Investment Crowdfunding Surges as Industry Exceeds $1.1B in Financing - 2022 to Double 2021 Investment Volume

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There was no shortage of capital for entrepreneurs in 2021 as the industry surpassed $1B in financing after SEC amended Crowdfunding rules to increase the amount issuers can raise. Venture Capital has now embraced the industry. With valuations at all time highs, the industry is expected to double in 2022.

Time to Celebrate Success - CCA's Annual Investment Crowdfunding Report

“2021 was the tipping point for Investment Crowdfunding. Investors poured capital into next-gen startups at a record rate, entrepreneurs launched offerings at a record pace, and Venture Capital which once ignored these issuers, are now actively seeking early deal flow in the space.” Sherwood Neiss

In its upcoming report “Time to Celebrate Success,” Crowdfund Capital Advisors (CCA) releases findings from its annual industry survey. Since launching in 2016 over $1.1B has been invested into 4,850 startups and small businesses by 1.3M investors. Issuers were present in over 1,300 cities across the USA and in all 50 states. It is particularly important to note that 50% of all crowdfund investments made in the last 5 years occurred in 2021.

“2021 was the tipping point for Investment Crowdfunding,” says Sherwood Neiss Principal at Crowdfund Capital Advisors “Investors poured capital into next-gen startups at a record rate, entrepreneurs launched offerings at a record pace, and Venture Capital which once ignored these issuers, are now actively seeking early deal flow in the space.”

Investment Crowdfunding allows startups and small businesses to raise up to $5M online from non-traditional (both accredited and unaccredited) investors. It was one of the most fundamental changes to the securities law as it reversed decades old ban on general solicitation and allowed retail investors for the first time to access early-stage investment opportunities.

Investment Crowdfunding Headlines for 2021:

  • Investments into startups and small businesses was up 140% over 2020, shattering last year’s record, exceeding the projection of $500M invested, and leading CCA’s Online Investment Index to record highs.
  • Total financing in 2021 exceeds all investments from 2016 through 2020.
  • More than 540,000 investors participated in over 1,500 offerings. More than 2019 and 2020 combined.
  • Average raise across the industry jumps to all time high of $450K from a low of $200K in 2018 as the number of jobs supported/created among these issuers exceeds 180,000.
  • In March, SEC updated the maximum issuers can raise from $1M to $5M, the industry then surpasses $1B in funded capital in October.
  • Follow-on crowdfunding rounds were raised by over 500 issuers.
  • The market value of crowdfunded companies jumped to $33B as median valuations rose in tandem to the broader early-stage market.
  • 68.4% offerings were successful and closed within 7 months, which is higher and faster than “traditional” VC round timelines.
  • VCs & Y-Combinators jump into the space both co-investing and syndicating offerings providing further validation.
  • The number of $1M+ offerings jump to record highs with several $5M+ rounds proving Investment Crowdfunding a viable “Silicon Valley-sized Seed round.”
  • Issuers used 43 intermediaries to raise crowdfunding facilitated capital, up 10% over 2020. Wefunder, StartEngine, Republic and SeedInvest, the top leaders, accounted for over 80% of all the funding.

Trends that will shape Investment Crowdfunding in 2022:

  • Expect a rally as the Fed reacts to high inflation by raising interest rates, investors taking chips off the public markets and diversifying into Investment Crowdfunding.
  • Expect over $1B expected to be invested in 2022 by more than 1M investors into 2,500 new issuers.
  • Software companies which saw a 4x increase in online funding in 2021 will leverage Investment Crowdfunding as the de facto area for primary funding.
  • The success and ease of remote working coupled with employer dissatisfaction will lead to more entrepreneurs starting local businesses and seeking capital from their communities.
  • 76% of investors believe it is important to fund Woman and Minority entrepreneurs. Investment crowdfunding has proven itself as a scalable way to do that.
  • As investors seek higher potential returns, we expect further that diversification into Investment Crowdfunding will increase.
  • Investment Crowdfunding delivers dollars, customers, and brand advocates to business owners. This will continue to be a powerful combination of benefits for entrepreneurs.
  • Investors will expand their activity from local to nationwide into industries they follow as well as into businesses that have raised significant capital online.
  • Existing Investment Crowdfunding issuers return online, expect deal activity to increase, fundraising conditions to improve and jobs to follow.
  • With most successful issuers expanding their workforce and expecting revenues and earnings to increase, Venture Capital will be combing for potential winners.

“Regardless of where the market cycle takes you in 2022, private equity and venture capital investors are all looking to earlier stage companies to deliver future alpha. Companies that have raised a round of crowdfunding and are in venture-investable businesses, with demonstrated product-market fit, may benefit from this trend,” says Jason Best, Principal at Crowdfund Capital Advisors. “I believe that 2022 will be a great year for entrepreneurs.”

The principals of Crowdfund Capital Advisors co-authored the framework for Regulation Crowdfunding and were invited to the White House by President Obama for their work on the legislation. They created the industry’s first data aggregator that collects information on all Investment Crowdfunding offerings. This data is currently available via Bloomberg terminal. They serve institutional clients, nongovernment organizations, multilateral organizations, investors and entrepreneurs in the understanding and expansion of Investment Crowdfunding.

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