Defying Expectations: Regulation Crowdfunding Issuers Prove More Resilient Than Traditional Companies

In the dynamic world of business, longevity and success are often viewed through the prism of traditional metrics and pathways. However, recent CCLEAR1 Data on Regulation Crowdfunding issuers paints a different picture, one that challenges conventional wisdom and suggests that businesses funded through online platforms may have a surprising edge in longevity compared to their traditionally funded counterparts.

A New Era of Business Longevity
Contrary to popular belief, businesses that seek capital online through Regulation Crowdfunding are not merely outliers or ‘last resorts.’ In fact, they might just be the vanguards of a new era of business resilience. According to data analyzed by Crowdfund Capital Advisors, there’s a compelling trend that emerges: businesses funded through Regulation Crowdfunding exhibit a higher survival rate than the general business population.

“The Bureau of Labor and Statistics reports that approximately 50% of all new businesses fail within five years. Yet, our analysis of over 6,800 companies engaged in Regulation Crowdfunding tells a different story. Here, only 17.76% of funded companies have gone out of business, a stark contrast to the national average,” says Sherwood Neiss, Principal at Crowdfund Capital Advisors. “This is a significant finding that underscores the viability and strength of Regulation Crowdfunding as a funding mechanism.”

The Data Speaks: Visualizing Success Over Time
Employing Tableau for an in-depth analysis, our team effectively visualized the data to shed light on significant patterns. One of the most revealing visualizations is the survival rate over time, segmented by the year of funding. This line chart (below) uncovers a critical insight: companies funded before 2019 demonstrate a remarkable tenacity, with a higher-than-expected rate of continuing operations. This observation notably contrasts with the Bureau of Labor and Statistics’ findings, which suggest a higher likelihood of failure for businesses as they age. Companies utilizing Regulation Crowdfunding defy the typical business failure rates in their later years and have a very high survival rate in the years surrounding their funding.

Startups vs Established Companies: A Surprising Revelation
While established companies funded through Regulation Crowdfunding show admirable resilience, the data on startups is particularly striking. “Even though startups are traditionally seen as higher risk, those funded via Regulation Crowdfunding are defying expectations. The data indicates that these startups have a better chance of survival than many of their counterparts in the traditional business world,” Neiss observes.

While established companies and startups show varying degrees of resilience, another layer of analysis presents an even more compelling narrative about diversity in business success. In the realm of Regulation Crowdfunding, 90.4% of companies founded by women are still operational, compared to 81.6% of those founded by men. Similarly, businesses founded by minorities exhibit a commendable survival rate of 87.8%, slightly higher than the 82% for companies founded by non-minorities.

These statistics not only highlight the significant role of diversity in business success but also challenge some of the traditional biases prevalent in business funding. The success rates of women and minority-founded companies in the Regulation Crowdfunding sphere are not just numbers; they represent a shift in the entrepreneurial landscape, where access to capital through alternative platforms is enabling a broader range of founders to succeed. This trend is a positive indication that the democratization of funding could be contributing to a more inclusive and diverse business environment.

An additional layer of insight is revealed when examining the correlation between the revenue and survival status of companies. The data shows a clear trend: companies with higher revenue bands tend to have a higher survival rate. This pattern indicates that financial robustness, reflected in their revenue figures, plays a crucial role in the longevity of a business. Specifically, companies in the higher revenue bands are more likely to be operational, which could point to a direct relationship between financial health and business survival.

Equally telling is the relationship between the amount of capital raised and business status. Businesses that secured higher funding through Regulation Crowdfunding demonstrate a noticeably lower closure rate than those that raised smaller sums. This suggests that the level of funding acquired not only provides the necessary capital for growth but also serves as a marker of investor confidence and business viability. It appears that higher funding targets correlate with better business resilience, further underscoring the importance of access to adequate capital in ensuring business longevity.

“These trends, when combined with the previously discussed insights on the success rates of women and minority-founded companies, paint a picture of an evolving business landscape. Regulation Crowdfunding is not only facilitating a higher survival rate across the board but is also promoting diversity and financial stability, challenging traditional narratives in the business funding domain,” said Neiss.

Policy Implications: Time for a Change
This data challenges the notion of adverse selection in Regulation Crowdfunding. “Far from being a haven for ‘bad seeds,’ these platforms appear to be nurturing businesses with a higher propensity for survival,” Neiss explains. “It’s a testament to the power of community support, due diligence, and perhaps, the democratization of funding.”

Given these insights, Neiss advocates for reevaluating current policies: “The current cap of $5 million for Regulation Crowdfunding might be unduly limiting. Considering these businesses’ apparent resilience and success rate, raising the cap to $20 million could be a bold step forward, enabling more companies to benefit from this pathway to success.”

Conclusion: A Paradigm Shift in Funding and Success
The world of business funding is witnessing a paradigm shift. Regulation Crowdfunding is not just an alternative funding route but a potentially more viable one for many businesses. “This data doesn’t just speak; it heralds a new era of business resilience and success,” concludes Neiss. As we move forward, it’s crucial for both entrepreneurs and policymakers to heed these numbers and embrace the changing landscape of business financing.

1. CCLEAR is the data division of Crowdfund Capital Advisors. CCLEAR has a 100% complete dataset of all Regulation Crowdfunding offerings that is inclusive of more than 6,800 companies and 7,900 offerings including business status, investor sentiment, valuation, and more.