On June 20th, at the Reg A Crowdfunding Conference in Westchester, NY, Sherwood Neiss gave a speech highlighting the monumental achievements of passing Regulation Crowdfunding (RegCF) through a highly partisan Congress. Reflecting on these challenges, he underscored the importance of this regulatory milestone, especially considering the current gridlock in Washington, DC.
Growth of Regulation Crowdfunding
Neiss, representing Crowdfund Capital Advisors (CCA), observed significant growth in Regulation Crowdfunding since its inception on May 16, 2016. He mentioned that their data product, CClear, represents a complete dataset of the industry, covering all offerings, investor sentiment, valuations over time, demographics, sector traction, and much more. This comprehensive dataset allows CCA to provide valuable insights to financial service firms, industry followers, investors, and governments.
Key Trends in Investment Crowdfunding
Data Insights
- Complete Dataset: Neiss explained that CClear captures all industry offerings, providing a detailed view of market dynamics.
- Investor Sentiment: Tracking daily dollar commitments and check numbers.
- Sector Traction: Analyzing which sectors are gaining or losing investor interest.
Venture Capital Integration He noted that institutional capital is one of the missing links in the investment crowdfunding marketplace. Drawing from the experience of the P2P lending space, Neiss believes the market will significantly benefit when institutional capital fully engages. Their solution, D3VC, is a $5M starter venture fund leveraging AI and ML, along with their comprehensive data, to identify promising issuers. The goal is to invest in 200 companies, providing a pathway for institutional investors through subsequent larger funds.
Liquidity A major aspect of RegCF, Neiss said, is the 12-month holding period for securities, after which they become freely transferable. However, most of these securities must comply with State Blue Sky laws. To facilitate secondary trading of these securities, CCA developed a fintech platform called GUARDD. This platform ensures compliance with Blue Sky laws, enabling free trading of these securities.
Major Accomplishments of RegCF
- Solving the Valley of Death: Historically, funding between $25,000 and $250,000 was challenging for entrepreneurs. Neiss highlighted that since 2020, RegCF average raises have surpassed $250K, effectively addressing this funding gap.
- Diversity in Funding: He pointed out that traditional VC funding for women and minority founders is typically less than 2%. In contrast, more than 30% of RegCF issuers are women or minorities, showcasing the community-driven nature of investment crowdfunding.
- Lower Default Rates: Neiss cited data from the Bureau of Labor and Statistics indicating that 50% of startups fail within their first five years. However, their recent study shows that only 17.8% of RegCF issuers have gone out of business, suggesting greater resilience among these companies.
The Crowdfunding Genome
For the first time, Neiss introduced the Crowdfunding Genome, an advanced data analytics tool designed to evaluate and rank the leading crowdfunding ecosystems in the United States. Based on comprehensive data from CClear, Phoenix/Scottsdale was identified as the leading ecosystem for 2024. Key factors driving Phoenix to the top include significant valuation increases, high average funding rounds per issuer, and substantial individual investor commitments.
Predictions for the Coming Year
Neiss believes that the number of issuers entering the market will grow over time, driven by increasing media attention and a potential reset in valuations, particularly for pre-revenue startups. He also sees the rise of AI as a significant disruptor in early-stage investing, helping to identify promising opportunities amidst the growing number of deals.
Conclusion
Investment crowdfunding is an evolving market with immense potential. As data continues to be gathered and analyzed, platforms like CClear and GUARDD will play crucial roles in providing transparency, facilitating investment, and driving growth. For economic development offices and investors alike, staying informed about these trends and tools will be essential for leveraging the benefits of Regulation Crowdfunding.
For further information contact: info@theccagroup.com
