A little over a year ago, Title III of the JOBS Act went into effect. Since May 16, 2016, equity crowdfunding has given more investors access to innovative startup companies and helped more startups raise the capital they need to grow and develop. Contrary to articles claiming equity crowdfunding to be dead after merely one year, equity crowdfunding surpassed venture capital funding in 2016 and it is estimated to reach $93 billion globally by 2025.
According to Venture Beat, 335 companies filed with the SEC to raise capital on securities-based crowdfunding portals in the year since Title III was enacted, and 17 crowdfunding portals are currently registered with FINRA. So today, we’re addressing how equity crowdfunding is performing…and why equity crowdfunding is not dead.
- According to a crowdfunding attorney via Above the Law, crowdfunding is “a good process for companies to go through.” In order for startups to raise funds via Title III, they must have their finances reviewed, accept a cap table, list their employees and duties of each, and present fair financial projections. By gathering this information, startups are better positioned to raise in the future, if necessary, by having a clear picture of the business.
- While one regulation crowdfunding portal made news by having its FINRA registration revoked last year, that doesn’t bode bad news for other portals. In fact, it’s proof that these portals need to take their gate-keeper responsibilities seriously. FINRA requires portals to have a “reasonable basis for believing that issuers posting offerings on the portal comply with applicable regulatory requirements.” In addition, these portals are required to provide investors with resources and education to ensure that they are able to make informed decision and to provide these investors accurate, unbiased, routine communication.
- With Title III, startups can now publicize and market their fundraising efforts. This means that not only are these startups reaching the typical angel investors and VCs – who may or may not share that startup with others – but also the average investor/everyday consumer. It’s a big bonus for startups just starting out with smaller budgets who need to rely on word of mouth or less expensive marketing strategies to spread interest.
- The numbers surrounding equity crowdfunding don’t lie. According to Crowdfund Capital Advisors, the amount raised via equity crowdfunding since implementation is upwards of $42 million. Out of all closed campaigns, over half have met their funding goal – and some portals hold even better percentages. For example, First Democracy VC, the MicroVentures + Indiegogo portal, has seen 100% of its startups funded.