In recent years, equity crowdfunding has seen both steady and continued growth. Community raises, which is another popular name that it is referred to by fundraising platform insiders, is surging forward for many reasons. The most popular driving forces are a more relaxed regulatory oversight from government agencies and a less eager contribution from traditional venture funding sources during 2022.
Even the bleakest equity crowdfunding naysayers are starting to question their antagonist stance.
Another significant shift, of monumental importance, is the elimination of the requirement for investors to be fully accredited. The full utilization of Reg CF will lower the bar, and it will allow money to flow more freely from sources that weren't available until now. Also, Reg A will open more pathways by lowering SEC registration oversight.
Recently, the public opinion of equity crowdfunding has become more acceptable and favored. In the last few years, it has become commonplace for companies, even those with many top funding options available to them, to include crowdfunding as an early tool in their repertoire.
Furthermore, even seasoned VCs are trying to persuade their portfolio teammates that equity crowdfunding is the new golden-child of funding investments. The gloomier main street fundraising becomes, then it means brighter skies and more money for community raises.
Amazingly, even before May ended this year, a whopping 215 million dollars had flowed into new businesses from community raises. According to the industry experts, known as Arora Project, that amount is already beating the figures reported for 2021. Additionally, if the trend continues, then equity crowdfunding will outperform the 502 million obtained from crowdfunding in 2021.
Industry experts agree that this early, solid performance is a clear indicator that the 4th quarter will be even more exciting, as this is the time that equity funding typically performs at it's best anyway.
Nick Tommarello is the Chief Operating Officer and founder of the startup funding company Wefunder, a crowdfunding company that joins new private companies with crowdfunding capital online. He feels that crowdfunding is a much more popular option now. He thinks that many startups are going to be needing crowdfunding investment to avoid exposing their company to a down round, and crowdfunding is primed to reap the benefits of the current less-than-perfect VC market.
The Arora Project CEO and founder, Krishan Arora, shares the same opinion as Nick. He agrees that more people will be using crowdsourcing during 2022.
However, unlike Nick, he doesn't think it is anything new. He feels this trend has been a regular growth pattern that has stealthily been happening for quite a while now. It just wasn't on everyone's radar. As it continues to grow, it will become more apparent to everyone.
He says the negative impact of COVID-19 has forced some startups to reluctantly seek funding from non-traditional venues. However, after they try it, many of them realize that it is a great fit for them.
The unfortunate circumstances of the money tightening opened doorways that they never considered in the past.
Working with a crowdfunding capital source , other than an institutional VC, can deliver benefits you might not expect. For example, one startup entrepreneur named Jeremy Barnett, who is in the AI-driven marketing field, received his funding from Wefunder during the short-lived funding crunch back in 2020.
Barnett wanted control to arrange the deal in his favor. He wanted to structure the starting date, the ending date, and, most importantly, the valuation received during the fundraising.
You can imagine his delight when he fully achieved his funding goals. Also, he was delighted with how much more control he maintained over his company than the other funding path offered. If he would have secured his funding with a typical VC, then the loss of control could have been unpredictable.
With unfavorable terms and prolonged closing times, founders are facing rounds that look increasingly bleak.
When dealing with equity crowdfunding there is less focus on pace.
Less than one-thousand dollars is a common limit for check amounts found among crowdfunding platforms. Tommarello reported that the majority of checks from Wefunder, much as 80%, are below the amount of $500.
Arora suggested that such small amounts are not going to be pivotal to most investors' financial future. However, it allows them to share in an investment that they have a connection with. Also, one that they believe should be funded.
Both, Tommarello and Arora, agree that the pullback has given equity crowdfunding a shot of adrenaline; however, that's not the only propelling force pushing the sails forward.
Big name accelerators, including Y Combinator and TechStars, are dipping their toes into the crowdfunding platforms. Also, Arora envisions a future with an expanding base of established companies joining the community funding party. He feels equity crowdfunding is on a slow steady path of growth that will inevitably reach a level of maturation and an established market share.