It wasn’t quite the fireworks that some had hoped for, but Regulation Crowdfunding closed the year with a respectable showing. In 2016, 186 companies launched Reg CF campaigns, attracting $19 million in capital commitments, according to year-end data compiled by Crowdfund Capital Advisors (CCA). Investor interest and investment have increased steadily since the law went into effect last May, but the number of new deals has stalled out at around 22 new campaigns a month.
“Awareness continues to be the biggest challenge in the online finance space,” said Jason Best, a principal at CCA, in explaining the results. “If you walked down the street in most American cities and asked what equity crowdfunding was, or what the JOBS Act was, 9.5 out of ten people would not know what that is.”
“You’ve got a situation where you’ve got a new asset class, new investors, a new investment channel, new regulation and new issuers, which means we’re looking at early adopters in this space,” added Best.
He and CCA partner Sherwood Neiss, who as entrepreneurs helped usher the JOBS Act into being, expect the market to continue its slow but steady growth in the year ahead. They expect 500 to 700 new campaigns in 2017—about 50 a month—to raise up to $70 million in total.
One wildcard is the Fix Crowdfunding Act (FCA), a bill that’s been floating around the House that may make it to a Senate vote this year. If it passes, it could raise the amount companies can raise under Reg CF to $5 million, up from $1 million today. It would also address other sticking points, such as the inability to group multiple investors into a single entity, or Special Purpose Vehicle. If the FCA is passed, as many expect, it could push the amount of money raised under Reg CF this year to $120 million, according to CCA.
Overall, the first seven months of mainstream crowdfunding showed signs of progress.
2016 by the Numbers
186 campaigns (average of 4 new campaigns per week)
$19 million in investor commitments
Average amount raised per campaign: $226,000
With about 73 of the 186 campaigns still active, 79 of them, or 42%, have hit their minimum funding goals. Another 107, or 56%, have not reached their minimum. Among campaigns that have been completed, 47% have successfully reached at least their minimum funding targets. Fifty-nine campaigns, or 32%, failed to do so. However, 18 of those were on one platform, uFunding, that gained little traction and was shut down. Not including that platform, the failure rate was 24%.
The average amount raised was $226,000, with an average valuation of $8.9 million—or $5.3 million if you take out three outlier campaigns that had valuations in the tens of millions of dollars. The more realistic $5 million average valuation is typical of Series A rounds, said Best, suggesting that Reg CF valuations are in line with the broader market.
Successfully completed campaigns raised a total of $17.9 million with an average of 331 investors per deal. The average investor commitment increased from $750 in May when Reg CF went into effect, to an average of $883 by year end. And the time to fund a campaign is dropping. The average time to reach $1 million in commitments has decreased from about 21 days in the beginning to about 10 days now.
“If we had had a hockey stick type of takeoff, we’d be having a very different conversation with regulators right now,” says Best
Food, beverage, wine and spirits led the field in the number of deals, but technology and transportation companies—everything from electric bikes, cars and even jetpacks—attracted significant amounts of investor capital.
The number of funding portals grew as well, from 15 to 21 funding portals. Most notable among the new entrants was Indiegogo, a pioneer in rewards-based crowdfunding.
More states got involved, too—entrepreneurs in 36 states launched campaigns, up from 20 states 3 months ago. The action was led by California (with 58 deals), New York (14), Texas (13), Illinois (9), Mass (8). Florida had 18 deals, but they were all on the now-defunct uFunding, the only portal to shut down. There was little activity in many Midwestern and southern states.
Best and Neiss said the data was in line with their expectations, and reflects the growth trajectory of the UK, where investment crowdfunding is more mature. “If we had had a hockey stick type of takeoff, we’d be having a very different conversation with regulators right now,” said Best, not to mention talk of scandals and overheated markets. The modest ramp-up “is allowing people to learn about how to do this in an effective way and grow this market over time,” he said. “We will see new success stories and also see the market expand into new places, and that’s how the market will grow.”
And for the businesses that have successfully completed raises, Reg CF is clearly a win. “The reality is, that’s probably $17.9 million these companies would never have seen,” said Neiss.
Image credit: Ron Mader, Flickr.