2021 was another record year for equity crowdfunding, with both a record number of new rounds and invested dollars. A total of 1,245 rounds were started on tracked platforms, representing a total of $546m in closed or committed dollars as of the end of the year.
StartEngine led the way in investment dollars, totaling over $210m or 38.6% of the tracked platforms. Wefunder was second, having substantially more investment rounds started but coming in second on total dollars raised. Republic came in third. Seedinvest, with by far the least amount of new offerings, came in fourth. Seedinvest's volume is driven primarily by very large, strong repeat fundraisers, such as NowRx, which has raised over $12m since August 2021.
These platforms had big years themselves, expanding into new markets (Republic and Wefunder planning expansions into Europe, StartEngine getting into the real estate game, and Republic leveraging their NextSeed acquisition for small business investing) along with raising investment themselves. StartEngine and Wefunder went the equity crowdfunding route, raising $29.3m and $8.3m respectively, whereas Republic raised a $36m venture round.
The equity crowdfunding market saw major rules changes take place in March 2021, which helped increase volume and interest in the market. Companies can now raise up to $5m via Reg CF and $80m via Reg A, and are now allowed to market themselves without formally filing to raise money through an exemption known as "testing the waters." In addition, companies can raise capital through special purpose vehicles (SPVs) which help companies keep their capitalization structure more straightforward, making it easier to raise more money from institutional investors down the road.
After these changes took place, several companies quickly raised up to $5m, including Arlan Hamilton's Backstage Capital (who was also one of the fastest to hit the prior $1m cap just before the rules change took effect) and other much larger, venture-backed companies raised money, including Mercury Bank, who at the time had a >$1b valuation, and used equity crowdfunding to enable its first customers to become investors as well.
2021 also saw the first fraud case brought against an equity crowdfunding issuer (and it surely will not be the last). The SEC brought charges against the platform truCrowd and two unregistered issuers that raised more than $2m. The case was settled in December, with the parties involved paying substantial fines without admitting wrongdoing.
In 2022, we expect to see ~30% growth, targeting 2,000 new offerings totaling $750m in volume. In aggregate, alternative investments, including wine, collectibles, and others, should see over $1b in total investment. Our hope is that equity crowdfunding will mature substantially this year, allowing more companies who are closer to exit events to raise capital. We also anticipate improvement in liquidity, with several platforms, including StartEngine and Netcapital, pursuing "secondary" markets which will allow investors to buy and sell shares once the required 12 month holding period passes. This will help increase the desirability for both investors and companies but faces some regulatory entanglements about registration of securities along with the complexity of managing these markets.
Some items on our wish list: the reversal of "testing the waters" campaigns, and a stronger adherence to required disclosures of companies making offerings. Without company disclosures that are consistent as, at least in substance or timeliness, the information public companies have to disclose, investors will have a difficult time making ongoing investment decisions, especially about companies that can be bought or sold on the expected secondary markets. As more investors and dollars pile in, the SEC will have to keep a watchful eye on these markets to avoid fraud and manipulation.
Overall, 2022 will be another year of high growth in this exciting market, and we hope you'll join us for another great year!
What were your highlights for the year? What big stories impacted your investing? Let us know in the comments below.
Comments