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.
