State of Equity Crowdfunding

2016 will be a game-changing year for anyone who likes investing early.

This is the year that equity crowdfunding (ECF) launches in the U.S.

It’s finally legal for everyone, not just accredited investors.

About a dozen deals are live so far. These are what’s known as Regulation A+ deals. Also known as “mini-IPOs,” these deals are from more established companies raising $5 million to $50 million-plus.

Things will accelerate much faster in early summer.

That’s when early-stage “seed” style investment deals can start to be offered. These are known as Title 3 deals. Companies are typically valued at $1 million to $12 million here, but it can vary widely. Needless to say, this is very early in a company’s journey.

Soon, I believe millions of Americans will be investing in private startups online. This is only the start.

Sadly, we’ll just be catching up to the rest of the world. America is about five years behind other developed countries. That’s the bad news.

The good news is, I suspect the U.S. will quickly surpass the rest of the globe. We have the best private funding investing ecosystem in the world, bar none. The most profitable, too.

But for now, we’re coming from behind. Investment crowdfunding has been established overseas for years.

It’s already taking off in the U.K., Hong Kong, Dubai, New Zealand, China and other places.

In the U.K., for example, a beer company called BrewDog is already raising its fourth round of ECF. It raised its first round via the crowd in 2010, using it to vastly expand production, open new bars and – most importantly – build a brand.

BrewDog now has more than 35,000 investors. They all get a permanent discount on products, on top of their equity in the company.

BrewDog gets an army of supporters of regular customers. What could be more valuable for a small fast-growing business? Nothing I can think of.

BrewDog’s revenue has grown around nine times since that first round, and investors from those early rounds have done rather well (on paper).

Yet here in the States, home to the finest venture capital ecosystem on the planet, we’re still in the Dark Ages.

Now, for the first time in 80-plus years, all Americans can now legally invest in (some) private investment opportunities.

To put that in perspective, the number of people in the U.S. who can legally invest in these opportunities just went from around 12 million to 300 million.

Yanks Strike Back

As I said, it’s incredibly early in this new market. The first U.S. deals are just appearing now.

To clarify, ECF has existed in America since 2012. But you can’t even look at most deals unless you qualify as an “accredited” investor, according to the SEC’s arbitrary wealth limits.

What we’ve seen from this private, secretive ECF market so far in the U.S. is impressive. We’ve already had multiple startups go from being worth $5 million to $10 million to multiple billions. I’ve talked about some of these success stories here and here.

Minimum investments vary widely by site on the accredited side. There are dozens of high-quality deals available at any given time, and you get to invest alongside (on the same terms) amazing angel investors like Tim Ferriss, Naval Ravikant and Gil Penchina. It’s incredibly fun, to boot.

Rocky Market Backdrop

ECF deals that anyone can invest in are beginning at a shaky time in U.S. markets. The Fed just raised rates for the first time in years. No more quantitative easing, either (for now). Chinese growth appears to be slowing.

Early-stage funding is getting tighter. Deal valuations are dropping.

These are ideal conditions for a disruptive market like ECF to launch.

Traditional funding options are always constrained during questionable periods. This means VCs are slowing down. Regular angel investors are slowing down.

Trust me, right now there’s a ton of demand for alternative financing.

Many entrepreneurs I’ve spoken to over the last few months are considering using Reg A+ or Title 3 to fund their startups.

Like Josh Barton, who I met in New York last month. His startup makes ginger-infused liqueur called Barrow’s Intense Ginger Liqueur.

His business is growing at a very fast clip. Josh is considering a Title 3 raise this summer. I’ll be sure to let you know if and when the deal goes live. It’s a great product. (They use a quarter-pound of fresh ginger per bottle.) Spicy.

Andy and I will be reviewing many more upcoming deals over the next few months.

Up next week: Virtuix, a virtual reality startup with some pretty amazing technology. It’ll be raising a Reg A+ deal soon on SeedInvest.com.

Virtuix is one of the most exciting Reg A+ deals I’ve seen so far. We’ll dig into it in detail next week. Until then, you can read more about it at SeedInvest.

Good investing,

Adam Sharp
Co-Founder, Early Investing