Crowdfunding has been an established form of fundraising since 2009. Brand names such as Kickstarter, IndieGoGo, and GoFundMe have become a part of our collective vocabulary. Kickstarter is the largest crowdfunding platform in the US. Here are their stats since inception according to their stats page.
Equity crowdfunding is a completely different animal. The difference between reward crowdfunding and equity crowdfunding is what investors receive in return for their investment.
The American Bar Association provides an excellent breakdown of the differences between the two types of crowdfunding. Equity crowdfunding investors receive stock in the company, while reward crowdfunding investors do not. Equity crowdfunding is a regulated investment similar to buying stock in public companies, but the companies are private. Reward crowdfunding is not regulated by the government unless of course you get sued. Equity crowdfunding is regulated by the Securities Exchange Commission just like venture capital and the stock market. Companies must report how much stock they sold and how much money they raised during their crowdfunding rounds. Currently, however, there is no stock market/exchange for shares of stock purchased by equity crowdfunding investors.
Equity Crowdfunding began in Australia around 2007, but did not really get going in the US until after a change was made to federal investment regulations in 2015. This change essentially limited the amount of funds that can be raised in a given year through equity crowdfunding and the amount of funds non-accredited investors can invest in a company through equity crowdfunding. But if you’re reading this article chances are you are familiar with the crowdfunding concept. So on to the data.
We compiled all the equity crowdfunding rounds to date from the states in the middle – OH, IN, IL, NE, AR, OK, ND, SD, MI, MN, WI. The total number of equity crowdfunding campaigns from 2016 to 2020 was 300 across the entire region with a heavy concentration in Illinois, Ohio, and Michigan. This makes up about 9.6% of the total equity crowdfunding campaigns reported to the SEC (3111) across the country. Did you want to see the Big Map of equity crowdfunding across the country? OK. It looks like this with Alaska and Hawaii included.
In comparison, three states CA, NY, and TX account for 45% of all equity crowdfunding. The top 5 ranked equity crowdfunding platforms in the US (Total Deals) are StartEngine (CA), Wefunder (CA), Seed Invest(NY), Republic.co (NY), and MainVest (MA). Take note of where they are located (not the middle). In the middle states, the first two platforms by rank are the same however the last 3 differ. Honeycombcredit (PA), TruCrowd (IL), and Thrivera Ventures (MA) finish out the top 5. This data suggests that equity crowdfunding operates in a similar manner to traditional venture capital (i.e. not very well). Physical geography and personal network remain gatekeepers to early-stage investment despite the ability to ask for funds from any interested investor on the internet.
What has your experience been? Have you ever tried to crowdsource your startup? Did you use reward based or equity based crowdfunding? Tell us about it [email protected].
