Equity Crowdfunding Q2 2020 Review
The following data covers Regulation Crowdfunding raises between May 16, 2016, and June 30, 2020. Data is sourced from all publicly disclosed Form C filings with the SEC, as well as public websites.
Overview
As we pass the halfway point of 2020, we have been through some of the most turbulent months in recent memory. Everyday life, and many businesses with it, have ground to a halt due to COVID-19. The stock market has shown dizzying volatility.
As people spend more time at home, they are spending more time online and more time investing. In recent months, firms like E-Trade and TD Ameritrade reported record growth in Q2 this year, and that growth was also seen in the world of equity crowdfunding.
Companies raised $48.2M in Q2 this year, a 44.7% increase in investment compared to the $33.3M raised in Q1 this year, and to date, companies have raised $360.6M via Regulation Crowdfunding.
As the economic shutdown continues, investor activity has increased in the equity crowdfunding space, and our data shows this increased activity across all 10 of the largest funding portals.
Analysis
Funding Portal Activity
In fact, the number of active funding portals also increased. In Q1, 15 funding portals had investments committed during that period, and in Q2, 25 funding portals had investor activity.
However, only 5 funding portals raised more than $1M. So while more funding portals are emerging to help businesses in need today, the market is already consolidating around a few players.
In Q2, StartEngine raised more capital than any other funding portal in the market, with $17M raised! Wefunder followed with $12M, and Republic with $9M. SeedInvest and NetCapital round out the 5 funding portals that raised over $1M with $3.9M and $1M raised respectively.
More Mature Companies Are Launching Reg CF Offerings
218 new offerings were launched in Q2, a slight dip compared to the 223 offerings launched in Q1, and a further slide compared to the 233 offerings launched in Q4 2019.
However, the companies that launched in Q2 were more mature than the companies that launched in the first quarter of the year.
Specifically looking at the averages of corporations (which account for the majority of Reg CF offerings) that launched offerings in Q1 and Q2, the following datapoints changed:
- The average revenue (in the most recent fiscal year) increased 2.7%, from $348,933 to $358,495.
- The average of total assets held by the company in the most recent fiscal year increased 23.5%, from $337,686 to $417,170.
- The average number of employees increased 33.3%, from 4.5 to 6 employees
- The average age of the company increased 12.2%, from 1,186 days to 1,331 days.
- The average cash and cash equivalents held by the company increased 31.9%, from $104,417 to $137,775.
In other words, the companies that launched Reg CF offerings in Q2 had, on average, more assets, generated more revenue, had more employees, and had a longer operating history than the companies that launched in Q1.
Why is this shift occurring? Only 650,000 businesses received US small business loans, and there are millions of small businesses in the US that are hurting due to COVID-19 and reduced cash flow. VC deal flow also decreased by 44% in Q2. In other words, more mature businesses may have addressed their decreased cash flow by turning to Reg CF because there were no other funding options available.
As a result of the increased investor activity and the maturity of businesses, the average raise for Reg CF campaigns to date since 2016 also increased this past quarter by 5.4%, from $134,758 to $142,055.
A note of clarification: this average raise data is historical and does not reflect the average raise of campaigns today. For example, the average raise amount for Reg CF campaigns on StartEngine so far in 2020 is $473K, and daily investments on our platform have tripled since the economic shutdown began in early March.
Data
Industries That Raised Capital
In Q2 2020, Technology companies raised $7.1M, Food & Beverage $5.2M, and Mobile Apps raised $3.1M.
Of note, Farming & Agriculture saw notable growth this past quarter, raising $2.7M, nearly doubling the amount this industry has raised to date to a total of $7.1M.
States Using Regulation Crowdfunding
To date, 35% of the capital raised via Reg CF has gone to companies in California. As you can see above, in Q2, Californian companies raised a disproportionate percentage of capital, a total of $25.4M.
New York followed, raising $4.7M, and Florida raised $2.6M.
$1M Raises in Q2
24 companies reached the $1M mark in their raise in Q2, a record high, and 15 of those raises were on StartEngine.
Security Type
The majority of new offerings in Q2 offered debt or SAFE agreements (a Simple Agreement for Future Equity). 58 offerings of each type launched in the past three months.
StartEngine In Q2
In the second quarter, data analytics company Streamlytics and oral care company Ryca International both raised $1M+ on StartEngine. AI vision developer Epilog raised $801K, and automated retail technology company Solutions Vending International (also known as PopCom) raised $788K.
