feesaresmallestforpooledinvestmentfundsandlargestfornonfinancialissuers.Non financialissuerspayonaverageabout6%commissioninRegulationDofferings.For

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comparison,acompanygoingpublicpaysanaveragegrossspreadof7%toitsIPO underwriters25,whileapubliccompanyraisingequitythroughafollowon(seasoned)equity offeringpaysagrossspreadofabout5.4%.26Issuersraisingcapitalthroughregisteredbond issuespaycommissionsbetween0.9%and1.5%ofthesizeoftheoffering.27Incontrast,hedge fundsraisingcapitalthroughRegulationDofferingspayonaverage0.4%commission.Brokers andfindersarenomorecostly,onaverage,thantheunderwritingfeeschargedforpublic offerings,sofeesdonotprovideanobviousreasonfortheirrelativelyinfrequentusein unregisteredofferings. Figure11reportstheuseoffinancialintermediariesandfeesfordifferentofferingsizes, irrespectiveofissuertype.Theuseofabrokerorfinderincreaseswithofferingsize;they participatein13%ofofferingsforupto$1millionand18%ofofferingsformorethan$50 million.Moreover,commissionsandfinderfeesdecreasewithofferingsize.Unlikethegross spreadsinregisteredofferings,thedifferencesincommissionsforRegulationDofferingsof differentsizesarelarge:theaveragecommissionpaidbyissuersdoingofferingsofupto$1 million(6.5%)isalmostthreetimeslargerthanoftheaveragecommissionpaidbyissuersdoing offeringsofmorethan$50million.Theseresultsareconsistentwithlargerdealsgenerating scaleeconomiesfortheinvolvedintermediaries.Evenso,thevastmajorityoftheofferingsare conductedwithouttheuseofafinancialintermediary.
Figure11.Useoffinancialintermediariesbysizeofoffering

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

0$1million $1million$5 million $5million$10 million $10million$50 million Greaterthan$50 million

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Brokercommissions

Finderfee

%0fferingswithIntermediaries

%ofofferingswithintermediaries

7.0%

20%

Commissionorfeesasa%of amountsold

SeeHsuanChiChenandJayRitter,TheSevenPercentSolution,JournalofFinance55,11051131(2000). SeeShaneCorwin,TheDeterminantsofUnderpricingforSeasonedEquityOffers,JournalofFinance58,2249 2279(2000). 27 SeeL.Fang,InvestmentBankReputationandthePriceandQualityofUnderwritingServices,JournalofFinance 60,27292761(2005).
26 25

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IV. Statisticsoncapitalraisedbyforeignanddomesticissuers
Overtheperiodfrom2009to2012,foreignissuersaccountforapproximately19%ofall capitalraisedbyRegulationDofferings,althoughthisfractionvariesovertime(Figure12). Participationwaslowestin2011andhighestin2009(theheightofthefinancialcrisis).By comparison,foreignissuersaccountfor49%ofcapitalraisedviaRule144Aofferings,35%of capitalraisedthroughpublicdebtofferings,andonly13%ofcapitalraisedthroughpublic equityofferings.
Figure12.PercentofcapitalraisedinU.S.bydomesticandforeignissuersbyofferingmethod

RegulationD
100% 80% 60% 40% 20% 0% 2009 2010 Domestic(B) 2011 Foreign(B) 2012 100% 80% 60% 40% 20% 0% 2009

Rule144A

2010 Domestic

2011 Foreign

2012

PublicEquity
100% 80% 60% 40% 20% 0% 2009 2010 Domestic 2011 Foreign 2012 100% 80% 60% 40% 20% 0% 2009

PublicDebt

2010 Domestic

2011 Foreign

2012

Whenaggregatedacrosstypesofofferings,U.S.issuersraisedmorethantwiceasmuch capitalasforeignissuersineachcalendaryearsince2009(Figure13).Duringthatperiod,the amountofcapitalraisedbyforeignissuersdecreased23%,from$875billionto$674billion,

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whiletheamountofcapitalraisedbydomesticissuersincreased5%,from$1.79trillionto $1.87trillion.
Figure13.AggregatecapitalraisedintheU.S.bydomesticandforeignissuers($billions)
2250 2000 1750 1500 1250 1000 750 500 250 0 2009 2010 Domestic 2011 Foreign 2012

V. RegulationDofferingsbypubliccompanies
RegulationDofferingsareavailabletoanypotentialissuerwithoutregardtoitsSEC reportingstatus.AmongissuersinRegulationDofferings,reportingcompaniesareunique becausetheyhavepreviouslyregisteredsecuritieswiththeCommissionandareabletoaccess bothpublicandprivatecapitalmarkets.Therearemanyreasonswhyapublicfirmwouldselect aRegulationDoffering(e.g.,loweroverallissuancecost,confidentialityissues,speedof issuance,shelfregistrationineligibility,temporarylackofaccesstopubliccapitalmarkets).The analysisbelowprovidescontextontheextenttowhichthisoccurs.Table7reportsthefraction ofpubliccompaniesraisecapitalviathismarket,howmuchtheyraise,andhowlargethe capitalraisedthroughRegulationDofferingsiscomparedtotheirpublicofferings.28 Nearly10%ofallSECreportingcompaniesraisedcapitalthroughRegulationDofferings duringtheperiod2009to2011,andabout6%in2012.Reportingcompaniesaccountfor2%of thetotalamountsoldthroughRegulationDofferings,onaverage,althoughthisvaries significantlybyyear.Forcomparison,nonfundissuersthatarenotSECreportingcompanies accountonaveragefor19%ofthetotalamountofcapitalraisedthroughRegulationDofferings duringtheperiod2009to2012.Asagroup,reportingcompaniesthatmadeRegulationD

WeusedlistingsintheStandardandPoorsCompustatandtheUniversityofChicagosCenterforResearchin SecuritiesPrices(CRSP)databasestodeterminepubliccompanies,althoughitispossiblethatsmallerpublic companiesarenotreportedbythesedataaggregationserviceproviders.

28

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offeringsalsoraised,onaverage,$19billionannuallyviapublicofferingsand$12billion annuallyviaRule144Aofferings.Thesizeoftheprivateofferings(RegulationDandRule144A) bythesefirmsislargerthantheirpublicofferingsinthreeofthefouryearsunder consideration,showingacontinuedpreferenceforprivatecapitalmarkets.

Table7.CapitalraisedbypubliccompaniesthatissueRegulationDofferings($billions) Meansizeof Meansizeof Meansizeof Numberoffirms RegulationDissues publicissues 144Aissues Year (%oftotalpublicfirms) (%oftotal) (%oftotal) (%oftotal) 533 $26.8 $28.2 $19.0 2009 (9.3%) (4.6%) (2.2%) (6.5%) 542 $6.6 $24.2 $23.3 2010 (9.7%) (0.7%) (2.1%) (5.4%) 542 $4.9 $13.5 $6.0 2011 (9.7%) (1.5%) (3.8%) (7.8%) 481 $25.5 $10.8 $0.4 2012 (6.2%) (2.8%) (0.9%) (0.2%)

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Appendix
ThisappendixdescribestheproceduresusedtocollecttheRegulationDsampleandthe dataontheotherofferings.OneoftheoriginalpurposesofFormD,firstadoptedin1982,was tocollectandanalyzedataonissuersusingRegulationD.29However,until2008,issuersfiled FormDonpaper,makingtheextractionofinformationforlargescalestatisticalanalysis problematic.InFebruary2008,theSECadoptedamendmentstoFormDthatrequiredissuers tosubmittheirFormDfilingselectronically,inastructureddataformat.30Asaresultofthese requirements,whichwerephasedinfromSeptember2008throughMarch2009,FormDfilings arenowmachinereadable.Usingbasictextparsingtools,DERAstaffwasabletoextractthe reportedelementsandplacetheminadatabaseenablingthelargescalestatisticalanalysis reportedhere.

A. RegulationDsample
ThemethodsusedforextractingFormDinformationhavebeenmodifiedsinceour originalreportin2012.Asbefore,wecollectedallFormDfilings(newfilingsandamendments) onEDGARstartinginJanuary2009,andextendedthesamplethroughDecember2012.We extractedallfieldsfromeachfilingandappliedthefollowingtreatmentstoarriveatourfinal sample. Subsequentamendmentstoanewfilingaretreatedasincrementalfundraisingand recordedinthecalendaryearinwhichtheamendmentisfiled.Ifanissuerfiledonly FormDamendments,andthosereferenceapost2008saledate,thefirstfiled amendmentistreatedasanoriginalFormDfiling. Theincrementalamountsoldbetweentwosuccessivefilingsofthesameissueris determinedbytakingthedifferencebetweenthetotalamountsoldreportedin eachsuchfiling. Weestimatetheincrementalamountofcapitalraisedandreportedinamended filingsforwhichthereisnooriginalfilinginelectronicform.Thisoccursonlyin2009. Theestimatedincrementalcapitalraisedintheseinstancesisbasedonahaircut ofthetotalamountsoldreportedinthelatestfiledamendment.Thispercentageis theaverageincrementalamountsoldinallamendmentsforwhichthereisan originalfilinginelectronicform,calculatedseparatelyforfundsandnonfunds.This resultedinhaircutpercentagesof11%and27%,respectively.Thistreatmentis unnecessaryforofferingsstartingin2010. ForeignissuersaredeterminedbasedontheinformationonIssuerStatethatthey provide.

ReleaseNo.336389(Mar.8,1982);47Fed.Reg.11251(1982)(adoptingFormDasareplacementforForms 4(6),146,240and242). 30 ReleaseNo.338891(Feb.27,2008);ElectronicFilingandRevisionofFormD,70Fed.Reg.10,592(2008)(tobe codifiedat17C.F.R.pts.230,232&239).

29

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Whenanissuercheckstheboxtoclaimmorethanoneofferingexemption(Rule 504,505,or506),forthepurposeofthisanalysis,weassumethatanyissuerthat checkstheboxforRule506isinfactrelyingonRule506.

B. Otherofferings
DataonIPOs,equityofferingsbyseasonedissuers(EOSIs),convertibledebt offerings,publicdebtofferings,andprivateofferingsaretakenfromSecuritiesData CorporationsNewIssuesdatabase(ThomsonFinancial).DataonnonABSRule144A offeringsaretakenfromSecuritiesDataCorporationsNewIssuesdatabaseand Mergentdatabase. DataonABSRule144AofferingsaretakenfromtheAssetBackedAlertand CommercialMortgageAlertpublications.WeusenonU.S.collateralbackeddealsto proxyfordealsdonebyforeignissuers. Publicdebtofferingsbygovernment,state,municipal,andquasigovernmental issuers(e.g.,FannieMae,FreddieMac)areexcludedfromthepublicdebtsample. C. Correctionsfromthelastreport a. WeobtainedadditionalnonABSRule144AdatafromMergent,whichallowed ustobetterestimatethesizeofthatmarket. b. Inthepreviousreport,welinkednewfilingsandsubsequentamendmentsbythe sameissuerbyfirstsaledate,whichresultedinerrorsforofferingsthatdidnot reportfirstsaledateorwhenthereweremultipleissuesonthesamedate.In thisversion,welinkednewfilingsandtheircorrespondingamendmentsby accessionnumber,auniqueidentifierthatallowsamoreaccuratematchingof newofferingsandamendments,andaccountsforthedifferentannualestimates fromthepreviousreport.

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