Crowdfunding is now in its second year.
One way to judge its progress is by looking at crowdfunding portals.
Startups need portals to raise under crowdfunding (CF) rules. And the portals succeed or fail according to how well their listed startups do in raising funds.
When CF became legal last May, there was an explosion of portals registering with FINRA (the Financial Industry Regulatory Authority) in order to help startups raise money.
How have they done?
And what can we learn?
First, some facts (gleaned from venturebeat.com and other sources). Then I’ll close with some thoughts.
10 Facts About Crowdfunding Portals
- 26 portals have registered with FINRA.
- Nine have already closed down.
- One year in, 335 companies filed with the SEC to raise under CF rules.
- Success rates vary greatly from portal to portal, but overall these 335 companies had a 43% success rate (of hitting their minimum targets or higher) and a 30% failure rate. The remaining 27% consisted of raises not yet completed.
- The 155 successful companies raised just over $40 million in all, averaging $282,000 per raise.
- In terms of average amount of raise, MicroVentures barely beat Wefunder for first place. StartEngine, SeedInvest and NextSeed round out the top five.
- But Wefunder led the pack in terms of number of companies funded (63) and the total amount of funding brought in (nearly $18 million). Wefunder alone accounted for just under half of total funding achieved by all the portals. (Wefunder’s own statistical compilations claim it’s had 85 successful offers and an 83% success rate.)
- Other portals attracting large funding amounts were, in order, StartEngine, MicroVentures, NextSeed and SeedInvest.
- Looking at recent activity – the last half of 2016 plus the first quarter of 2017 – StartEngine has narrowed Wefunder’s lead in capital raised with an impressive first quarter this year. And MicroVentures is off to a very strong start.
- As of the end of May 2017, there were 98 active crowdfunding campaigns.
10 Reasons Why You Should Care
- $40 million isn’t a large amount on its own. Capital venture funds do roughly 1,000 times that per year. But this is something very new and different. The first couple of quarters were bound to be slow, and they were. As word spreads of a new and exciting way to invest, the growth of crowdfunding will pick up.
- Already, with the turn of the calendar, CF is gaining some serious momentum. Check out the rise in crowdfunding campaigns just since the beginning of 2017.
- Another big reason for the $40 million? Regulation A+ raises (under Title IV rules), which are between $20 million and $50 million, are excluded. Regulation CF (under Title III rules) allows raises of up to $1 million.
- Numbers relating to “successful offerings” should be taken with a grain of salt. Okay, success is relative. I get it. But let’s take Wefunder. Twenty-five of its 85 “successful offerings” had a minimum target of $50,000 or less. (Hey, I’m not picking on Wefunder. I have nothing but the highest respect for Wefunder – about a third of the recommendations we make to our First Stage Investor members come from its site.)
- I’ve seen minimum targets as low as $10,000 (on sites other than Wefunder). Raising $10,000 is no sign of success in my book. It’s more an indication that companies want to keep their funding, regardless of how little they raise. (Companies meeting their minimum target get to keep their money. Companies that fail to do so have to give it back to investors.)
- Location, location, location. The more successful platforms set up in states that have raised the most capital. Case in point: Wefunder is in San Francisco and Boston.
- Winners and losers are already becoming visible. There are about seven or eight viable up-and-coming portals. The rest are struggling with getting deal flow, attracting visitors to their sites and developing brand recognition.
- Of the more recent portals, Republic (a spinoff of AngelList) and Netcapital are coming on strong.
- Of the bigger portals, MicroVentures (which has joined forces with rewards-based crowdfunding site Indiegogo) has a bright future.
- While Wefunder’s average successful raise is $284,000, it is now listing two companies that have raised more than $500,000, including one holding in our First Stage Investor portfolio, Scrap Connection.
We’re discovering new startup portals almost every week.
The portals that grow in importance will need to get the user experience right on both sides – investor and startup.
It’s not easy to do, though. Even with the better sites, the user experience is far from perfect.
As I’ve said, CF investing is just getting started.
But it’s not too soon for you to visit some of the sites mentioned here and discover for yourself which ones you like best.
And when you do, do me a favor and drop me a line. We’re always interested in the opinions of our readers! Email me directly at firstname.lastname@example.org.
Invest early and well,
Founder, Early Investing