The year 2016 marked a new height for Americans as they got the opportunity to invest in private startups. The same year recorded the emergence of several online funding platforms that aimed to bridge the gap between amateur investors and the high-risk, high-reward foundations of startups. Five among these platforms have stood out from the rest to establish themselves as online startup funding market leaders.
They include SeedInvest, NetCapital, Republic, StartEngine, and Wefunder. According to KingsCrowd, a good portion of the monetary gain made by startups results from the amount of money they receive from the avenues provided by these five platforms. The platforms enabled startups to raise capital through crowdfunding and online private equity markets.
The online funding model, according to KingsCrowd, outpaces traditional funding models by a great deal. It also helps startups cut costs because they don't have to go through the traditional banking process. This is important because successful startups usually overlook financial and risk management's importance until it is too late.
The first halves of 2021 and 2022 have witnessed the emergence of new deals for startups that have committed themselves to the online funding model. Wefunder invested in around 194 startups for the first half of 2021; in 2022, the number grew to 199. Overall, investments from all five platforms have grown by around 10%. This rapid growth can be attributed to the growing popularity of the online funding model. On the other hand, investors have begun to learn the ins and outs of the model, which is why they continue committing more money to it.
StartEngine has reported the largest increase in the number of deals from last year. The company has gone from 97 businesses in 2021 to 158 in 2022. StartEngine is known to invest in lesser funded startups seeking to enter the market. While the company is known to back startups with limited funding, it will also invest in startups that have received more funding than they need to succeed. StartEngine increased the number of applications by double during the first half of 2022, providing greater visibility for companies seeking funding. It is no surprise that the number of deals has increased significantly. The crowdfunding model is still in its infancy, providing opportunities for startups to get the funding they need to develop their products and venture into the market.
Wefunder had five more deals during the first half of this year than during the first half of 2021. On the other hand, Republic saw a decline in the number of deals in the first half of this year compared to the number of deals it recorded in the first half of last year. Apart from Republic and Netcapital, all three other platforms, SeedInvest, StartEngine, and Wefunder, have reported an increase in deals. Again, this is a good sign for the platforms and the growth of startups relying on online funding.
The overall figures have shown that investors in crowdfunding have increased since last year. Although there has been an improvement since last year, the growth compared to other years is slow, and the growth rate has declined by about 50%.
Despite the fallen growth rate, retail investors should not be discouraged. This is because the crowdfunding industry tends to grow steadily. In the long run, this growth is usually sustained by other funding sources such as angel investing, venture capital, and private equity deals. Kingscrowd notes that the startup investing industry is proving to be more resilient. If the current figures are to be trusted, then more and more businesses will turn toward crowdfunding in the future. As a result, more investors are getting involved and bringing about a higher growth rate for startups.