DENVER, CO, UNITED STATES, January 4, 2023 /EINPresswire.com/ — In its upcoming report “What a Wild Ride,” Crowdfund Capital Advisors (CCA) releases findings from its annual industry survey. Since launching in 2016, over $1.6B has been committed to more than 5,600 startups and small businesses by 1.6M online investors. Issuers were present in over 1,600 cities across the USA, including all 50 states, with women and minority founders benefitting greatly.
“The economic, social, and geopolitical turmoil of 2022 spilled over to Investment Crowdfunding,” says Sherwood Neiss, Principal at Crowdfund Capital Advisors. “This led to a bumpy road for the industry. While demand for capital remained strong among startups and small businesses, overall investments dropped for the first time, yet average check sizes rose. Despite this, we are seeing stronger companies come online as indicated by their age and the balance sheets.”
Investment Crowdfunding allows startups and small businesses to raise up to $5M online from non-traditional (both accredited and unaccredited) investors. It was one of the most fundamental changes to the securities law as it reversed the decades-old ban on general solicitation and allowed retail investors to access early-stage investment opportunities for the first time.
Investment Crowdfunding Headlines for 2022:
1. Demand for capital among startups and small businesses was up 1.2%, with 1,529 companies running offerings. Q4, which is historically strong, saw the first quarterly drop in demand despite 2022 having the highest percentage of post-revenue issuers seeking capital.
2. Investments into startups and small businesses dropped 12.8% from last year’s record of $578.8M, causing CCA’s Online Investment Index to fall.
3. More than 320,000 investors participated in over 1,580 offerings. Investors were down from a record 543,000 in 2021. However, their average check deployed rose from $1,065 in 2021 to $1,578 in 2022, a record high.
4. The average raise fell from $450K to $365K as issuers faced 2022 headwinds. More established companies were able to raise $1.36 for every dollar their startup counterpart raised.
5. The number of jobs supported/created among these issuers tops 250,000. Continuing to prove that Investment Crowdfunding can be a jobs engine.
6. Follow-on rounds continue to grow as issuers return to their customers/community for funding versus alternative forms of capital.
7. Average and median valuations peaked at $29.6M and $12.9M, respectively, in 2022, driven by 30 offerings with $100M+ valuations.
8. The total market value of crowdfunded companies jumped from $33B to $54.2B, increasing the opportunity for market exits via acquisitions and IPOs.
9. 71.3% of offerings were successful and closed within five months. Offerings closed two months faster in 2022 than the prior year, indicating that issuers were eager to close faster.
10. California, New York, and Texas remained the top 3 states for Investment Crowdfunding by dollars invested, successful offerings, and the number of investors.
11. The number of $1M+ offerings jumped to record highs, with 21 issuers (twice as many as in 2021) raising the maximum of $5M+, continuing to prove Investment Crowdfunding a viable “Silicon Valley-sized Seed round.”
12. Issuers used 52 intermediaries to raise crowdfunding-facilitated capital, up 21% over 2021. Wefunder, StartEngine, Republic, SeedInvest, and Equifund were the top five leaders, accounting for over 83.7% of all the funding.
“It is clear that as this industry grows, the application for its use expands,” says Jason Best, Principal at Crowdfund Capital Advisors. “This is signaled by the issuers with greater revenues coming online to raise capital from their customers and communities. The capital markets face a potential recession in 2023, which will drive more of these types of issuers online.”
“Investment Crowdfunding has found its footing,” comments Neiss. “Now that we’ve experienced a year of volatility and seen how the industry adapts and responds, we can feel confident of the role Investment Crowdfunding will play in 2023. We also predict that as we pull out of this next recession and grow into the future, Investment Crowdfunding will scale to a $2.5B annual industry in 2030.”
The principals of Crowdfund Capital Advisors co-authored the framework for Regulation Crowdfunding and were invited to the White House by President Obama for their work on the legislation. They created the industry’s first data aggregator that collects information on all Investment Crowdfunding offerings. This data is currently available via the Bloomberg terminal. They serve institutional clients, nongovernment organizations, multilateral organizations, investors, and entrepreneurs in the understanding and expansion of Investment Crowdfunding. Click here to order.
|
 |
|
Investment Crowdfunding Surges as Industry Exceeds $1.1B in Financing – 2022 to Double 2021 Investment Volume
|
DENVER, COLORADO, January 4, 2022 — In its upcoming report “Time to Celebrate Success,” Crowdfund Capital Advisors (CCA) releases findings from its annual industry survey. Since launching in 2016 over $1.1B has been invested into 4,850 startups and small businesses by 1.3M investors. Issuers were present in over 1,300 cities across the USA and in all 50 states. It is particularly important to note that 50% of all crowdfund investments made in the last 5 years occurred in 2021.
“2021 was the tipping point for Investment Crowdfunding,” says Sherwood Neiss Principal at Crowdfund Capital Advisors “Investors poured capital into next-gen startups at a record rate, entrepreneurs launched offerings at a record pace, and Venture Capital which once ignored these issuers, are now actively seeking early deal flow in the space.”
|
 |
Investment Crowdfunding allows startups and small businesses to raise up to $5M online from non-traditional (both accredited and unaccredited) investors. It was one of the most fundamental changes to the securities laws as it reversed decades old ban on general solicitation and allowed retail investors for the first time to access early-stage investment opportunities.
Investment Crowdfunding Headlines for 2021:
- Investments into startups and small businesses up 140% over 2020, shattering last year’s record, exceeding the projection of $500M invested, and leading CCA’s Online Investment Index to record highs.
- Total financing in 2021 exceeds all investments from 2016 through 2020.
- More than 540,000 investors participated in over 1,500 offerings. More than 2019 and 2020 combined.
- Average raise across the industry jumps to all time high of $450K from a low of $200K in 2018 as the number of jobs supported/created among these issuers exceeds 180,000.
- In March, SEC updated the maximum issuers can raise from $1M to $5M, the industry then surpasses $1B in funded capital in October.
- Follow-on crowdfunding rounds were raised by over 500 issuers.
- The market value of crowdfunded companies jumped to $33B as median valuations rose in tandem to the broader early-stage market.
- 68.4% offerings were successful and closed within 7 months, which is higher and faster than “traditional” VC round timelines.
- VCs & Y-Combinators jump into the space both co-investing and syndicating offerings providing further validation.
- The number of $1M+ offerings jump to record highs with several $5M+ rounds proving Investment Crowdfunding a viable “Silicon Valley-sized Seed round.”
- Issuers used 43 intermediaries to raise crowdfunding facilitated capital, up 10% over 2020. Wefunder, StartEngine, Republic and SeedInvest, the top leaders, accounted for over 80% of all the funding.
Trends that will shape Investment Crowdfunding in 2022:
- Expect a rally as the Fed reacts to high inflation by raising interest rates, investors taking chips off the public markets and diversifying into Investment Crowdfunding.
- Expect over $1B expected to be invested in 2022 by more than 1M investors into 2,500 new issuers.
- Software companies which saw a 4x increase in online funding in 2021 will leverage Investment Crowdfunding as the de facto area for primary funding.
- The success and ease of remote working coupled with employer dissatisfaction will lead to more entrepreneurs starting local businesses and seeking capital from their communities.
- 76% of investors believe it is important to fund Woman and Minority entrepreneurs. Investment crowdfunding has proven itself as a scalable way to do that.
- As investors seek higher potential returns, we expect further that diversification into Investment Crowdfunding will increase.
- Investment Crowdfunding delivers dollars, customers, and brand advocates to business owners. This will continue to be a powerful combination of benefits for entrepreneurs.
- Investors will expand their activity from local to nationwide into industries they follow as well as into businesses that have raised significant capital online.
- Existing Investment Crowdfunding issuers return online, expect deal activity to increase, fundraising conditions to improve and jobs to follow.
- With most successful issuers expanding their workforce and expecting revenues and earnings to increase, Venture Capital will be combing for potential winners.
|
 |
“Regardless of where the market cycle takes you in 2022, private equity and venture capital investors are all looking to earlier stage companies to deliver future alpha. Companies that have raised a round of crowdfunding and are in venture-investable businesses, with demonstrated product-market fit, may benefit from this trend” says Jason Best, Principal at Crowdfund Capital Advisors. “I believe that 2022 will be a great year for entrepreneurs.”
For more information, please visit CrowdfundCapitalAdvisors.com. To pre-order the 2021 Annual Report click here.
|
|
|
|
|
The U.S. Securities Crowdfunding market ended Q2 mixed but showed impressive gains over the prior year. More issuers, more capital, more jobs, more revenue generating companies seeking capital, steady valuations, greater investment in certain industries (due to COVID), and average raises increasing as the new $5M cap implemented by the SEC in March went into effect.
Here’s the summary:
- Number of offerings were up 3% over Q1 but investor commitments were down 15% and number of investors were down 21%. That being said offerings were up 46% over the same period, investor commitments were up 175% and investors were up 46%.
- The Online Investment Index peaked in March after the new SEC rules increased the maximum raise to $5M. Investments began to trail with the index hitting a low the week of May 30th and have steadily increased since. The Index is up 213% over 2020’s average.
- The number of pre-revenue issuers increased 6% over Q1 and 84% over the prior period. The number of revenue generating issuers increased 25% over Q1 and was flat over the prior period. 53% of all issuers in 2021 are revenue generating.
- Across all successfully funded offerings, valuations were flat from Q1 to Q2. As well as from the same period in 2020.
- Total enterprise value of firms that closed offerings in Q2 was up 74.5% over Q1 and up 81.5% over the same period. Total enterprise value of all successfully funded issuers is $25B. 1.2% of successfully funded issuers had valuations over $100M. Those issuers collectively had an enterprise value of $4.5B.
- Food distribution, staffing & outsourcing, marketing services, soft drinks and real estate all saw greater than 100% growth in investments from Q1 to Q2.
- Number of million dollar offerings was up 33% over Q1 as well as 33% over the prior period. 14.3% of offerings that exceeded $1M raised the maximum of $5M.
- Jobs supported increased 18.4% over Q1 and 56.8% over the prior period.
|
|
|
We have spent a lot of time recently talking about the tipping point for Regulation Crowdfunding. To illustrate what is happening, 2 weeks ago we launched the industry’s first Online Investment Index that tracks that daily Top 50 offerings. The index shows how things started to pick up in 2020 despite the pandemic with local investors stepping up to support local businesses. It also shows the momentum behind the industry.
Source: Crowdfund Capital Advisors
The peak at the end of the index reflects the changes made by the SEC on March 15th that increased the amounts issuers can raise from $1M to $5M. This is not only bringing more issuers to the table but investors as well.
To further demonstrate this, Wefunder is launching a record 40 new offerings in a single day! What also makes this exciting is the fact that these are Y Combinator companies that have been through an accelerator and may be poised for substantial growth.
In a call with Wefunder they explained why March 15th was such a big day for the industry. One of the reasons they quote is the rules now allow investors to be pooled into a Special Purpose Vehicles (SPV) and founders can more easily communicate with them. They note that conventional wisdom is starting to change, more VCs are open to syndicating deals to the crowd and companies are allocating 10 to 15% of their round to the crowd. This opens up these offerings to employees, friends, family and customers but the bulk to the risk is still on the shoulders of these more professional investors.
Wefunder, a former Y Combinator company itself says, “Now anyone can investment as little as $100 in any of these startups. The beauty is that they are investing on the same terms and valuation as professional investors in the deal.” These professional investors are performing a level of diligence on these deals which may mitigate risk on these offerings.
Issuers that are raising money on Wefunder are using the new “testing the waters” provision that allows them to see if there is enough interest in their offering before spending the time and money to complete all the disclosure requirements. Once a company hits their target, they formally file, open their offering and collect their commitments. They still must hit their disclosed minimum funding target, or the money collected in escrow is returned to investors.
If you look at the offering page you will notice many industries represented from software application to biotechnology to personal services and more. The wide variety of offerings proves that there is investor appetite from both retail and professional investors and also counters the argument that online offerings only apply to companies that could not find capital elsewhere. Interestingly, several of these offerings are being run parallel with Venture Capital.
Make sure to check out their offering page for more information. Also make sure to subscribe to our new YouTube Channel, TheCrowd.
|
|
|
DENVER — The CCA Online Investment Index is a new tool created to gain better insight into the blossoming securities-based crowdfunding market. The index measures the online capital-raising activity of private U.S. companies. This index, which is calculated daily, is based on the capital investments received by the 50 daily highest-raising private issuers that meet certain criteria and are listed on Crowdfund Capital Advisors’ data platform. This data can uniquely inform investment decisions, economic analysis, forecasting and government policy.
Unlike other SME indices that emphasize optimism or policy, this index ranks the top performing issuers by capital commitments. The index is a barometer of investor sentiment across industries and geographies. Since the index launched $3.2B in economic activity has been monitored.
Securities-based crowdfunding was legalized with bi-partisan support as part of the 2012 JOBS Act. It allows startups and SMEs to raise money online from retail and accredited investors. Almost 4,000 securities offerings are included in the dataset (more securities than are tracked by the New York Stock Exchange) which represent over 3,250 issuers and approximately $17.3B in Market Value in over 460 industries across 1,100 cities in the United States. The dataset is growing about 3% per month. On March 15, 2021, new rules by the Securities and Exchange Commission increased the amounts issuers can raise online leading to a spike in the most current week of activity.
CCA collates real-time offerings from over 50 securities-based crowdfunding platforms, including Amplifyx, Buy the Block, Crowdfund Main Street, CrowdsourceFunded, Equifund CFP, FundersUSA, FundMe, Fundopolis, HoneyComb, Infrashares, IPO Wallet, Mainvest, Microventures, Miventure, Mr. Crowd, Net Capital Funding, Nextseed, Nvsted, Raise Green, Republic, SeedInvest, Silicon Prairie Online, Small Change, Stampede, StartEngine, The SMBX, Title 3 Funds, TruCrowd, Fundanna, Cryptolaunch, Musicfy, VidAngel Studios, Vincinity Capital, Wefunder, and Wunderfund. As new platforms are registered with the SEC, data from qualifying companies on these platforms will be added to the index.
Companies represented on the index are operating companies raising money, not equity funds. They represent twenty sectors: Agriculture, Forestry, Fishing and Hunting; Mining Quarrying, and Oil and Gas Extraction; Utilities; Construction; Manufacturing; Wholesale Trade; Retail Trade; Transportation and Warehousing; Information; Finance and Insurance; Real Estate and Rental and Leasing; Professional, Scientific, and Technical Services; Management of Companies and Enterprises; Administrative and Support and Waste Management and Remediation Services; Educational Services; Health Care and Social Assistance; Arts, Entertainment, and Recreation; Accommodation and Food Services; Other Services; Public Administration. These companies are conducting offerings pursuant to Title II [Rule 506(c)], Title III (Regulation Crowdfunding) of the JOBS Act or both.
Figure 2: Percent of Capital Commitments by Industry
“By looking at the index we’re able to gain a better understanding of just how much money is being raised every day through crowdfunding by the top companies in the industry,” says Sophie Dessart, CCA Analyst. “Over time, we can see whether investors are putting more or less money into the market, giving us an idea of investor sentiment and the perceived potential of the companies currently raising funds.”
“The CCA Online Investment Index has grown year after year, but the increases seen from FY 2020 to FY 2021 have been remarkable,” says Alex Nagel, CCA Analyst. “We are almost consistently seeing index values during FY 2021 that are twice as high as the year prior. This is a strong indicator of the growth of the crowdfunding industry including accessibility, availability, and investors bullish on getting involved with some great companies.”
Each day, the leader of the index and the company with the highest capital raise can change and come from a different industry. “It’s fascinating to see the wide range of companies that can lead the index, and it really illustrates the diversity of campaigns that everyday investors are supporting through crowdfunding,” says Dessart. “For example, the leader with the highest raise on March 15, 2021 , was Immersed, a Techstars company that helps remote teams work together in a virtual workspace. They were looking to raise funding build out their platform. Three days later, on March 18, 2021, the top investment was in the media industry with the company Angel Studios, a film studio that helps creators come together with viewers to create high-quality TV and film.”
“The index can also be used to measure real-time economic recovery,” says Sherwood Neiss, Principal at Crowdfund Capital Advisors. “This index is one way to monitor local and regional economic recovery by tracking investor sentiment. We can see peaks and troughs that correlate to unique offerings, seasonality and even the impact of COVID. For instance, in the 12 months leading up to the pandemic the index average was 127.2, since the onset of the pandemic the average rose 215% or 146 points indicating greater investor interest in support SMEs across the country. The low point for the index was 23 on March 15, 2020 when our economy shut down. And the high point was exactly one year later on March 15, 2021 when it hit 3,986 after the new rules went into effect”
“We are excited about the application of this new index,” says Jason Best, Principal at Crowdfund Capital Advisors. “Not only will users be able to gauge economic impact and job creation, but we also believe the next unicorn may be one of companies represented in the index.”
Regulation Crowdfunding from May, 2016 – Feb. 2021
- Over 3,600 securities offerings have been filed with the SEC by over 3,100 issuers (more issuers than are on the New York Stock Exchange)
- These issuers have
- Had over $900M in commitments
- 5% of offerings have been successful. Campaigns that were not only accounted for 4.6% of capital commitments
- Supported over 110,000 jobs
- Represent $17.3B in market value
- Represent over 450 industries, from 1,100 towns in the United States.
Regulation Changes on March 15, 2021
| |
Before |
As Of March 15, 2021 |
What it Means |
| Maximum Raise |
$1.07M |
$5M |
Small issuers can now successfully complete a full Series A offering online broadening access to capital to potentially thousands of enterprises that do not have access to Silicon Valley |
| Investment Caps (Retail Investors) |
Individuals may make investments based on the lower of their annual earnings or net worth
|
Individuals may make investments based on the higher of their annual earnings or net worth
|
More retail investors can diversify into local startups and small businesses they believe in with slightly larger amounts. Moving the current average investment from $750 to $1,500 |
| Investment Caps (Accredited Investors) |
Individuals may make investments based on the lower of their annual earnings or net worth |
No caps |
More accredited investors who already invest into startups and SMEs will be able to do so with larger checks. This will promote lead investors within offerings and mitigate risk for retail investors given the higher scrutiny provided by accredited investors |
| Testing the waters |
No |
Yes |
Issuers can see if there is an appetite for their offering before a complete filing. This will provide efficiencies and reduce legal, accounting and offering expenses |
| Demo Day Pitches |
No |
Yes |
Issuers can pitch their offering without worrying about overstepping prohibitions on general solicitation |
| Pooling of Investors into a Special Purpose Vehicle (SPV) – Ability to “crowdfund a fund” |
No |
Yes |
Streamlines the investor communication process such that issuers can communicate with a point-person for the SPV. Investors still maintain their ownership percentages and voting rights. |
Expectations for the Next 12 Months
- Over $1.2B will be invested
- The number of offerings to increase 40% to 1,700
- The number of investors to double to 800,000
Regulation A+ and Reg.CF crowdfunding is allowing millions of average Americans to invest in their favorite companies. How do we know this? From crowdfunding data! In this podcast, listen to Sydney Armani from FinTech World and Woodie Neiss from Crowdfund Capital Advisors explain why we may be at a tipping point in the crowdfunding industry as they explain how crowdfund data is being accumulated, curated, and being used to guide investors and issuers on crowdfund investing – direct from the experts who wrote the framework.
Crowdfund Capital Advisors delivers strategic insights to government agencies, financial institutions, regulators and multilateral organizations seeking to both create and implement innovative strategies to utilize crowdfund investing technologies to drive innovation, job creation and entrepreneurship.
As you’ll learn from listening to this podcast, Mr. Neiss (who Mr. Armani referred to as “The Godfather of Reg.A Crowdfunding”) is at the forefront of the data being accumulated with respect to crowdfunding investing. His company compiles data on a variety of Regulation A+ and Reg.CF deals across many SEC-registered crowdfunding portals across a number of sectors and specific industries. Where is the investment capital going? How much is being invested? What are the trends? Data answers so many of these questions, and it’s all driven by artificial intelligence algorithms.
With their “CCLEAR” Dataset, you get the most comprehensive Regulation Crowdfunding database that collects information on every offering. In addition, learn how Crowdfund Capital Advisors studies and invests in the emerging ecosystem of crowdfunding and the new solutions being created that will impact the broader private capital markets through advising, speaking, and research.
Questions? Comments? Besides his Fintech World website, Sydney Armani has recently launched CrowdfundingUSA.com as a resource for those seeking more information on how issuers can raise capital via crowdfunding. Likewise, you can get more information on what Crowdfund Capital Advisors does at their website at CrowdfundCapitalAdvisors.com.
ABOUT OUR GUEST: Sherwood “Woodie” Neiss
Sherwood Neiss, is a Principal at Crowdfund Capital Advisors and a Partner at Crowd Capital Ventures. He is an expert at building successful businesses. As a 3-time INC500 winner whose former company won E&Y’s Entrepreneur of the Year, Sherwood understands the keys to entrepreneurial success from concept to company to sale.
As a serial entrepreneur and investor during the credit crunch, Sherwood saw a need for a change in outdated securities laws and did something about it—as a co-founding member of Startup Exemption, Sherwood co-authored the Crowdfunding Framework used in the JOBS Act that was signed into law by President Obama on April 5, 2012.
Within Crowdfund Capital Advisors (CCA), Sherwood works with clients ranging from governments and banks that are looking for ways to boost economic development in their countries to investment firms looking for access to increased deal flow that crowdfunding creates. At Crowd Capital Ventures (CCVF), Sherwood researches, analyses and invests in promising FinTech companies focusing on all sectors of the crowdfunding market. Sherwood serves as an advisor to several crowdfunding platforms and crowdfunding technologies giving him a unique understanding and view of the industry and market. As an industry leader, Sherwood contributes to several publications including VentureBeat and TechCrunch. He additionally co-authored Crowdfund Investing for Dummies through Wiley & Son’s as well as the World Bank Report Crowdfunding’s Potential for the Developing World.
Sherwood co-founded Crowdfund Intermediary Regulatory Advocates (CFIRA) and the Crowdfunding Professional Association (CPA), and served as Governing Board Member and co-chair where he led the fight to ensure investors are protected while entrepreneurs have access to the capital they need to start and grow promising companies.
An avid public speaker, Sherwood speaks at universities and seminars around the world discussing crowdfund investing, what it takes to be an entrepreneur and how to build winning companies. He also does a large amount of work presenting to government bodies, speaking in front of the U.S. Congress, leading SEC and FINRA meetings, as well as, addressing foreign governments—testifying about how they can bring economic benefits to their citizenry through implementing their CCA’s Crowdfund Investment Framework.
Sherwood started his post-MBA career on Wall Street and moved to Silicon Valley where he completed personal and financial goals in his late 20’s he hoped to obtain in his 30’s. Wondering what to do next and also left struggling with a debilitating family dilemma, he used his entrepreneurial drive to help turn his family adversity into a multi-million-dollar company that today is helping millions of sick children, animals and adults get better by being more compliant with their medicines.
As the co-founder of FLAVORx (www.flavorx.com), Sherwood structured an approach and built a business model that threw off millions of dollars in cash while growing the business from one pharmacy to over 80% of the pharmacies in the United States. He raised millions of dollars in capital and saw the culmination of his endeavors with the sale of the company in 2007.
When not working, Sherwood is an avid traveler. He lived in Japan for a year and post-sale of FLAVORx took his second backpacking trip around the world. In addition to speaking at universities and businesses around the country he invests in real estate in the U.S. and Brazil, is part of a private equity group in Los Angeles, is working on a clean tech project in Puerto Rico and is involved with several other start-up ventures.
ABOUT OUR GUEST: Sydney Armani
Sydney Armani has more than twenty-five years’ experience in Silicon Valley, active in the community as an entrepreneur as well as an investor.
Sydney’s vision and expertise for starting and managing innovative companies have sparked and nurtured the great success of Hello Net (a mobile telephony appliance service), Minitel, and Videotex (an online first-generation of touchscreen tablets).
He has been an active keynote speaker and moderator at conferences and plenary sessions on Blockchain, Technology, Real Estate crowd finance, Cryptocurrency capital, and digital markets, secondary liquidity, disruption in banking and a host of other topics. He has lectured at major universities such as Georgetown, NYU, Hult International Business School, “Běiwài” University, Beijing, VIA Technologies, PARIS. while authoring articles for or being interviewed by INC Magazine, Housing Wire, Forbes, Fortune, The Economist, CNBC, Bloomberg and others.
Last week, Sherwood Neiss, one of our Principals, had the opportunity to speak to the Ivy Family Office Meeting about the state of the online investment industry. Sherwood gave an overview of the different exemptions under which companies are raising money online, dug into some of the Bloomberg data coming from the online investment platforms and provided 2 case studies:
- one on debt offerings that shows attractive average yields and
- the other on the positive impact coronavirus has had on capital formation
|
You can watch the replay by clicking the video image below. You can download the presentation by clicking the image right below this.
|
 |
 |
For more information, please contact: sherwood@theccagroup.com
|
|
| NEWS
For Immediate Release
Washington, D.C. – The Federal Reserve’s Main Street Lending Program has been a bust for small businesses, and billions of additional dollars are sitting idle in the Paycheck Protection Program (PPP) due to its expiration. Still, Main Street businesses across America are in desperate need of capital to readapt, operate effectively, or simply survive the COVID-19 economy. That is why Small Business & Entrepreneurship Council (SBE Council) president & CEO Karen Kerrigan, and the principals of Crowdfund Capital Advisors (CCA), Jason Best and Sherwood Neiss, are urging the Federal Reserve to leverage a proven solution to broadly deliver capital to small businesses in need.
“Small business owners and entrepreneurs cannot afford for Washington to get stuck, but it seems our elected officials and policy leaders have reached that point. They need to fully explore innovative ideas to fuel capital formation and access, and a co-investment fund is one that will leverage local capital through federal support. It utilizes the power and security of regulated crowdfunding to drive capital to local businesses and startups, providing a turn-key solution that can be implemented quickly and with existing regulatory guardrails,” said Kerrigan.
The latest report from the Federal Reserve reveals that the Main Street Lending program has lent approximately $4 billion of the $600 billion available with just 420 loans made. And these are bigger loans with an average loan size of $9.6 million. The results are an extremely poor showing for a program that was supposed to focus on boosting Main Street businesses by providing a bridge to economic recovery. The program was established with $75 billion in equity provided by the Treasury Department from the CARES Act, and with approval from the Treasury Secretary.
“The bottom line is that the Main Street Lending Program is a bust for Main Street. It’s time for the Fed to pivot like so many small businesses are doing. Members of Congress have urged Chairman Jerome Powell to think innovatively about how the Fed can deliver some of the massive amount of capital it is sitting on to Main Street businesses. A co-investment fund is a simple, safe and transparent way of doing that,” added Kerrigan.
A Main Street Recovery Co-Investment Fund would utilize the power and protection of regulated crowdfunding to supercharge local investment. The model that has been successfully utilized in the U.K., and offers a turn-key approach for the Federal Reserve to put to use some of the billions of dollars in capital that is currently sitting idle. SBE Council and CCA are asking the Fed to set aside $20 billion of that unused capital – a tiny fraction of what is available – to launch a co-investment fund.
“It would appear under procedures for emergency lending under Section 13(3) of the Federal Reserve Act that the Fed has the power to allocate such funds,” says Neiss. “The fund would be ‘broad-based,’ tied to debt-type instruments, and used to aid Main Street businesses to fund the gap until restrictions are lifted on consumer behavior. Given the unusual and exigent circumstance we are in, this appears to be the emergency time to create this fund,” he added.
Despite the pandemic, interest among Main Street businesses to raise money from their customers and community has increased dramatically. The number of offerings has increased 47.5% since February alone, according to data from Crowdfund Capital Advisors. Investments over the same period are up 300% and the number of local investors is up 99%.
“This is just over the past 9 months,” says Neiss. “Clearly the data is showing that despite the pandemic, both Main Street business and Main Street investors are eager to keep their local businesses alive. This co-investment fund will only further the positive results we are seeing in the data.”
“If the Fed would direct just 3% of the $600 billion already allocated to support SMEs it could deliver up to $250,000 to at least 80,000 businesses. This is a 200x greater impact than has been achieved to date by the Main Street Lending Program. This can be done using existing technology, existing regulation and existing industry data standards that provide for real-time transparency and oversight of every dollar. This data is already being used by Bloomberg clients to track SME sentiment and activities,” added Best.
Recently, SBE Council and CCA released the report “Regulation Crowdfunding by Congressional District: A Report Card,” which reviews the progress of investment crowdfunding since 2016. The Jumpstart Our Businesses Startup Act (JOBS Act) of 2012 enacted changes that ushered in investment crowdfunding, which officially launched following the finalization of Securities and Exchange Commission (SEC) rules in 2016. As noted in the report, there have been no cases of fraud with investment crowdfunding. And the democratization of capital is truly taking hold through investment crowdfunding, which allows small business owners to more easily identify investors and raise capital using SEC regulated platforms. Ninety percent of U.S. House Congressional districts (393) have had a regulated crowdfunding offering, and woman and minority entrepreneurs are finding significant success accessing capital via investment crowdfunding.
You can learn more about the co-investment fund by watching SBE Council’s recent webinar on how it works here, or watch Kerrigan’s appearance on FinTech television here.
Related Content:
Q&A: CCA and SBE Council on the Main Street Co-Investment Fund Idea, Start Us Up.
Crowdfunding Success Indicates Small Businesses and Startups Worthy of Government Matching Fund, Forbes.
ABOUT CCA
Crowdfund Capital Advisors (CCA) is a consulting and advisory firm. Its principals created the framework that became the basis for Regulation Crowdfunding. They have testified in front of 5 US House and Senate Committee Hearings on the subject and authored a book and World Bank report on the topic. They created the CCLEAR database that collects, cleans, normalizes and reports on offerings available under the JOBS Act. This data is transmitted to Bloomberg on a daily basis. They have worked in 43 countries helping governments and regulators create policy to enable startup and small business finance and job creation. Visit CCA’s website for additional information.
CONTACT: Sherwood Neiss sherwood@theccagroup.com
Jason Best, jason@theccagroup.com
ABOUT SBE COUNCIL
SBE Council is nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 25 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil
CONTACT: Karen Kerrigan, kkerrigan@sbecouncil.org
# # # |
|
|
| Online investment funding in October 2020, the first month of the final quarter of the year, increased 33.2% over September and followed the strongest quarter for online investment, according to Crowdfund Capital Advisors. At the same time, 7 new $1,000,000+ offerings closed last month – this tied for the fourth highest monthly total, so far this fiscal year – indicating that despite a global pandemic and uncertainty around the U.S. presidential election, local investors were continuing to deploy records amounts of cash. This is all happening as the SEC voted to increase the maximum companies can raise online from $1,000,000 to $5,000,000. This change will enable tens of thousands of additional companies to utilize Regulation Crowdfunding to raise capital to start or begin to recover and grow their businesses. |
|
Subscribe to Bloomberg Data on SME fundraising in the US
This is the only place you can find complete data on all US Reg CF capital raises. |
|
|
Key Findings
- Online investment funding in October 2020 came in at $32 million, up 71.6 percent from October 2019.
- 7 new “crowd unicorns” (defined as online investment issuers who raised in excess of $1 million online in a single offering from online investors) joined the board in October, this tied for the fourth highest month for the year. The enterprise value of these new crowd unicorns is $143,328,000.
- New offerings were up (116 vs 97 in September) but not as strong as the month of July (130).
Online Investment Funding by Month through October 2020
Includes Regulation Crowdfunding and Parallel 506c Offerings |
|
New Crowd Unicorns
There have been 70 crowd unicorns thus far in 2020.
- In October, seven new crowd unicorns joined CCA’s list of startups that raised $1 million or more.
- August had 11 crowd unicorns
- July and September each had 9.
- The most highly valued October crowd unicorns were:
- San Diego-based Pacific Integrated Energy, a company creating new solar energy markets
- This Way Global an Austin-based company that matches people with jobs;
- Boston-based Beanstox, an app that makes investing easy; and
- College Park, Maryland-based Airgility, a manufacturer of AI powered aerial robots for public safety, security and defense.
Interestingly enough, only 4.3% of all crowd unicorns in 2020 have come from Silicon Valley proving that online investing is democratizing access to capital by allowing investors all over the United States to invest in local businesses they believe in. Together these October crowd unicorns have raised $8.2 million and added $143.3 million in valuation to the crowd unicorn board. The crowd unicorn board collectively has almost $1 billion in enterprise value.
7 New Crowd Unicorns in October 2020 |
|
Nationwide Online Investment
As of October 31, 2020, nationwide online investment totaled $179.7 million.
- That was up 62.5% over the first 10 months of 2019, when investors spent $110.6 million.
- The number of investors for the first 10 months of 2020 was 295,000 which was up 80% from 164,000 in 2019.
- Average investment decreased 9.6% from $674 in 2019 to $609 in 2020 due to the increase in retail investors.
So, while the pandemic raged, online investment increased dramatically, the number of investors nearly doubled and issuers around the United States were able to find critical capital to help them during this time of crisis.
Rounds of $1 million and more represented 25.6 percent of invested dollars in October 2020 – lower than October 2019 at 32.9 percent – per CCA data. This means that more capital is going to more offerings that are raising less than $1 million in 2020. This would support the theory that more businesses are turning online for capital from local investors where the government stimulus programs have come up short. We’ve noted in other reports that local investors have been particularly active through the pandemic. Overall, $1 million-plus rounds have accounted for a slightly lower percentage of total funding this year, at 32.2 percent, than last year, when such megarounds represented 32.7 percent of funding.
Mega Valuations
During 2020 two companies leveraged online investing that had valuations in excess of $100 million. West Hollywood-based crowdfunding platform StartEngine raised $685k at a $190 million post-money valuation. This is their fourth Regulation Crowdfunding offering. Their first one, which closed on March 2019, had a $120 million post- money valuation. Their success shows their understanding of how to leverage online investors not only for themselves but others on their platform. New York-based Fruit Street Health, a telemedicine service raised $41k at a $104 million post-money valuation.
Election slowdown won’t last
With the U.S. election looming, we saw a slowdown in funding in the first week of November. But, with the markets and liquidity up, we expect capital will still be deployed at a strong clip through the end of the year. From a funding perspective, October was also the strongest month for investments last year as well. With the proposed SEC changes that increase the amounts companies can raise online we only expect the number of firms raising money online and investors backing them to increase. |
|
The following is a reprint of an article that appeared on Start Us Up.
The original can be found here.
Start Us Up/America’s New Business Plan was launched by the Ewing Marion Kauffman Foundation.
America’s New Business Plan is a bipartisan policy roadmap to support entrepreneurs, with recommendations for federal, state, and local government. The plan was developed to provide policymakers with research-based solutions to overcoming the problems faced by entrepreneurs that prohibit them from starting and growing their business.
|
|
|
Crowdfund Capital Advisors and Small Business & Entrepreneurship Council, two members of the Start Us Up coalition, are championing the creation of a co-investment fund for successful Regulation Crowdfunding campaigns. We spoke with CCA’s Sherwood Neiss and SBE Council’s Karen Kerrigan to discuss how the fund, and crowdfunding in general, can transform the funding landscape for entrepreneurs.
Main Street Recovery Fund
Q: Tell us about the idea for a co-investment fund and what it might look like in the United States.
A: During the Great Recession, we developed the idea for securities-based crowdfunding because we needed to find a way to get capital flowing to America’s job creators. The banks weren’t lending, and other options entrepreneurs were using — like lines of credit and credit cards — disappeared. Since Regulation Crowdfunding went into effect, more than 2,750 companies in almost 1,000 cities across the United States have raised close to $700 million to support their growth and operations.
When COVID hit, something interesting happened. Rather than seeing Regulation Crowdfunding offerings diminish and investors shy away, the opposite happened. From February to July, we saw the number of offerings, investors and capital commitments hit historic highs. This got us thinking. If community investors can help support community businesses with their limited capital, what if we were to multiply the amount of capital by creating a co-investment fund whereby the government would invest alongside the crowd?
So, we looked to see where such a model already exists, and we found it in the United Kingdom with the Future Fund. This is what the Main Street Co-Investment Fund is based on. The fund would invest up to $250,000 per business in a dollar-for-dollar match provided a company were to hit a funding target and explain how they would use the capital.
The best part about this program is that it is turnkey. There is no policy that needs to be created. Right now, the Federal Reserve is sitting on about $598 billion that it was supposed to disperse to Main Street businesses. If the Fed were to just carve out $20 billion into this co-investment fund, it could support 80,000 businesses.
Q: What steps have your organizations taken to advocate for the creation of such a fund?
A: The first phase of our work has focused on reaching out and educating the committees of jurisdiction in the House and Senate about the Main Street Recovery Co-Investment Fund. In addition, we continue to deliver information and communications to key staff within the White House, Securities and Exchange Commission and Treasury about the value of this program to small business recovery, resiliency and entrepreneurship in general.
We continue to conduct various interviews with media, and have hosted a virtual Hill briefing about the fund. In mid-September we released the report “Regulation Crowdfunding by Congressional District: A Report Card,” which provides a comprehensive review of the success of investment crowdfunding. As noted in the report, this method of fundraising is widespread, with more than 90% of congressional districts — that is, 393 House districts — having issuers or small business owners that have utilized investment crowdfunding. In addition, there are more than 700,000 retail investors who have participated in these offerings.
Not surprisingly, the areas of the country that are being hardest hit by the pandemic in terms of business closures — urban districts — have tens of thousands of retail investors. Investment crowdfunding can be leveraged to help these hard-hit areas recover and reinvent themselves, but massive capital is needed. This is where the power of the local crowd can step in.
Q: Expanding access to capital is a key pillar of America’s New Business Plan. What potential do you see for Regulation Crowdfunding to help meet entrepreneurs’ capital needs, especially women, people of color, and those living in rural communities?
A: Before Regulation Crowdfunding came into existence, we testified that it would democratize access to capital, and indeed this method of raising capital has done just that. With more than four years of experience under our belts we can see that Regulation Crowdfunding is working. 80% of the capital is coming from investors within local communities.
Further research we have done shows that women and minority-founders are some of the biggest beneficiaries of Regulation Crowdfunding. This is important as much research has been done about how women and minorities are shut out of the traditional capital markets.
With the decimation of untold numbers of small businesses — perhaps in the millions — by the end of COVID, it is more critical than ever that policymakers focus on solutions that will fuel business creation and growth. By leveraging private capital, the government can play a key role in helping the economy recover from the COVID catastrophe.
For more information contact us. |
|
DENVER, CO, UNITED STATES, January 4, 2023 /EINPresswire.com/ — In its upcoming report “What a Wild Ride,” Crowdfund Capital Advisors (CCA) releases findings from its annual industry survey. Since launching in 2016, over $1.6B has been committed to more than 5,600 startups and small businesses by 1.6M online investors. Issuers were present in over 1,600 cities across the USA, including all 50 states, with women and minority founders benefitting greatly.
