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| By Chris Graebe |
First and foremost, I’d like to wish you all a happy Independence Day! I hope you have the opportunity to enjoy a BBQ and some fireworks on America’s 247th birthday.
As you know, I'm pretty connected with the equity crowdfunding space. I'm constantly meeting with founders and various representatives at the respected funding portals.
And I thought it would be helpful to share some of important things I'm seeing and hearing right now in the private equity space.
Foremost, funding is down … but not by much.
As I shared a couple weeks ago, compared to the venture capital world, equity crowdfunding is holding steady. But as a whole, funding is slightly down.
According to a recent report produced by Crowdfunding Capital Advisors:
“Investors wrote fewer checks in May than in April. There was a 52.3% drop in the number of checks written over the prior month and a 12.1% decrease over the prior year. The average check size in May was $1,561, off from the trailing 12-month average of $1,856.”
All things considered, I see this as good news.
It's when I start to see reports of 40–50% of investment averages dropping off that I really start to get concerned. Again, we all need to remember that the early stage startup investing doors only opened to retail investors (non-accredited investors) a mere seven years ago.
As investors continue to look for alternative places to park their hard-earned dollars in hopes of a decent return, many more will just now begin to discover that the equity crowdfunding avenue exists.
As the market continues its wild swings, this space will begin to become an attractive alternative for a percentage of investors' portfolios.
Funding Portals
Are Pivoting
In the world of startups, the word "pivot" can be scary. Usually, when a startup initiates a pivot, it means that the fabric of their startup’s mission and focus will be changing in a big way.
These pivots often happen because the startup hasn't found the right fit in the product market and needs to make big changes to its business model.
Outside of capital constraints, big pivots can often be startup killers. The main reason for this is that the startup isn’t able to figure things out quickly enough to make the turn towards revenue or profitability.
Right now, as I continue to keep my ear to the ground, the funding portals who saw fairly high levels of success from mid-2020 to 2022 are having to adapt to an ever-changing equity crowdfunding market.
We've seen some consolidation in the space recently with SeedInvest being acquired by its competitor, StartEngine.
Howard Marks, the founder of StartEngine, disclosed that SeedInvest was given $24 million in StartEngine shares. Meaning that one of the platforms that was once in the top five list of funding portals — that had processed 300 startups and helped them raise more than $470 million from 700,000 investors — was given no cash and only stock options.
With StartEngine currently being valued over $1 billion, that is a really small piece of the pie, especially considering the fact that SeedInvest was at one time a big player in the space.
Similar to a lot of the other news we've heard in the world of tech and tech startups, most portals are pivoting in the form of trimming staff and tightening their proverbial belts.
At the end of the day, I think this is good for the space and is a smart pivot, therefore, it shouldn’t scare investors.
The portals that aren't focused on offering great startups or making investors priority won't make it. And the strong ones that do focus on these key aspects will continue to rise to the top.
The Rise of Mature
Startups Spells Opportunity
In the last seven years, the startups that have been leveraging this new vehicle that is equity crowdfunding refuse to give any more "wins" or control to venture capitalists or those who don't have another means of acquiring capital from investors.
From the conversations I'm having with the startup founders that I'm meeting with, there are several startups that are no longer bearish on Reg CF and they are fully embracing retail investors.
I even caught wind that a huge company — one that basically everyone on the planet knows — might potentially be opening its doors and giving members the opportunity to invest in it before the end of the year.
The thing that we will continue to have to fight for is being seen as a heavyweight juggernaut the same way that VCs and Family Offices are seen by founders.
Right now, I still think founders like and prefer the crowd because they can set their own terms and the crowd will still continue to jump in.
I truly believe we are very close to seeing the day that the crowd is respected and taken seriously like the deep-pocketed venture capital firms.
The retail investor is a sleeping giant in the sense that the total investable capital of everyday Americans dwarfs even some of the biggest names in the venture capital space, like Andreessen Horowitz.
It's going to take time, but I believe the ground is shifting and that the crowd will be one of the most desired and sought-after early-stage investors in the near future.
It's an exciting time to be in a space that is in the middle of growing pains, but I'm very bullish on this space, the startup investor and the collective power of a unified group of intelligent investors like we have in my paid private equity investing service, Deal Hunters Alliance.
So, there you have it — my current take on the state of the industry.
I hope you all have a wonderful Independence Day celebration. I’ll be back in touch soon.
Until next time …
Happy hunting,
Chris Graebe
Editor, Deal Hunters Alliance
