Does Equity Crowdfunding Work? Yes, it does. Here are the numbers…
When the JOBS Act was enacted into law in 2012, I pivoted my law practice and soon thereafter became recognized as one of the leading experts on Regulation A and Regulation Crowdfunding (Reg CF). I wrote about it for Entrepreneur. I spoke around the world to crowds of people who wanted to learn more. More importantly, I refused to fall into the “those who can’t do something, teach it” category. I have been legal counsel for companies raising capital as well as broker-dealers, funding portals and others in the industry since the law was passed. As both a securities lawyer and as a “quarterback” who provides non-legal advice and acts as a project manager for equity crowdfunding offerings, I have helped raise a lot of money for companies from pure start-ups to unicorns.
I see this burgeoning industry from the inside every single day. Because of my position in the industry, I also get asked a lot of questions from those on the outside peeking in. One question I get asked the most often is, “Does it really work?”
While I can give numerous real-world examples from my own experience, nothing beats a good study from a group of industry experts. The folks at Crowdfund Capital Advisors do an amazing job of tracking the Reg CF industry and providing reporting, statistics and insights that are invaluable to anyone interested in this new world of finance that democratizes the capital raising process. Here are some findings they published in May 2024, with a bit of commentary from your truly to help with perspective.
Needless to say, looking at their data makes it easy for me to answer the question of “Does it really work?”
The answer is a resounding, “Yes!”
More than 6,500 U.S. startups and other small businesses have raised nearly $2.48B in capital through 8,400 investment rounds.
In most cases, these companies were too early stage for venture capital or private equity. With competition for angel investors being intense, equity crowdfunding provides an ability to raise capital from the crowd, and not to be forced to rely on bank loans or credit card debt to fund a small business.
More than 2,000,000 Americans have invested in Reg CF offerings, averaging about $1,200 per investment.
It is no longer uncommon for large numbers of people to make smaller investments in startups online through equity crowdfunding. This also exemplifies how support from a company’s network of customers, fans, and supporters coupled with interest from local communities supports the democratization of small business finance.
Women & Minorities constitute nearly 50% of successful Reg CF issuers and often opt for Reg CF over venture capital for their funding needs.
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Women and minority founders find it very hard to raise capital from venture capitalists and private equity funds. For example, Fast Company recently reported that companies with solely female founders continue to receive only 2% of the venture capital invested annually. Equity crowdfunding is the great equalizer. In fact, one Reg CF funding portal Rise Up Crowdfunding is a collaborative effort with the Coca-Cola Company and caters only to women or minority owned and operated companies.
Reg CF has created or supported over 400,000 jobs, has been used by companies in more than 1,750 cities across all 50 states, and has caused $7.5B in economic stimulus through business expenditures, with the majority of spending and jobs staying local.
Small businesses continue to be the lifeblood of the U.S. economy. Reg CF has helped local communities through job creation and local spending that would not likely have occurred if those same small companies had to rely on traditional capital raising methods.
Reg CF has attracted companies from over 620 industries.
While certain industries like real estate, tech and those involving consumer products tend to be more widely seen using equity crowdfunding, nearly any industry can use this capital raising tool successfully if they understand the process and market their offering correctly.
14 firms that raised money using Reg CF have pursued public offerings and 71 have been part of a merger or acquisition.
Let’s face it. All investors want a return, even if they only invested a small amount. Equity crowdfunding isn’t charity — it is a very real investment into a company. Giving investors a return is important to the health of any business. Given that this law has only been usable for 8 years, seeing this many companies proceed to an IPO or a merger/acquisition is pretty remarkable.
The simple bottom line is that equity crowdfunding works. These numbers and observations reflect that in pretty dramatic fashion. Interestingly, they do not include capital raised, jobs created, and the economic impact of Regulation A which allows a small company to raise far more capital online than Reg CF, and which has been responsible for billions of additional investment dollars flowing into small businesses across the country.
Equity crowdfunding is here to stay, and will continue to grow. It’s an exciting time for small businesses.
Disclaimer
I understand that typing in ALL CAPS is the functional equivalent of screaming, so cover your ears as you read the rest of this disclaimer:
THIS ARTICLE IS NOT LEGAL OR INVESTMENT ADVICE. I’m not your lawyer and I’m not an investment advisor, so please don’t rely on anything I have written here as advice to you. Every legal and investment situation is unique, and you should only rely on your own lawyers and investment advisors to make legal or investment decisions. Don’t rely on me or this article. If you want to hire me to give you legal advice, just email me at almericolaw@gmail.com.
