At Fund Wisdom we believe in the opportunity equity funding platforms create by providing access to capital, investment opportunities, and transparency to previously opaque markets. We are building a dashboard for analyzing our database of investment offerings and in the process have discovered some interesting information.
We review 2019 Equity Crowdfunding performance across Q1, Q2, then make comparisons to years past. This analysis involves internal data, external data, and reports. It encompasses both regulated public offerings and private offerings listed on American platforms.
Since 2014 Fund Wisdom has been recording public offerings on platforms. To obtain this data, we manually reviewed info from public webpages on the equity crowdfunding platforms. Then we recorded each listing in our own private database and ran regular updates. Findings were compiled into a detailed report.
Alternatives - Equity Crowdfunding
If you’re starting a business, often to get the business going, you need money upfront. Traditionally, the way to do this was to go to a bank, venture capital firms, or use your own money. When websites gained popularity, people started to use them to advertise their business needs, and ultimately get investment. What started as individuals aiming to get assistance to start their business, expanded so that individuals could also sell shares of their business. A term to help classify this industry developed, Equity Crowdfunding. There’s two major types of Equity Crowdfunding, accredited and non-accredited. Non-accredited is also known as Regulated Equity Crowdfunding. Only accredited investors were able to invest in businesses offering shares at an early stage, which limited opportunities for those who were not wealthy enough to qualify. Hence the term "private" equity within the alternative investment category.
Ernst & Young (EY) surveyed more than 200 fund managers and 60 investors to uncover the points of view of both hedge fund and private equity managers, as well as institutional investors who allocate to both asset classes as well as broadly across alternatives. Within the broader financial market Equity Crowdfunding represents a very small fraction of overall investment today.
It wasn’t until 2016 that investment in small-business opportunities to generate capital were made available to unaccredited investors. This occurred with the JOBS Act, which is regulated and enforced by the Security and Exchange Commission (SEC). Now, when a small business or company wants non-accredited investment (or non-wealthy individual investors), they need to complete a form through the SEC. The information on that form goes into a database which the SEC oversees. Rather than pull manually from websites, Fund Wisdom “cleans” then analyzes the SEC data to look for various things like investment opportunities, and geographic variability of investments. Part of Fund Wisdom’s mission is to provide the data and analysis to investors, entrepreneurs, financial firms (with specialties in equity analysis), and more.
The SEC filing data presents a challenge to analyze due to the forms companies fill out consisting of free form entries. This results in challenges and discrepancies in available reports. So, we at Fund Wisdom built a process to standardize each listing to improve analysis. Our goal is to create more accurate reports for improving analysis and investment decisions.
Regulated Equity Crowdfunding
2019 Regulated Crowdfunding Q1, Q2
StartEngine, WeFunder, and CrowdCaptial Advisors have written detailed reports on regulated equity crowdfunding data. The time intervals 2019 reports on the market make a side by side comparison more challenging than the analysis of historical reporting below. StartEngine provides monthly findings whereas Wefunder’s report was cumulative to April.
Historical 2016 to 2018
This chart highlights some of the side by side discrepancies we found and look to better understand.
Sherwood Neiss is a partner at Crowdfund Capital Advisors and has published several detailed reports. The team there are also building a private beta dashboard to view their data. This visualization appears to be the best method of conducting detailed analysis to date but access is currently limited. Sherwood wrote a VentureBeat article January 2019 to showcase some of the great work they are doing. He has been a lead advocate for the industry as a whole, and in the article he writes: "Not only does it engage local communities to become investors in local businesses, but it provides a viable alternative to traditional finance (i.e. credit card, bank loans and/or venture capital) that may not be available to these firms." He goes on to suggest a path forward, "The potential for Regulation Crowdfunding may be realized sooner if the $1.07 million cap were to be increased as well as certain recommendations implemented per an industry letter to the SEC." I admire what the team has built and recommend signing up.
Jonny Price of Wefunder posted a detailed review and analysis on Medium.com titled, Regulation Crowdfunding, Three Years In. He goes into great detail of Wefunder performance, and starts with an industry overview. He shares cumulative investment in regulated offerings hit $207.6 Million, by April 2019, with Wefunder making up $70.5M of that. He also breaks down Wefunder specific data like industry, security type, and company performance.
An important stat for entrepreneurs considering listing with platforms he mentions, typical founding teams raise 50% through the platform and the other half through direct relationships.
Crowditz provides a live stream of the latest regulated equity funding offerings. They also published an analysis every few weeks of industry performance. I have not been able to find any data visualizations but assume they are soon to come.
Accredited Equity Funding
We built a detailed report of data back in 2015. The report provided a detailed view of the how the industry began prior to the addition of non-accredited investing. We are still working on providing access to this data with the dashboard, but the offerings can be seen in the unfiltered table of offerings. Around the 2016 time frame the accredited focused platforms began moving their equity listings that had been public behind a login which requires accredited investor verification. We therefor made the switch over to pulling in regulated SEC filing data.
University of Cambridge
The Judge Business School at University of Cambridge has been collecting self reported figures direct from regulated and non regulated platforms. On their latest report for 2017 (they are still working on 2018 data) they cover platforms like, Fundable, CircleUp, NextSeed, PeerStreet, Republic, Seedinvest, StartEngine, TruCrowd, and Wefunder.
We had a chance to connect with the team on their ambitious goal of becoming the data depository and hub of academic activity in the field of alternative finance. They look to cover online markets such as equity and reward-based crowdfunding, peer-to-peer consumer/business lending, and third-party payment platforms.
I don't believe the differences in reporting is intentional, but represents challenges with the sources. of SEC filing data described earlier. At the end of the day each team reaches the same conclusion, there is growth in the overall market. If proposals presented by the Crowd Capital Advisors team and others are implemented further growth is still to come. Several other countries including the UK implemented less regulatory restrictions that have allowed for greater investment activity.
Opportunities to invest in firms and funds online are abundant, and the number will increase as solutions continue to be developed to improve the investment process across early stage and late stage initial public offerings. Title III of the Jump-start Our Business Startups (JOBS) Act has increased the amount of capital invested in equity online, but not the extent in the USA many believed, including myself. A majority of the population that is not able to invest now can but with serious restrictions. What are your thoughts on the industry, comment below or contact us direct.