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Last week we compared venture to equity funding, and were quite surprised at some of the findings. This week, we decided to take a look at the opposite end of the spectrum to see if we could draw any comparisons between equity crowdfunding and platforms like Kickstarter and Indiegogo. My goal was to find anything that connected the two, and if equity investors shared the same psychology as traditional crowdfunding backers.
Does Success Translate Between Platforms
Only 10% of companies currently raising capital under Reg CF have ever had a campaign live on traditional platforms. Of those eight companies, only four had seen success on Kickstarter, and only half of those companies were able to surpass their minimum investment using Reg CF. Even though we have a small sample size of 76 startups to pull data from, it seems that having a successful Kickstarter or Indiegogo campaign won't necessarily translate to success with equity funding.
The Power Of Added Incentive
As a Reg CF investor myself, basic equity is enough to get me to invest my hard earned money, but I was curious to see what impacts perks had for equity investors. We found that more than 50% of the startups were providing perks on top of equity. To add to that, over 90% of startups that have hit their minimum investment also offered some type of added incentive. If we look into the psychology of investors, most take action if the return is 2x their initial investment or if they can convince themselves on some type of break even point. Based on science and the data above, it could be argued that perks provide that break even point.
Kickstarter and Indiegogo have a list of prohibited items for the purpose of protecting their community. Two of the prohibitions, which focus on the distribution of alcohol and health care, play into the story of the top performing verticals in the equity crowdfunding space. To date, alcohol and health tech are two of the top three verticals in money raised through Reg CF, represent two of the first three companies to hit the million dollar funding mark, and account for more than 50% of investments to date. We will be keeping our eye on these verticals to see whether or not early success translates into a flood of similar businesses joining in.
Digging Into the Data
Next week, we tackle more interesting data points, and see if we can draw correlations into what may go in to a successful raise. In order to get an exclusive look, be sure to subscribe in the box above or create an account using the button below. You can also check out our previous report here.