The U.S. Securities and Exchange Commission’s (SEC) regulation crowdfunding (or equity crowdfunding) rules went into effect on May 16, 2016. Now, the U.S. Small Business Administration Office of Advocacy has released new analysis of all regulation crowdfunding filings that occurred during the first year – with some key takeaways for startups and investors alike.
A few common themes emerged in regards to the startups filing to initiate a regulation crowdfunding campaign during the first year. How long the companies have been in operation is one: 43% were founded less than one year ago and 88% were five years old or younger.
Likewise, the majority of startups that raised via regulation crowdfunding during the first year were consumer facing, community or locally oriented, and had a civic or socially conscious mission. A high number offered customizable and high-tech products, with another key area being restaurants, breweries, and entertainment-related businesses.
Of the startups that reported meeting their funding goal, the average amount of capital raised was $289,000 and the median was $170,000. The lowest amount raised in a successful crowdfunding campaign was $11,800, and the highest amount raised was $1,070,000 (the annual limit, per government regulations).
Takeaways: These findings fall in line with Indiegogo’s report following the first year of First Democracy VC, a registered funding portal formed through a partnership between MicroVentures and Indiegogo. In addition, capital raised through equity crowdfunding is similar to the amounts typically raised in traditional small business financing.
When it comes to investors, it’s important to note where startups seeking regulation crowdfunding are incorporated. During the first year, the majority (43%) of startups were incorporated in Delaware, due in part to its business-friendly legal practices and corporate tax structure. The majority of startups were located in California, Florida, and Texas.
In terms of structure, 71% of startups were structured as corporations, 28% were structured as limited liability companies (LLCs), and only 1% were structured as limited partnerships (LPs). Among the 343 regulation crowdfunding offerings available during the first year, the most common types of securities offered were common stock (34%), Simple Agreements for Future Equity (25%), and debt (22%), together representing over 80% of all transactions.
At regulation crowdfunding firms themselves, male executives were far more prevalent than female executives during the first year. For the Form C filings, which are required by the SEC for each regulation crowdfunding investment offering, 83% listed a male as the firm’s signing executive.
Takeaways: Venture capital is primarily concentrated in tech hubs like San Francisco, New York City, Boston, Miami, and Austin – and it would seem as though equity crowdfunding follows that trend, with fewer startups hailing from suburban or rural areas. Likewise, whereas women have previously found success with crowdfunding, equity crowdfunding seems to revert back to venture capital statistics, where women are regularly underrepresented. That said, some funding portals are making strides to change this; of the 37 startups with successful raises through First Democracy VC, 16% were founded by women.
Not a MicroVentures investor? Sign up today to learn more about equity crowdfunding at First Democracy VC.