The 2022 equity crowdfunding market was unable to top 2021’s record-setting year. But despite seeing lower investment volume, it fared quite a lot better than venture capital did in the same time frame. Founders looking to raise extension or bridge financing should take note.
Back in July, it looked like equity crowdfunding — a funding route that allows startups to raise from unaccredited investors through Reg CF and Reg A filings, among others — was on track for its best year yet. According to the Arora Project, more than $215 million was raised through the first half of 2022, surpassing 2021’s H1 total of $200 million.
At the time, Krishan Arora, the CEO and founder of the Arora Project, which curates and tracks these deals, and Nick Tommarello, the founder of crowdfunding site WeFunder, both said that they noticed growing momentum for the strategy in 2022.
“A few years ago, VCs wouldn’t care about or touch companies using crowdfunding, but that has changed now,” Tommarello told TechCrunch at the time. “It’s hard to separate out how much of the growth is due to the increasing prestige of doing community rounds and how much is due to founders needing to extend their runway.”
But like venture capital, the funding started to slump last year — it just took a little longer to get there.
“We thought it was going to see a huge spike, but maybe because of the recession and high interest rates, people didn’t want to invest in high-growth stuff and [instead] save their capital,” Arora said.
Despite its strong start, 2022 ended essentially flat from 2021, according to data from KingsCrowd, an intelligence platform focused on the sector. It recorded that more than $426 million was invested through crowdfunding in 2022, compared to more than $486 million in 2021, a 12% decline.
But in today’s market, that’s nothing. Let’s compare that to venture funding: Crunchbase’s recent report found that global venture funding was down 35% in 2022 compared to 2021, with monthly funding declining almost consistently throughout the year.
“In the financial markets there was a general slowing in the back half of the year but the [equity crowdfunding] industry was actually faring and holding up relatively well considering everything going on,” KingsCrowd founder and CEO Chris Lustrino told TechCrunch. “We have a strong enough foundation to weather some of these challenges out right now.”
Even despite the general startup funding slowdown — and maybe even because of it — both Arora and Lustrino reported that the quality of deal flow on the platforms has never been better, with strong startups turning to equity crowdfunding as other funding options seemed less attractive in today’s market.
“I’ve seen a lot more Y Combinator companies, Techstars and venture-backed companies,” Arora said. “They look at it for getting another $2 million, $3 million, in a bridge round. There is more higher quality deal flow trickling into this space.”
Lustrino added that they’ve noticed a trend: Companies with VCs on the cap table are able to close their fundraise more quickly than other startups. It’s always worth remembering that there is a big accredited investor presence on crowdfunding sites; Lustrino estimates around 60%. Arora reported seeing more VC scouts getting active this year, too.
But will 2023 trend in the same direction?
Of course, retail investor interest could change with the economy, the future of which remains quite unstable, but regardless that should leave startup founders — especially those considering using a crowdfunding platform to raise extension financing — feeling relatively confident.