CCA Appears on This Week in Crowdfunding

Sherwood Neiss and Yvan De Munck of CClear, the industry leader in Reg CF data,  join Brendan Carberry and Connor Fata for another enlightening episode of This Week in Crowdfunding as they discuss the latest breakthroughs and trends in crowdfunding, finance, and technology. They talk about what they do and release their monthly crowdfunding report EXCLUSIVELY on the pod!

Welcome to Next Big Thing HQ, your premier podcast destination specializing in the equity crowdfunding landscape. Hosted by Brendan Carberry and Connor Fata, we strive to dissolve the barriers that often separate crowdfunding investors from the visionary founders they back. Through riveting interviews with emerging entrepreneurs, in-depth analysis of market trends, and nuanced discussions on the future of innovation, we create a unique platform where investors meet pioneers. Whether you’re an equity crowdfunding investor, an aspiring founder, or simply intrigued by groundbreaking technologies and ideas, Next Big Thing HQ is your go-to source for staying ahead of the curve. Subscribe now and be part of the community that witnesses the future unfold, one investment at a time. #NextBigThingHQ #NBTHQ

Capital Ideas Podcast with CCA’s Sherwood Neiss

With the investment crowdfunding industry surpassing the $2 billion mark involving over 6,800 companies conducting 7,900 offerings across 580 industries, Capital Ideas checks in with Woodie Neiss, one of the early architects of what evolved into Regulation Crowdfunding. Among other things, Woodie is now employing AI as part of his effort to collect, analyze, and disseminate data to enable the crowdfunding industry to grow. Hear Woodie discuss his efforts and some of the regulatory barriers facing the industry including CPA reviews, regulatory exposure for CF platforms, and accredited investor restrictions.

Investment Crowdfunding November 2023 Summary

In November 2023, the investment crowdfunding landscape continued to demonstrate resilience amidst a complex mix of global and domestic events.

Market Dynamics – The Backdrop

The global stage in November was dominated by the war in Gaza, which, being regional in nature, did not significantly disrupt the markets. In contrast, the ongoing conflict in Ukraine continued to cause volatility due to its impact on global food supply and OPEC continues to try to raise energy costs.

The Federal Reserve held interest rates steady, with core inflation showing more stabilization, boosting market confidence. However, future rate hikes were not ruled out. The market is now anticipating a possible interest rate reduction heading into 2024.

Despite strikes, the economy remained resilient, although job growth slowed and unemployment claims reached their highest level since late 2021. Most companies reported year-over-year growth in earnings, but sales of new and existing homes retreated, primarily due to lack of inventory and rising mortgage rates. The Dow hit a new high for the year as investor confidence in a soft-landing becomes more of a reality.

Investment crowdfunding saw another strong month in terms of capital, a growth in issuer sentiment and a retraction in checks written although they remain high.

Celebrating a Milestone: Investment Crowdfunding Soars Beyond $2 Billion

Watch the SuperCrowdHour webinar with Woodie Neiss.

Woodie Neiss recently wrote a piece celebrating this milestone with his followers, which I’m glad to have received. I instantly invited him to join us today to share the insights with us live.

Here’s a short recap of his post:

The investment crowdfunding industry has achieved a remarkable milestone by surpassing the $2 billion mark, marking a transformative moment in the world of finance. This achievement is not merely a numerical feat but a testament to the community’s innovative and diverse nature. Several key points emerge from this groundbreaking accomplishment.

First, it dispels misconceptions about crowdfunding’s reach and influence. The $2 billion milestone proves that investors, tech disruptors, and visionary entrepreneurs, regardless of their location, are actively participating. Geographical barriers are no longer obstacles as businesses outside major hubs like Silicon Valley attract substantial investments.

The industry’s rapid evolution from $1 billion to $2 billion is a testament to its growth, with over 6,400 companies conducting 7,400 offerings, boasting a 69% success rate. This dynamism and resilience are evident through the increasing participation of funding portals and brokers.

Moreover, investment crowdfunding is fostering diversity across various sectors, from tech companies to restaurants and personal services. This diversity is driving innovation and significant economic impact across 580 industries.

Key players like Wefunder, StartEngine, and Republic, along with the Securities and Exchange Commission’s involvement, have empowered entrepreneurs, particularly women and minorities, to access capital without traditional biases.

The economic transformation is significant, with these investments generating local jobs and commerce, positively impacting communities. However, challenges like limited media coverage and the absence of institutional investment persist.

The future of investment crowdfunding appears promising, driven by organic growth, word-of-mouth awareness, and positive outcomes. This trend is expected to reshape traditional investment approaches, democratize access to capital, and leverage technology advancements.

Notable success stories like Boxable’s astounding valuation increase emphasize the potential of this industry. As the industry continues to evolve, it holds exciting prospects for investors, entrepreneurs, and the public, potentially fueled further by regulatory changes.

In summary, the investment crowdfunding industry’s journey to $2 billion showcases its growth, diversity, and economic impact while setting the stage for a more inclusive and innovative business landscape.

Honeycomb – A Debt Crowdfunding Platform on a Hot Streak

Honeycomb – Debt Crowdfunding on a Hot Streak

Debt Crowdfunding may only make up 23% of all Regulation Crowdfunding offerings and 7.4% of all the capital raised, but its steady growth tells a compelling story of its rising importance in SME lending. In a time when banks are reducing their lending activities, small businesses, especially those facing financial challenges, are turning towards alternative funding sources. Debt crowdfunding is becoming a crucial support for many local businesses, providing a stable financial option during tough economic times.

The appeal of debt crowdfunding is clear and wide-ranging. It opens up access to funds, allowing businesses, even those seen as too risky by traditional lenders, to get the essential funding they need, which in turn supports innovation and new business ventures. Moreover, it creates a supportive relationship between businesses and the community; local businesses get the necessary funds to grow, while community members, now investors, get to be part of local economic development.

2023 has seen a notable increase in debt crowdfunding investors, attracted by an enticing average interest rate close to 11% and average loans rising to $140K, a 7.7% increase YoY. Platforms like Honeycomb are leading this movement, hosting an impressive 41% of all industry debt offerings this year. Our chat below with George Cook, CEO of Honeycomb Credit, sheds light on the forces powering this growing sector, exploring the detailed dynamics of debt crowdfunding and its vital role in supporting SMEs through economic challenges while also looking into its ability to enhance inclusivity, accessibility, and sustainable development in business financing.

Q. Please briefly describe Honeycomb for our readers who might not be familiar with it.
A. Honeycomb Credit is a website for anyone who wants to invest in vetted, locally-owned small businesses. Through our platform, investors can unlock fair funding for growing businesses while potentially receiving returns of 10-14% annually and supporting small businesses and communities that are important to them.

I come from a community banking background, and I saw that bank consolidation was leaving a lot of creditworthy small businesses behind. I co-founded Honeycomb to create a place to connect businesses that are being left behind by traditional lenders with everyday investors looking for high-yield investments that they can feel good about adding to their portfolios.

Q. We’ve noticed a significant uptick in debt offerings on Honeycomb. In fact, it appears you’re on track for a record-breaking year in terms of new offerings. What factors do you attribute to this surge?
A. Yes! Since the beginning of this year, we have nearly tripled the number of businesses we are working with on a monthly basis. Beyond Honeycomb getting better at reaching small businesses, there are a few larger factors at play. Firstly, we have been fortunate enough to receive some positive national press, including prominent coverage in a recent Wall Street Journal article and being named by CNBC as one of the top 200 FinTech’s in the world. This coverage helps to cement our leadership in debt crowdfunding while demonstrating the staying power of this new way to invest.

Secondly, following the banking crisis earlier this year, we have seen a sharp pullback in commercial lending from traditional bank lenders. This means highly creditworthy small businesses with long-standing banking relationships are not able to rely on their banks in the same way they could at the beginning of the year. Correspondingly, these businesses are increasingly looking for alternative ways to fund their growth, and community-sourced capital is an increasingly attractive option.

Q. With the recent moves by the Fed on interest rates, how has this impacted issuers on Honeycomb?
A. By definition, the Fed is raising rates to reduce the amount of capital being borrowed and we do hear from some businesses that they are postponing an expansion project until rates are lower. That said, we still see the cream of the crop in the market for capital. These are businesses who, despite higher inflation and economic uncertainty, are still finding profitable paths to growth. Coupled with the decline in bank lending, we are seeing more and more of these aspirational businesses joining the platform.

Q. While it seems like a positive trend for investors, what feedback or sentiments are you receiving from them?
A. Investors are thrilled with the higher rate environment, particularly from a fixed-income asset class that begins generating cash payments in months instead of years. We are seeing substantial growth in both first-time investors making modest $100 or $250 investments alongside high net-worth individuals who are looking to build $50,000+ portfolios on the platform. The beauty of our model is that it truly offers an opportunity to choose your own adventure, whether you are looking to make small investments in one or two businesses you know and love or if you want to build larger portfolios across industries and geographies.

Q. It’s impressive to see that you’re set to break another record this quarter with capital raised, already surpassing last year’s figure by 157%. Is this growth primarily due to an increase in issuers, or are issuers seeking more capital than before?
A. We are seeing a small increase in average offering sizes, but we remain committed to serving Main Street businesses with relatively modest capital needs. The majority of the growth therefore is coming from the volume of offerings on the Honeycomb site. I believe this creates a really delightful experience for investors who often liken the experience of scanning our explore page to being a ‘shark’. They get to hear more and more of these incredibly passionate entrepreneurial stories and choose which they want to support.

Q. We’ve observed a notable presence of women and minority issuers on Honeycomb. Is this a natural occurrence, or is there a concerted effort on your part to engage these groups? Additionally, there seems to be a higher percentage of women/minority founders in debt offerings compared to equity. Why do you think this trend exists?
A. The team is very conscientious about making sure that funds are flowing to communities that are often overlooked by traditional lenders. It turns out that often correlates to a very diverse set of business owners – so far this year 72% of our business had a women owner, 59% had a BIPOC owner, and 12% were veteran-owned. These numbers are unheard of in small business lending.

We often think about entrepreneurship as what happens at glamorous high-tech startups in Silicon Valley, but the reality is that the overwhelming majority of entrepreneurial pursuits in the US are for brick-and-mortar, cash-flowing small businesses. These Main Street entrepreneurs are disproportionately women, people of color, and immigrants and it is only natural that they are reflected in our metrics accordingly.

Q. On average, what amount can issuers on Honeycomb expect to raise if their campaign is successful?
A. Our average offering is around $55,000. Our sweet spot is between $25,000 and $250,000.

Q. For potential issuers considering Honeycomb, what advice would you give them to ensure a successful offering?
A. Firstly, get your financial house in order – get a bookkeeper, manage the business to the numbers, and understand the levers that can help you grow your business to the next level. We often find businesses who would like to work with us but they don’t have their financials in order or they are unable to build a compelling business plan for their proposed expansion because they don’t fully understand their path to growth.

Secondly, build your audience – the majority of investment capital on Honeycomb comes from customers and fans of the business. And that’s a good thing! Getting your customers invested in your business means they will champion your success and will show unflappable loyalty for years to come. But, even if your customers love you, if you don’t have the channels to tell your customers about your offering – whether social media, email, foot traffic, etc – then it will be hard to share your offering with them.

Q. Looking ahead, where do you envision Honeycomb in the next few years?
A. Our mission at Honeycomb is to unlock financial opportunities to build vibrant, financially empowered communities. To do that, we are going to continue to make the idea of community capital a household concept and make it increasingly accessible to small businesses and investors. We have a lot of exciting features rolling out in 2024, including opportunities to more seamlessly bring the investment experience into the brick-and-mortar visit and products to allow investors to build portfolios of loans on the site more easily.

Much thanks to George and the team at Honeycomb! We firmly believe this side of the investment crowdfunding market will see significant traction over the next few years and we look forward to following their success.

Getting your hands on a full list of debt crowdfunding options can really make a difference for investors, businesses, and analysts. It’s not just about finding new investment chances. It’s also about having the right info to make smart investment choices and understanding what’s happening in the market right now. It helps businesses see where they stand and plan their next move in a growing market. For researchers and academics, it’s a great source of data to study the changing world of alternative financing and its effects on small and medium businesses.

How to Launch a Successful Crowdfunding Campaign for Your Small Business

Q3 2023 Top Crowdfunding Platforms

The results are in. Q3 was a fascinating quarter for the industry. Fewer issuers, more capital, less investors. It had it all. So who were the leading platforms of the quarter? Well here’s your list!

Celebrating a Milestone: Investment Crowdfunding Soars Beyond $2 Billion!

We’re thrilled to announce a groundbreaking achievement that redefines the landscape of investment crowdfunding: the industry has crossed the remarkable $2 billion investment milestone. This momentous event holds profound significance, not only as a numerical accomplishment but as a testament to the strength of a community driven by innovation, diversity, and transformative potential.

1. Proving the Skeptics Wrong: The $2 billion milestone shatters misconceptions about crowdfunding’s reach and influence. It highlights the unwavering belief of a dynamic investor community, including customers who champion businesses they love, tech disruptors, and visionary entrepreneurs who are breaking traditional molds. This achievement demonstrates that geographical boundaries are no longer barriers, as businesses outside Silicon Valley, New York, Boston, and Los Angeles thrive and attract substantial investments.
2. Rapid Evolution: The industry’s journey from $1 billion to $2 billion investment is a testament to its rapid growth. What took over five years to achieve in the first billion happened in just under two years for the second. Over 6,400 companies have filed to raise funds, conducting an astonishing 7,400 offerings with an unprecedented 69% success rate. With over 110 registered funding portals and increasing broker participation, the industry’s evolution showcases its dynamism and resilience.
3. Unveiling Diversity: While software, tech, and media companies have dominated equity funding, sectors like restaurants and personal services are thriving in the debt sector. Investment crowdfunding empowers a diverse array of businesses in over 580 industries, fostering innovation and generating substantial economic impact.
4. Driving Forces: Key players like Wefunder, StartEngine, Republic, and more have fueled this growth, alongside the Securities and Exchange Commission which elevated the fundraising cap from $1 million to $5 million. Their contributions have empowered entrepreneurs, especially women and minorities, to access capital free from traditional biases.
5. Economic Transformation: The investment crowdfunding phenomenon is changing the face of entrepreneurship. Over 85% of these businesses raise funds beyond major financial centers, pouring billions into local economies and supporting more than 400,000 jobs. The positive influence radiates through job opportunities and local commerce.
6. Tackling Challenges: Despite progress, challenges persist. Limited media coverage hampers awareness of crowdfunding’s transformative impact, and the lack of institutional investment necessitated us to launch D3VC, a venture fund aimed at connecting venture capital with promising crowdfunding ventures.
7. Economic Ripple Effect: These investments aren’t confined to balance sheets. Businesses funded through crowdfunding inject nearly $5B into communities, supporting jobs, salaries, and local businesses, enhancing the socio-economic fabric.
8. Future Outlook: The investment crowdfunding industry’s rapid growth has been fueled by an organic movement, driven by word-of-mouth awareness, and platform/industry promotion. As investors and entrepreneurs experience positive outcomes, their enthusiasm spreads naturally, fostering a self-sustaining network effect. This trend is expected to persist, reshaping traditional investment approaches and democratizing access to capital, while technology advancements and evolving regulations position investment crowdfunding as a transformative force in the future of fundraising and investment.
9. Success Stories: The journey wouldn’t be complete without standout examples like Boxable, which transformed from a $42 million valuation to an astonishing $3.4 billion, turning a $25K investment into a multi-million-dollar success.
10. Anticipating Tomorrow: The future holds exciting prospects. Investors can expect robust returns, entrepreneurs will gain unprecedented access to engaged investor networks that also serve as marketing allies, and the public will enjoy innovative technologies and services that elevate local communities. Of course all of this could be accelerated if the SEC were to move the maximum an issuer can raise from $5M to $20M.

The investment crowdfunding industry’s journey to $2 billion is a collective accomplishment. Together, we’ve shattered ceilings and paved the way for a more inclusive, vibrant, and innovative business landscape.

Stay tuned for more updates as we continue to shape the future of investment crowdfunding!

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.

Join the Waitlist

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.”

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.

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.

How Does D3VC Apply AI to Identify Investment Opportunities?

Dear CCA Followers,

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

Issuers/Deals

Capital

Investors/Checks Written