Investment Crowdfunding - ??Economic Stimulus and Platform Performance??.

In this third installment (you can check out Part I here and Part II here), I'll continue to share some stunning statistics that will put to rest some sticky preconceptions as it relates to how investors - be it private, angel, VC, institutional or retail - are acting in the space. Smart money truly is getting into the opportunity, and rightfully so. I'll continue to use the information from our just released annual report "2023 Crowdfund Capital Advisors (CCA) Annual Report - Democratizing Access To Capital Across The USA"(More details here).

Economic Stimulus

Investment Crowdfunding companies are required to file current and ongoing financial disclosures. By analyzing these disclosures, we can estimate the economic impact of successful issuers. We determine the amount of money these companies spend on goods and services and track this over time.

Suppose we delve into the annual reports of issuers compliant with their annual filings. In that case, we can observe that between the year an issuer successfully raised money and the following year, their average revenues increased by an impressive 285.4%. Moreover, if we closely examine the issuers that were pre-revenue in the year they succeeded with their offering and the following year, 35.1% of them became revenue generating. These impressive statistics indicate that the issuers’ customers/investors are marketing agents and repeat customers for the businesses. This increase in revenue directly results in a boost to the economy as most of these issuers invest the money they earn back into local economies by purchasing products and services, paying taxes, and generating employment opportunities.

When Investment Crowdfunding started in 2016, issuers that were successful with raises circulated at least $43.5 million into local economies across the country, and that number has steadily increased over time. In 2023, that number ballooned to $2.6 billion for all issuers that were successful that year with offerings. By being conservative and assuming no growth for these firms, the total amount invested into local economies since the launch of Investment Crowdfunding is a staggering $6.8 billion. Hence, investing in local businesses isn’t just good for companies but also the economy in general.

Suppose we forecast to include existing issuers that continue to pump capital into the economy year after year and new issuers that will do the same. In that case, the economic output of successful Investment crowdfunding issuers will grow to over $400B over the next ten years. If you remove the ability of these firms to access capital, their chances of survival may shrink, and it is possible to see billions of dollars of economic output disappear.

(More detailed analysis in the full report)

Platform Performance

Since the launch of Investment Crowdfunding, 119 Funding Portals or Broker-Dealers (aka intermediaries) have registered with the Securities and Exchange Commission and FINRA to facilitate online investment offerings. In 2023, 57 intermediaries facilitated offerings, down from 60 in 2022. So the market retracted by three active intermediaries, or 5% in 2023. The compounded annual growth rate for intermediaries stands at 15.3%.

Findings

• Wefunder consistently leads each year (except in 2019) with investments.
• When looking at the total investments made over time, Wefunder is at the top with $834.9 million. StartEngine is the runner-up with$495.8 million, and Republic comes third with $270.1 million. SeedInvest was in the fourth position with $141.5 million, but StartEngine acquired it. If the amount invested in SeedInvest is added to StartEngine's total, they would still hold the second position.
• As mentioned, all of these platforms allow raises under other exemptions. If those are taken into account, based on publicly available information, Republic will lead with over $2 billion invested since 2012.
• Considering the number of offerings, Wefunder leads the industry, having funded 1,573 offerings (30.5% of all offers), followed by StartEngine at 1,268, Republic at 610, Mainvest at 365, and Honeycomb at 308. Mainvest and Honeycomb are predominately debt platforms.
• In 2023, five of the platforms experienced a decrease in the number of total and funded deals. On the other hand, four platforms witnessed an increase in funded deals compared to 2022. SeedInvest was acquired in 2023 and had no funded deals as a result.

(More detailed analysis in the full report)

Areas of Improvement

??In a next installment I will dig deeper into this issue. Right now, I'd like to point to this Letter to Congress that my colleague Sherwood (Woodie) Neiss at Crowdfund Capital Advisors just published, and which you can find here. It touches on some of the issues, while commenting forcefully against the opposition of NASAA to passing HR 2799, the Expanding Access to Capital Act – legislation that is designed to help entrepreneurs and small businesses while boosting the economy. Quoting Woodie:

The passage of H.R. 2799 represents a pivotal step toward solidifying this growth trajectory and fortifying the crowdfunding ecosystem that has proven to be a bedrock for capital formation. This act is poised to enhance the framework for capital formation while upholding robust investor protections, thereby nurturing the public securities markets and safeguarding investors’ financial futures.

And he continues:

As legislators, the choice before you is not merely a regulatory one; it is a choice that will shape the economic destiny of countless Americans. The act’s emphasis on economic output, innovation, and job creation aligns seamlessly with the ethos of promoting responsible capital formation without compromising on investor protection.

(More detailed analysis in the full report)

I'll talk to you again in Part IV.

Yvan De Munck is the business development director at CClear?? - the data division of Crowdfund Capital Advisors. CClear?? has a 100% complete dataset of all Regulation Crowdfunding offerings that is inclusive of more than 6,800 companies and 7,900 offerings including business status, investor sentiment, valuation, and more.