August marked three months since the launch of Regulation CF, and while it may not seem like much of a milestone, the amount of activity has provided us with some useful insights. Get a glimpse into what may be the keys to a raising capital making an investment through equity crowdfunding campaign.
The Big Picture
Over the last 3 months startups have pulled in just over $7.4 million dollars in total investments, which comes out to an average of around $67,000 a day. Suprisingly, 86% of that capital went to successful funding rounds in which companies hit their minimum investment. If we compare these numbers to the renaissance of crowdfunding, it's slightly more then what Kickstarter was able to raise in their first year. If equity crowdfunding follows the similar path of traditional crowdfunding, we may see investments raise exponentially in the months to come. If that's the case then not only will we surpass the $10 million mark in early September, but could also surpass $100 million by May of 2017.
Helping Startups Outside Traditional Markets
We briefly touched on this in a side by side comparison to venture capital, but equity crowdfunding does seem to be accomplishing what it set out to do. Startups outside of the major 3 markets are seeing success within the space including: Texas, Ohio, Washington D.C., and Colorado.
But entrepreneurs can continue to be jealous of the funding that California startups are raising.
- 23 startups actively raising capital (16 more than 2nd place New York)
- Make up 47% of startups that hit their minimum fundraising amount
- 6 from Northern California, (In or near Silicon Valley)
- 2 from Southern California
- Total Money Raised: $3.1 Million
- 1 Startup has hit $1 Million in funding
Has A Particular Business Found Their Funding Niche?
When we first looked into what types businesses were excelling in the space, it was still too early to tell if the data wasn't just a flash in the pan. The one thing that has remained consistent is the success of alcohol, bringing in the most capital and successfully funded rounds to date. Health Tech, Outdoors, and a very broad range of technology companies round out the larger portion of startup funding. Thus far alcohol, health tech, and entertainment have been the only businesses to raise $1 million
Startup Equity Funding Success vs. Failure
Before we go into this, be aware that not every platform provides public/easily viewable information on the amount of investors a particular funding round has. We've removed three startups from the list, and compiled the data below using the rest of the information that we were able to ascertain. That being said, the differences between success and failure are eye opening.
Startups that were able to surpass their minimum funding goals strongly exceeded what most startups were averaging. Success equated into an average of nearly 3x the investors, an increase in average investments by 31%, and 2.5x the capital. In total, these startups raised nearly 4.5 million dollars more than their minimum funding goal, and all but three of these startups allowed a minimum investment of $100.
A Blueprint to Raise Capital Through Equity Crowdfunding?
The pioneers of this platform have helped shine a light on what it takes to raise capital through Reg CF, and it seems like platforms and startups are beginning to shift in how they approach the raise. In August, three startups raised their minimum in under two weeks, which is a massive improvement from the first fourteen success stories that started their funding in May.
We can't promise you that these guidelines will translate into immediate success, but this is what stood out to us when looking at succcess:
- Crowd/Community - Having a customer base or providing a product to a niche community has helped get funding off the ground, and expose the platforms to larger audiences.
- Minimum Investment - 70% offered initial investments of $100 or less.
- Minimum Funding Goal - 67% put their minimum goals under $75,000, and raised 414% funding on average.
- Debt/SAFE - 67% used this as their securities
- Prior Funding - At least 50% of these startups had some type of prior funding round.
We hope this will be something you hold onto when trying to raise capital or invest in startups through Reg CF. This new investment class is in its infancy, but seems to be doing the job it set out to do by allowing American innovators and entrpreneurs see their ideas come to life without massive funding hurdles. If you enjoyed reading this, and want more, subscribe to our blog for a weekly dose of equity crowdfunding news. If you're interested in investing in startups click, on the link below to learn more about investing in startups on our platform.