ACE Portal’s user base of registered placement agents has warmed to the idea of general solicitation
Given the fanfare surrounding the passage of the JOBS Act, most industry participants are likely familiar with Title II which created the framework for entrepreneurs and fund managers to publicly advertise that they are fundraising. In short, Title II created a new exemption, termed “506c”, which allows an issuer to advertise that they are raising money / generally solicit investors for their capital raise. This provides issuers (and their placement agents) unprecedented latitude to reach out to investors, as compared to offerings made under “506b”, where marketing is limited to investors with whom an issuer or their agent has a substantive pre-existing relationship. (For a more in depth review on the different offering formats, please refer to our White Paper, “Navigating Change in the Private Capital Markets”).
With the new rule in place since last September, we thought it would be interesting to take an early look at adoption of the 506c exemption in our marketplace, using deals listed year to date as our data set. The charts below provide an overview of activity on ACE year to date. The data set is comprised of 32 deals representing a total of ~$1.8bn of expected transaction value.
Of the 32 deals, a total of 9 have been listed as 506c deals (~28%) representing $187mm of expected transaction value (~11%).
Based on ACE-listed transactions, issuers and their agents were still reticent to avail themselves of general sonication at the beginning of the year, but more recently, the exemption has grown to represent a meaningful percentage of transaction volume. Note that the low percent of dollar value in June (month to date) is the result of two relatively large transactions coming onto the platform under 506b. Average deal size overall in the market is ~$55mm; the average deal size for 506b deals is ~$68mm and the average for 506c deals is ~$21mm; so 506c deals have skewed to the smaller side here in the early innings.
Given ACE’s focus on relatively large scale institutional transactions (as opposed to smaller scale placements or crowd funding), we were not certain whether our registered agents would advise their issuer clients to avail themselves of general solicitation. At first blush, the concept seemed to lend itself more to crowd funding than large scale placements where confidentiality and exclusivity can be a concern. What we’ve found however is that issuers and their agents have begun to adopt 506c as a means to reach a broader network of investors in a controlled manner. The 506c exemption allows agents using ACE to efficiently broaden their reach to include institutions (and individual accredited investors if they desire) with whom they do not have a substantive pre-existing relationship, without advertising the capital raise to the general public. In response to growing adoption of general solicitation in this manner, ACE has created additional tools to allow agents to be more proactive and effective in marketing their deals. We believe this will support adoption of general solicitation among our agents. Of the 13 agents that have listed deals on ACE in 2014, 5 have at least one 506c transaction on the site.
In summary, we’ve seen agents and issuers adopting the 506c exemption in a practical, controlled manner as opposed to broadly advertising to the general public. We will continue to monitor the evolution of the market for securities issued under 506c and provide periodic updates as our data set continued to build.