Investments in crowdfunding platforms have already doubled this year

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VB | Guest post by Sherwood Neiss - CCA | Sep 8, 2014

Large crowdWith almost three quarters of 2014 complete, angel and venture capital has poured more than $140 million into the infrastructure of crowdfunding, more than double the amount invested last year and 43% more in individual deals.

Where is all this money going?

For four years, my firm has been studying the crowdfunding space. The crowdfunding industry encompasses all forms of crowd finance: donation, perks/pre-order, debt, and equity. Still nascent in its growth, serious investments started to flow into the space in 2011, with three deals totaling $13.5 million. A year later, three more investments totaled $18.6 million.

During 2012, our work in Washington, D.C. culminated in the form of the JOBS Act, and major provisions were signed into law, including Title II, lifting the ban on general solicitation to accredited investors, and Title III, debt and equity crowdfunding. Savvy entrepreneurs who understood what these fundamental changes meant began building and scaling all forms of crowd finance platforms.

2013 was a breakout year for crowdfunding. A total of $71 million went into seven major deals that year. This represents a 133% growth over 2012, with more than twice as many deals.

Watch:  Institutional Crowdfunding interview with Optimize Capital Markets, CEO/Founder, Matt McGrath

Lending and rewards platforms were the greatest beneficiary of these investments. Now, in just eight months of 2014 more than $140 million has been pumped into at least 10 deals (we expect this to be close to $250 million by year’s end). Five of these deals were over $14 million each, totaling $124 million.

Interestingly enough, we’re starting to see significant capital poured into the equity crowdfunding space even though Title III of the JOBS Act has yet to go into effect. (We did, however, let the SEC know that, two-plus years since President Obama gave it the green light, an industry is primed and ready to go).

View:  Canadian Crowdfunding Directory (Reward and donation portals, investment portals, service providers)

So what trends are we seeing?

Size of rounds: Series A investments across the board are averaging $6 million. Series B rounds jump to $28 million, and C and D to around $45 million each as companies seek more capital to scale, grow, and beat out the competition. Since lending platforms are the biggest and most mature, they’ve been pushing the average deal size up in the later rounds.

Number of startups by round: Over 25 companies have completed Series A rounds, 13 Series B, and 10 Series C and above.

Average investment by round: The average A round for equity platforms is $5.75 million. For lending platforms, the average is $5.1 million. And reward platforms lead the pack at almost $7 million.

Average valuation by platform type: Valuations are across the board, but if we are conservative and assume investors might seek 20% equity for an A round, then valuations average $28.75 million for equity platforms, $25.5 million for lending platforms, and $35 million for rewards platforms.

According to our research, in total almost $1 billion has been invested into the crowd finance arena since 2006.

Six lending platforms have collectively raised over $450 million, which reflects not only the investor interest in these peer-to-peer (P2P) and peer-to-business (P2B) platforms but also a justification of their business models. Interestingly enough, the P2P space last year saw $1 billion flow from investors to borrowers, with demand now exceeding supply as institutional investors try to buy up these loans — another data point in why the crowd finance arena is serious business.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada crowdfunding hub providing education, advocacy and networking opportunities in the rapidly evolving crowdfunding industry. NCFA Canada is a community-based, membership-driven entity that was formed at the grass roots level to fill a national need in the market place. Join our growing network of industry stakeholders, fundraisers and investors. Increase your organization’s profile and gain access to a dynamic group of industry front runners. Learn more About Us | About Crowdfunding or contact us at casano@ncfacanada.org.

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