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.
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