Equity crowdfunding has exploded onto the scene as a new way to get funding for a startup company.
There’s been a lot of hype by platforms, industry experts, and entrepreneurs, claiming that this new financial industry will re-define how early-stage startup link up with investors
There’s no doubt that equity crowdfunding is here to stay. Already, many companies have used the new laws outlined by the Jobs Act to raise millions of dollars from the crowd.
With this article, I want to get down the get down to brass tacks and share with the current statistics for equity crowdfunding.
We’ll discuss how much funding has been raised under the various types of crowdfunding and also the future implications.
First 100 Equity Crowdfunding Campaigns
I want to talk about the first 100 equity crowdfunding campaigns that were launched under Title III of the Jobs Act (aka Reg CF).
Millyard Tech Law did some great work here compiling this data from the US SEC EDGAR online filing system. This data set spans May 2016 – September 2016.
This information will help us set the stage going forward when it comes to the type of companies that are using Reg CF.
Summarized, here are some of the findings
- 33% fall into mobile app/internet services
- 8% included beer and spirit companies (oddly high)
- All industries were represented
- 60% were in business one year or less
- A majority were in pre-revenue stage
- Valuation caps ranged from $1.5 – $4 million
- Platform transaction fees ranged from 3-10%
- WeFunder hosted 40% of the campaigns.
- 28% of campaigns that opened in May of 2016 hit their goal (though many exceeded their fundraising minimum)
At this point time in the timeframe, it’s easy to see how regulation CF is being used by early-stage companies. The first 100 campaigns give some idea of the industries these startups fall into.
One Year into Regulation Crowdfunding
Reg CF was put into effect in May of 2016. Since then, more than 300 startup companies filed offerings with the SEC.
Throughout this first year:
- 43% of companies received funding
- More than $40 million in capital was invested in companies
- Average campaign raised $280k from 300+ investors.
- Top platforms include: WeFunder ($18M), Start Engine ($7.4M), MicroVentures ($3.1M), NextSeed ($2.8M), and SeedInvest ($2.7M).
While $40 million doesn’t come anywhere close to angel investment or venture capital statistics, it demonstrates that real startups are raising money using this new law.
From 2016 to 2017 with Regulation Crowdfunding
2017 was an epic year for Reg CF, with lots of growth and many successful campaigns. Below, I’ll summarize some of the major takeaways between these two years. This is public information.
- Offerings increased from 178 in 2016 to 481 in 2017.
- Total investment grew from $27 million in 2016 to $49 million in 2017.
- Funded offerings grew from 99 in 2016 to 200 in 2017.
- Campaigns are being launched mainly in California, Texas, Massachusetts, and New York.
Basically, the total funding under Reg CF is growing. It grew by about 267% from 2016 to 2017. Technically, 2017 is the first calendar year that this new regulation has been in effect.
If equity crowdfunding were to continue to experience this level of growth, it could grow into a billion dollar industry in the next 5 years!
16 Months into Regulation A+
Regulation A+ was put into effect on June 2015, which is about a year earlier than Reg CF of the Jobs Act.
About 16 months in (Nov 2016), the SEC commissioned a white-paper to analyze how the law was performing.
Here are some of the summarized bullet points from this report:
- Tier 2 offerings account for 60% of total offerings
- 80% of offerings did not do test-the-waters campaigns
- ~$190 million was raised between June 2015 and Oct 2016.
- Reg A+ offerings surpassed Reg A, but not Reg D offerings.
- Legal costs were ~$50,000 per offering
- Auditing costs were ~$15,000 per offering
- 121 days from filing to tier 2 qualification
- 13% of the offerings were from real estate companies
- Average issuer was seeking $18 million
- Underwriters were involved in approximately 18% of all offerings.
At the time of writing, more than $300 million has been transacted under Reg A+.
Regulation D in 2016
There is a great report that the SEC put together regarding Regulation D activity from 2010 – 2015.
In 2015, more than $1.25 trillion was listed in Reg D offerings. In 2016, as compiled by CrowdfundInsider, this number hit $2 trillion.
Keep in mind that “funds offered” are different than “funds raised.” Just because there was an offering does not mean that capital was secured.
In total, there were 23,292 offerings in 2016. Wow!
Based on historical information for Reg D 506(b) and 506(c) campaigns, Reg D is still the primary method of funding for startup companies when it comes to the Jobs Act.
2018 and Beyond
We’re going to continue to see growth in terms of the number of companies that perform Reg CF offerings. This would be accelerated if the cap on Reg CF offerings was raised (it’s currently at $1,070,000).
I also believe that we’re going to continue to see growth when it comes to companies using the new Reg A+ laws, particularly among real estate crowdfunding websites like Fundrise. Hopefully, more broker-dealers will also get in on this.
In addition to vetting high quality companies, the success of this industry rests on the quality of education that is available to entrepreneurs, investors, and platforms.
I believe this is MY role in the process. That’s one of the reasons that I am committed to putting out more quality information on equity crowdfunding!
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