Blog - Crowdfund Capital Advisors

D3VC Algorithm Success: Cabinet Health’s Sustainable Impact and Investment Progress

By now, you have heard that we are launching an AI-driven fund, but did you know that we’ve been investing based on the fund’s algorithm and our investment committee’s decision process for a year now? In this email, we want to provide an example of one of our early investments, Cabinet Health.

Our proprietary algorithm identified Cabinet Health as a promising investment opportunity in August 2022. The week it appeared on our list, there were 568 active deals, and Cabinet Health scored an 83.1% on the algorithm. After further diligence, our team decided to invest. Since then, the company has made significant strides in its mission to revolutionize the healthcare industry with sustainable solutions.

Cabinet Health is a New York-based sustainable healthcare company that has developed a refillable and compostable medicine system. Their mission is to lessen the environmental impact of plastic medicine bottles, which currently contribute to a significant amount of plastic waste. Cabinet Health’s innovative solution involves delivering medication to customers in compostable pouches, which can then be stored in reusable glass containers.

Since our investment, Cabinet Health has demonstrated impressive growth and resilience. They have successfully raised an additional $17 million in growth funding, led by the Global Impact Fund, to fuel their rapid expansion into new categories and retail channels. This fundraising round brought the company’s total funding to $23.6 million to date. The funds have been used to further their mission of eliminating single-use plastic from the medicine and healthcare industry.

In terms of sales performance, Cabinet Health has proven its concept with investors and consumers, generating an average of 19% growth year-over-year with its over-the-counter offerings. Cabinet Health has also launched its first-ever nationwide pill bottle recycling program to address pharmaceutical plastics.

Through this program, anyone in the U.S. can request a recycling bag from Cabinet Health, ship back their old, empty plastic pill bottles, and have them either recycled or upcycled into an evolving art sculpture.

Prior to our investment, Cabinet Health made a notable appearance on the popular TV show “Shark Tank,” where they secured an investment of $500,000 for a 2.5% equity stake in the company. This exposure has led to increased interest in their mission and
products, with various school groups, medical experts, and environmental specialists reaching out to contribute to their goals.

Cabinet Health’s products are currently available online through their official website, via online retailers such as Grove Collaborative and Amazon, and in-store in over 700 CVS locations nationwide. They are also planning more retail partnerships in 2023.

In conclusion, we believe Cabinet Health is a testament to the power of our investment algorithm in identifying promising companies that are not only financially viable but also contribute positively to society. We are excited about the future of Cabinet Health and look forward to sharing more updates with you.

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Want to be a part of D3VC? Then join our waitlist today. Our goal is to invest in 200 companies with the potential to scale just like Cabinet Health.

Sherwood Neiss
Co-Founder/GP
D3VC

Please note that this email is intended solely for informational purposes and should not be considered as an offer to sell or a solicitation to buy securities. Any investment in D3VC or its affiliated funds will be made solely to accredited investors pursuant to Regulation D, Rule 506(c) of the Securities Act of 1933. Participation in our investment opportunities is subject to verification of accreditation status and compliance with applicable securities laws. Please consult with your legal and financial advisors before making any investment decisions.

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Investment Crowdfunding July Overview: Resilient U.S. Economy and Investment Crowdfunding Trends Amid Market Exuberance

In July, the U.S. economy showed resilience with a 2.4% annual growth rate, despite higher interest rates and a struggling housing market. The stock market ended the month positively, with major indexes logging robust gains, raising expectations for a soft-landing scenario for the economy. However, the investment crowdfunding sector saw a slowdown in July. Sherwood Neiss, Principal at Crowdfund Capital Advisors, noted, “The exuberance in the public markets, higher interest rate savings options, and summer holidays may have led to issuers postponing offers and investors diverting their funds. Despite this, the overall health of the investment crowdfunding industry remains strong, with year-to-date capital commitments surpassing those of the previous year.”

In the investment crowdfunding sector, July saw $33.7M in investments, down from $47.3M in June but up from $28M last July. Despite the month-over-month decrease, the total invested this year to date compared to last year is up from $291.6M to $298.1M, indicating that 2023 is still outpacing 2022. However, July was a poor month for new deals, with only 76, the lowest monthly amount since April 2020. Despite this, 88 deals closed in July, with a success rate of 78.4%.

There were 472 active deals at the end of July, down from 560 at the beginning of the month. The number of checks written matched what happened with capital deployed, dropping from 27.5K in June to 17.4K in July but increased from 16.9K in the prior year. Investors wrote average checks of around $2K, up from both June this year and June the prior

year. Sherwood Neiss highlighted that the deal flow has arguably never been better, with 1.6x more Post revenue issuers in July than their pre-revenue counterparts, and they out-raised their pre-revenue counterparts over 8 to 1, showing investor interest clearly in the post-revenue court.

Median valuation rose across the board in July forfunded deals, bouncing from $10M in June to $17.5M in July. Pre and post-revenue issuers and startup and established ones all saw valuations increase. Equity deals continued to increase the amounts they are raising, with the average equity deal closing on $562K in July, up from $400K in June and $271K in the prior period. Sherwood Neiss concluded that while a month doesn’t make a year, we look forward to August which has historically be one of the stronger months for the industry as people return from vacation and investors are back in front of their computers.”

Issuers/Deals

In July, the Regulation Crowdfunding industry experienced a notable decline in new offerings, with only 76 issuers coming to market, compared to 137 in June and 123 in May. This indicates a significant drop in activity for the mont

h and falls well below the 12-month average of around 127 new offerings.

Among the 76 issuers, approximately 64.5% were post-revenue companies, showing a slight increase from June’s 62.7%. This suggests a continuing trend of more established businesses seeking capital through Regulation Crowdfunding platforms.

As the Fall season historically tends to be the most popular period for fundraising and investment, we can expect the number of new offerings to rebound next month. This could potentially lead to a higher number of issuers looking to capitalize on the seasonal trend and seek funding through crowdfunding platforms.

Capital

In July, the total capital invested in the Regulation Crowdfunding industry declined to $33.7 million, showing a decrease from the recent months and falling below the 12-month average of $42.6 million. This indicates a downturn in investment activity during the month and could be a result of exuberance in public market investments, competition with higher yielding savings accounts, and summer holidays.

The number of deals closed in July was 88, and they collectively raised a total of $25.3 million. Of note, 45% of that was committed in the previous month, June.

A key highlight is the average check size, which stood at $1,959 in July. This figure exceeds the 12-month average of $1,896, indicating strong investor sentiment and a willingness to allocate larger amounts of capital per investment. This may be attributed to various factors, such as confidence in certain industries, economic conditions, or investor risk profiles.

Investors/Checks Written

In July, the number of investors making commitments in the Regulation Crowdfunding industry experienced a significant decline. A total of 17,411 investors participated, marking a substantial drop from the peak observed in April, where nearly 50,000 investors made commitments.

However, despite the sharp drop from April, there was a 2.8% increase in the number of investors making commitments in July compared to the same month in the previous year. This indicates that while the industry has seen a decline from the exceptional peak in April, there is still moderate growth in investor participation over a broader timeframe.

The current number of investors making commitments in July is slightly below the 12-month average of 24,505. This suggests that the industry is experiencing a temporary dip in investor activity. Additionally, the presence of an outlier in April may have skewed the average and contributed to the slight fall below the interquartile range.

Despite the decrease in overall capital invested, and as mentioned above, the average check size has shown a positive trend. In July, the average check size recovered to $1,959, which is much higher than the average of $1,367 observed in April. This suggests that individual investors are committing more significant amounts to each investment.

Valuations

In July, the Investment Crowdfunding industry experienced a significant surge in median valuations, reaching the highest point of the year. The median valuation increased by an impressive 75.5% compared to the previous month and grew by 1.8% since the last period.

Despite the increase in median valuations, the success rate of offerings that closed in July surprisingly exceeded the 12-month average. Approximately 78% of the offerings closed successfully during the month, compared to the 12-month average of 76.5%. This indicates a higher-than-normal rate of successful funding campaigns, even in the context of the increased valuation levels.

The combination of higher median valuations and a higher success rate may suggest a market where investors are willing to pay a premium for perceived high-quality investment opportunities.

Notably, the success rate of companies closing with a valuation of $15 million in July was particularly impressive, with 22 out of 23 companies successfully raising funds. This indicates a high level of investor interest and confidence in companies positioned at these higher valuation points.

Nonetheless, if the industry is focused on getting institutional capital participation, there needs to be some reckoning between what companies are worth and what investors should be paying.

In conclusion, July presented a mixed picture for the economy and the investment crowdfunding sector. While the U.S. economy demonstrated resilience and the stock market ended on a high note, the investment crowdfunding sector experienced a slowdown. However, despite the month-over-month decrease in investments and a dip in new deals, the sector’s year-to-date capital commitments surpassed those of the previous year. This indicates that the overall health of the investment crowdfunding industry remains strong, even amidst the challenges presented by market exuberance, higher interest rates, and seasonal factors.

Stay tuned to Crowdfund Capital Advisors for the latest updates and analysis on the ever-evolving world of Investment Crowdfunding.

How Does D3VC Apply AI to Identify Investment Opportunities?

Dear CCA Followers,

I’ve had the privilege of engaging in numerous calls and discussions with individuals over the past few weeks regarding D3VC. One recurring question that arises is, “What sets D3VC apart from other venture funds?” The answer lies, in part, in our utilization of AI and Machine Learning to expedite our deal sourcing and vetting processes. Naturally, this prompts the subsequent query, “How does the AI actually function?”

While I cannot divulge the extensive 18 months of effort dedicated to developing our algorithm, I can provide you with a high-level overview of our approach:

First and foremost, we leveraged AI and Machine Learning to construct a state-of-the-art algorithm. This algorithm serves as our guiding force when making investment decisions. To ensure its accuracy, we harnessed a unique dataset from CCA, containing over 150 data fields encompassing crucial information related to online investment opportunities. These fields encompass details about the companies seeking capital, their financials, historical performance, and funding rounds.

To empower our AI algorithm, we embarked on a meticulous process of labeling historical data from CCA. This enabled us to discern the defining characteristics of successful and failed ventures. By doing so, our algorithm became proficient at recognizing signals that forecast success or failure. To mitigate the risk of overfitting the algorithm to the training data, we conducted rigorous validation while fine-tuning the model. Subsequently, we subjected the AI model to independent holdout samples to evaluate its performance.

The regular validation of our AI algorithm is of paramount importance to us. We continually update it with fresh data to maintain consistent and stable performance. Moreover, we prioritize the regular rebuilding of the model to capture the latest patterns and assess the value of the latest AI technologies. Given the dynamic nature of economic and investment trends, it is crucial for our algorithm to adapt to these shifting dynamics. This involves appropriately weighing recent data against older data.

When evaluating a company, our AI algorithm conducts a comprehensive analysis by examining similar companies that have experienced either success or failure in the past. It compares the historical markers of these companies to the one under evaluation, determining whether they share similarities that indicate potential success or failure. This process allows us to extract predictive signals from the data, providing insights into the potential trajectory of the company.

It is essential to understand that our AI-driven process does not replace the expertise of our investment committee (IC). Rather, it accelerates the decision-making process by significantly reducing the number of companies that require exhaustive analysis. Our AI algorithm narrows down the diligence list from hundreds to a select few, allowing the IC to focus their valuable time and expertise more efficiently. On average, we review five companies each week and select two for investment, resulting in approximately 100 investments per year.

To create a well-diversified portfolio, our aim is to invest in around 200 companies during the capital deployment period of our fund. This level of diversification is critical due to the power-law distribution of venture returns. By spreading our investments across a broad range of opportunities, we achieve solid returns while effectively managing risk. This commitment to diversification sets us apart from other venture funds.

Don’t miss out on this opportunity to join our select group of early investors in the equity crowdfunding space. By joining our waitlist, you will secure priority access to our upcoming investment opportunities.

We’re thrilled to have you join us on this journey and shape the future of early-stage investing. Stay tuned for more updates as we progress towards our official launch.

Warm regards,

Sherwood Neiss

Co-Founder/GP

D3VC

Investment Crowdfunding Q2 2023 Roundup – Promising Growth and Shifts in Alternative Finance Landscape

Welcome to the Q2 edition of our Investment Crowdfunding Newsletter! In this month’s issue, we delve into the ongoing debate among experts about the possibility of a recession in the United States and its potential impact on equity crowdfunding. Despite concerns surrounding higher borrowing costs and interest rate hikes, the economy has shown resilience, with consumers continuing to spend and employers maintaining robust hiring trends. As we explore the results of Q2’s investment crowdfunding campaigns, we’ll analyze how these economic factors have influenced the landscape and contributed to the success stories within the crowdfunding realm.

According to a comprehensive analysis of offers, investments, and checks written data, Q2 2023 exhibited steady growth, albeit with a slight decrease in new deals compared to the previous quarter. The number of new deals stood at 355, indicating a consistent rise in opportunities. Total commitments from investments amounted to $151.7 million, with an impressive count of 99,388 investors.

Sherwood Neiss, Principal at CCA. said, “As we analyze the quarterly findings, we witness a resilient market showing steady growth in Q2 2023. While there may have been a slight dip in deal flow compared to the previous quarter, it is important to acknowledge the overall upward trend in offers, investments, and checks written. These findings reflect the ongoing strength and potential of the market, underpinning the positive outlook for investors and entrepreneurs alike.”