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Equity crowdfunding platforms have experienced a boom year in 2021 due to newly adopted amendments that were made by the SEC that went live on March 15, 2021. These amendments greatly expands the reach of these platforms by significantly increasing the amount of funds that can be raised by listed companies.
We will explore who the market leaders are, why the changes are important, and the types of exponential growth that are currently been seen by industry leaders.
Crowdfunding Rule Changes
The amendments to the Business Startups Act (JOBS Act) that took place in early 2021 were significant for the industry as it greatly increased the amount of capital that could be raised.
Companies raising money through regulation crowdfunding can now raise up to $5 million, compared to the previous limit of only $1.07 million. This larger maximum significantly increases the number of companies that are willing to raise funds using this method. $1.07 million was simply too low for many types of capital rich businesses such as the healthcare and tech sector.
A second significant change was the removal of individual investor limits for accredited investors. Previously, these limits were $107,000 per calendar year. This means that high net worth individuals will no longer have to scale back their investments to abide by the previous restrictive regulations, and they can instead invest in as many promising startups as they want. In return this increases the net value of each accredited investor on the crowdfunding platform.
Another significant change was amendments that were made to Regulation A+ to allow smaller companies to offer and sell up to $75 million in securities during a 12-month period compared to the previous amount of $50 million. Not all crowdfunding companies can take advantage of this regulation, but those that do will be well compensated.
Equity Crowdfunding Market Leaders
Equity crowdfunding platforms differentiate themselves from regular crowdfunding platforms such as Indiegogo and Kickstarter by issuing equity. Instead of receiving the initial version of a product, or a thank you note, investors receive shares in the company that they are investing in.
There are several trailblazers in the industry, first and foremost is Wefunder. Wefunder was launched by Nick Tommarello, Mike Norman, and Greg Belote in 2011, and in 2012 Wefunder helped pass the JOBS Act, a new law that allowed businesses to raise funding online.
In 2013, its founders participated in the Y Combinator accelerator program, an accelerator with graduates such as AirBNB, Coinbase DropBox and Stripe. This early connection to the Y Combinator ecosystem has served Wefunder well, as from that point onwards many Y Combinator graduates chose Wefunder to raise funds. This in return gave savvy investors on the Wefunder platform unbridled access to investing in Y Combinator startups.
The Wefunder platform has grown exponentially since its launch in 2012. Wefunder experienced growth in both the number of companies listed, as well as the amount of funds being raised.
Even before the new laws were amended in 2021, Wefunder was having a phenomenal run with 5X+ year-over-year growth in investment volume, Q4 '20 over Q4 '19. The number of listed startups as of this writing is 340, a large increase compared to preceding years when often the number of live startups would max out at less than 100.
Some of the unrealized returns (returns are realized only upon a company being acquired or going IPO) have been impressive, returns that are more commonly associated with venture funding.
Wefunder remains a dominant market leader and is either first or second in the industry depending on the metric that is being measured. It's runner-up is none other than StartEngine a company founded in 2013 by Howard Marks, a co-founder of video-game giant Activision.
StartEngine is a marketing powerhouse, most recently Kevin O’Leary (aka “Mr. Wonderful”) joined the team as a strategic advisor and a paid spokesperson.
StartEngine has also seen incredible gains in capital raised for the companies that choose its platform.
At the end of 2019, companies had raised $115M in StartEngine’s entire lifecycle. In 2020 they more than doubled that and helped companies raise $147M in 2020 alone, a YoY increase of 236%. The ambitious goals of StartEngine's vision is to by the end of 2029 to have helped companies raise $10B.
The audits from the 2020 financials feature some notable revenue growth:
190% YoY Growth: 2020 revenues of $12,574,218, representing 190% YoY Growth compared to 2019 revenues of $4,323,791.
$9.1M Gross Profit: 2020 gross profit was $9,167,821, an increase of 313% compared to agross profit of $2,217,498.
72% Gross Margin: They improved our gross margin in 2020 to 72% as compared to 51% in 2019.
More recently, companies raised a total of $57,562,642 on StartEngine in Q1, a YoY increase of 214% compared to Q1 2020 and a 64% increase over Q4 2020.
StartEngine is actually in the process of raising another round via their own crowdfunding platform at a $786M valuation. The previous Regulation A+ offering in October 2020, raised $18.8M at a $221M valuation.
While StartEngine and Wefunder are two of the most impressive crowdfunding platforms showing exponential growth, other notable equity crowdfunding companies include SeedInvest, MicroVentures and Republic. SeedInvest differentiates itself by featuring an ultra curated list of companies often in robotics and AI. Meanwhile MicroVentures often features later stage investment opportunities for accredited investors. Some examples of previously listed companies includes Lyft, SpaceX and Ripple.