Investment Crowdfunding - An investors' opportunity for the ages ??????!

In this second installment (you can check out Part I here), I'll be sharing 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).

Investments

??The bottom line here was that fewer investors appeared, but the ones that did wrote bigger checks. 2023 was the best year on record for investments and expanded beyond 2022 - $560.3 million vs. $501.7 million. 11.8% increase in funding, with a compounded growth rate of 62.6% since inception!

A significant increase in issuers with million-dollar plus revenues emerged after the SEC's regulatory change in 2021, which raised the crowdfunding cap from $1 million to $5 million. This change has made crowdfunding a more attractive option for established businesses. In 2023, issuers with revenues exceeding $1 million constituted 16.4% of all issuers, up from 12.4% in 2022, indicating a growing presence of financially stable companies in the crowdfunding realm. These issuers attracted investments, raising $158 million, representing 28.2% of all capital invested that year. This indicates that one out of every four dollars invested in 2023 went to these higher-revenue issuers, reflecting a possible investor preference for companies perceived as lower-risk due to their established revenue streams.

Taking it one step further, consider issuers with revenues greater than $3 million. The number of successful deals is 86 (7.5% of all deals), and they raised $105 million (18.8% of all capital invested in 2023). This amount of revenue is a proper series A level. Having these deals in the space shows how institutionalized investment crowdfunding is becoming.

Since the launch of Investment crowdfunding, 578 offerings have raised over $1 million from 965K investors. This means that 9.4% of all successful raises exceeded $1 million in funding. These offerings have raised over $1.2 billion, or 57% of all the online capital, and 50.5%, or one of every two checks written, went to million-dollar deals.

These findings underscore a few points:

1. Significant Proportion of Capital in Fewer Offerings
2. High Investor Engagement in Top-Performing Deals
3. The majority of Investment Concentrated on High-Value Deals
4. Diverse Investor Base
5. Implications for New Campaigns and Small-Scale Fundraisers
6. Critical Role of Due Diligence for Investors
7. Indicator of Market Maturity and Investor Preferences

(More detailed analysis in the full report)

Geographic Distribution

??Another exciting observation: it's clear that crowdfunding isn't just for tech startups; various industries across different regions are reaping the benefits. This widespread appeal stimulates local economies, creates jobs, and nurtures innovation in communities far and wide.

The investor base in crowdfunding is as varied as it gets, with people backing everything from neighborhood businesses to ventures with a social mission. This diversity among investors helps crowdfunding reach even further, magnifying its impact. Success stories are plentiful in the crowdfunding data, serving as solid evidence of how well this method works for fostering growth and development across regions and ectors. These stories are not just feel-good anecdotes but are concrete examples of crowdfunding's power to make capital more accessible.

By analyzing the data on capital distribution, we can gain insights into how money is distributed across the country. Comparing the average and median raises of different states can help us identify which states perform better than others. California has the highest number of successful funding deals; if we focus on states with over 100 funded deals, we can see that Delaware has the highest median raise of $181.4K. In contrast, California has the highest average raise of $503.8K.

All regions saw an increase in average raises from 2022 to 2023; however, except for the Northeast, they all saw a drop in their median raise. (More detailed analysis in the full report)

Investor sentiment (!)

??Since the launch of investment crowdfunding, over 1.95 million checks have been written by investors for all successful offerings across the United States, indicating investors' broad appetite for funding businesses. They also have stated that the majority of their investors are retail is important because investment crowdfunding is the first time retail investors have been allowed to invest in startups.

These numbers also show why investment crowdfunding is essential because these investors are spread across the nation and invest in regions VCs most likely would not or cannot support. (Many VCs typically invest within 2 hours of their offices' locations). Hence, without investment crowdfunding, there would be a shortage of capital outside a few major metropolitan areas.

Investment crowdfunding has had a total of 5,512 successful raises since its launch. A raise is considered successful when it surpasses its minimum funding target. This means the success rate is 69.3%, a favorable outcome compared to other alternative forms of capital access. For instance, they fund only 2% of companies that apply for venture capital.

However, almost 1 out of 3 offerings fail to reach their minimum funding goal and, therefore, return the committed capital to investors. These findings could indicate that the marketplace is efficient. Investors diligently evaluate offerings and invest only in the ones they feel comfortable with. (More detailed analysis in the full report)

Valuations

??The pre-seed and early-stage funding landscape in 2023 showcased a striking divergence, with traditional VC dealmaking experiencing a downturn in deals while crowdfunding deals surged, defying broader market trends. This resilience in crowdfunding is particularly notable given the broader VC market's pullback, attributed to heightened geopolitical tensions, economic pressures, and an overall shift in investment strategies.

This trend is a testament to the robust nature of crowdfunding, which is gaining traction as a viable alternative for startups and early-stage companies seeking capital, even as they face the headwinds affecting traditional venture capital avenues. The crowdfunding space, therefore, stands out as an increasingly important pillar for innovation and entrepreneurial growth, demonstrating a heightened deal volume that reflects a strong investor appetite and a shift towards democratized funding mechanisms.

?? Since 2016, around 8,000 companies have used investment crowdfunding to seek capital. These companies fall into different categories - some are pre-IPO startups that will eventually go public, while others are small businesses looking for debt capital. Most of them, however, fall somewhere in between. They possess good ideas, strong teams, and growth potential, but they are currently outside the scope of venture capital and need to prove traction. Investing in these companies offers a lot of room for valuation growth. However, statistically, half of these businesses will fail. Therefore, knowing how to identify the winners is essential to profit.

Looking back, hindsight is always 20/20 and reveals some signals. We analyzed all our data to see what we could learn. What would be the result if we invested $1,000 in all offerings that hit $1M in funding?

One hundred and sixty companies fit the criteria (since the industry started). The median return was 188%, and 27 companies had returns over 500%. If we looked at the time between the $1M round and their most recent one, the average length was 23.8 months. The $1,000 invested into the 160 companies would be worth $709,335 almost two years later. This equates to an impressive 111.9% CAGR. (More detailed analysis in the full report).

Watch out for my next installment, where I will be talking more about econmic stimulus and platform performance. Stay tuned!

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.