State of Equity Crowdfunding, Summer 2016

We are just over three months into Title 3 equity crowdfunding (ECF).

As a reminder, “Title 3” is the smaller category of ECF deals. These are also called “Reg CF.” Where companies can raise up to $1 million per year. (Note: This limit should increase to $5 million soon if the “Fix Crowdfunding Act” legislation passes as expected. This will dramatically decrease costs and increase the range of companies raising.)

According to NextGen Crowdfunding, investors have put more than $6 million into Title 3 offerings so far (includes only companies that have met their goals). Minimum investments start at $100 or less, so that’s a lot of people.

More than 20 companies have exceeded their fundraising goals.

Two companies have hit the $1 million mark. That’s the max they can raise under Title 3 (for now), so those rounds are closed.

The first to get there was Beta Bionics, an ambitious biotech startup creating a “smart” artificial pancreas for Type 1 diabetes patients. Its 775 investors put in an average of $1,300 each.

The deal values BB at $100 million (the highest valuation we’ve seen by far). Pharma giant Eli Lilly put $5 million into the round at the same valuation.

The startup received loads of press related to its fundraising campaign. MIT Technology Review magazine wrote a feature-length piece, titled “Artificial Pancreas Is First To Raise $1 Million Under New Crowdfunding Rules.”

Diabetes in Control, a publication for medical professionals, authored a favorable piece, titled “Beta Bionics Reaches a Milestone.”

That’s just a small sampling of the coverage Beta Bionics received. Positive press like this gives ealry-stage companies a sizable boost and will encourage more startups to consider ECF.

The other startup to hit its $1 million cap is Hops & Grain, an Austin-based brewing company.

Both these companies were deals that Wefunder listed within the first week of Title 3 going live.

Wefunder has dominated the early action in Title 3 ECF. The portal accounts for 92% of investment volume in these smaller (earlier-stage) deals.

Looking to extend its lead, Wefunder recently launched a “scouts” program. People who refer companies to Wefunder can earn up to $2,500 per deal. Top scouts can even earn shares in Wefunder itself.

We’ve been bullish on Wefunder since recommending it as an investment to members of Startup Investor, our research service for accredited investors. In fact, we recommended it multiple times. Twice in 2014 at a $15 million valuation, and later at a $25 million valuation.

With the new scouts program, everyone now has a chance to score some equity in what could very well be a multibillion-dollar business.


Competition Heating Up

Wefunder has a strong lead in Title 3 so far. But competition is set to intensify, which is a great thing for investors.

Indiegogo, a top-tier “reward” crowdfunding site, is gearing up to launch its own ECF offerings. With millions of users and more than $800 million raised to date, Indiegogo is set to have a major impact on the industry.

The company recently set up a page on their site about ECF where you can sign up for updates.

Republic, a spinoff from leading accredited portal AngelList, is now live with four deals. Co-founder Kendrick Nguyen tells me they have roughly two dozen companies in the pipeline.

SeedInvest and
StartEngine have been focusing more on Regulation A+ deals (larger offerings where companies can raise up to $50 million).

SeedInvest’s campaign for Virtuix recently closed successfully, having raised $7.7 million from an estimated 1,600 investors. Virtuix’s Omni is a unique virtual reality product, and we believe the company is well-positioned in a hot growth sector.

As Virtuix’s round progressed on SeedInvest, Virtuix added two new strategic investors from China. Both are large corporations aiming to help bring the Omni platform to the largest consumer electronics market in the world.

We recommended Virtuix to members of First Stage Investor. For more on the startup’s technology and deal, see our coverage on EarlyInvesting.com.

StartEngine is another ECF portal to watch. It had a major success with Elio Motors, which raised more than $17 million from 6,600 investors. Elio was the first Reg A+ deal to close, and it serves as a powerful example of the potential scale of ECF.

SeedInvest and StartEngine are also listing Title 3 (smaller, earlier-stage) offerings. And I expect them to launch more soon.

Real estate ECF is one sector we haven’t talked about much yet. But big things are happening there as well.

Using Reg A+, real estate portals such as RealtyMogul and Fundrise have raised more than $70 million for a new investment class known as “eREITs.” These offerings are similar to publicly traded REITs, with a few important differences.

Real estate ECF is one of the most promising applications of Reg A+ we’ve seen so far. Look for more coverage on this emerging alternative investment class soon.

A Promising Start

ECF is off to an excellent start.

It’s certainly not the “dud” that some pundits predicted. Quite the opposite. ECF is a rare bright spot in the U.S. and world economy.

Promising young companies are getting access to much-needed capital.

Investors now have the chance to invest in early-stage growth companies, without venturing into the often-shady penny-stock world.

More investment portals are coming online. And with the “Fix Crowdfunding Act” set to increase the Title 3 limit to $5 million and streamline the fundraising process, the outlook is bright for ECF.

It’s not often you get a chance to participate in the birth of a new market. If you’re interested in learning more and becoming an early adopter, take a look at our research service, First Stage Investor.

My co-founder Andy and I know this market inside and out. We’re helping our 2,000-plus members navigate it and find the best opportunities.

We plan to use our numbers to assist our companies and add real value.

We’re also in negotiations with investment portals on exclusive benefits for First Stage Investor subscribers. You can join us here.

Good investing,

Adam Sharp

Co-Founder, Early Investing