Krishan Arora is CEO & Founder at The Arora Project, a globally recognized leader in crowdfunding & scaling high-growth ventures.
getty
2022 has been a roller coaster of a year. Extremely political, social and market volatility has left many investors questioning their investment thesis. This increased volatility has left investors looking for long-term (vs. short-term) gains and ways to diversify investments in growing markets, which places equity crowdfunding (ECF) at a great advantage.
July also marks the one-year anniversary of the SEC increasing regulation crowdfunding’s max raise from $1.07 million to $5 million per year. This increase has brought more well-established companies and new investors to the ECF space, has driven innovation and has given well-deserved capital to companies changing the world.
Regulation Crowdfunding’s Massive Growth in Five Years
To have a comprehensive conversation about the state of the industry in 2022 and beyond, we need to take a look back to where it started.
Since industry legalization in 2016, more than $1.1 billion has been invested into 4,850 issuer campaigns by 1.3 million investors. And, in direct contrast to the notoriously exclusive VC industry, ECF campaigns were launched by issuers in over 1,300 U.S. cities and in all 50 states.
MORE FOR YOU
But what’s even more indicative of regulation crowdfunding’s dominance in 2022 is that 50% of all ECF investments made in the last five years occurred in 2021 alone.
That’s mind-boggling growth. But ECF’s year-over-year numbers predicted it:
• 2017: The first full year that equity crowdfunding was legal for nonaccredited investors, investments reached $49.2 million.
• 2018: Investing volume grew to $75.8 million.
• 2019: $137 million was raised.
• 2020: More than $214.9 million was raised with new platforms and campaigns spawning every day.
• 2021: Industrywide investments hit $570 million—a CAGR of more than 11.5% in the five years since 2017.
• Q1 of 2022: $133 million was raised across 1,038 offerings, one of the biggest quarters to date.
The Meteoric Rise Of Social Responsibility
Recent investing trends have highlighted a generational shift toward positive change, both with company missions and diversity. The greatest wealth transfer in history is underway, and with boomers passing an estimated $68 trillion to millennials—a large and socially and environmentally conscious generation—impact investing is expected to reach the mainstream.
A 2021 study conducted by Fidelity Charitable reports:
• 61% of millennials are active impact investors vs. 23% of baby boomers.
• 62% of millennials say impact investing has a higher potential to create long-term change vs. 28% of baby boomers.
• 66% of millennials believe in the financial viability of impact investing vs. 23% of baby boomers.
And younger generations are generating beneficial social and environmental impacts with their investments—especially via ECF. Since July 2021, 29 companies have raised at least $4.5 million through regulation crowdfunding. Eighteen of those campaigns closed in 2022, with five classified as being social impact companies, five as having minority founders and four as having female founders. That means of the 18 $4.5 million-plus campaigns that have closed in the first six months of 2022, more than 25% were considered to have a positive impact. By contrast, 2021 brought these statistics from traditional venture capital:
• 8% of funding went to impact startups.
• 2% of funding went to female founders.
• 1.3% of funding went to Black founders.
• 0.43% of funding went to BIPOC female founders.
I’ve always respected the relationship between venture capital and equity crowdfunding as collaborative rather than competitive, but it’s still exciting to see how this industry is investing more in a better future than any other group in history.
In My Professional Opinion …
As the leader of a crowdfunding team that has raised more than $125 million for our clients, I’m often asked what I foresee in the future. Based solely on the success the industry has seen in the last five years, I think equity crowdfunding is poised to be a powerhouse in 2022 and beyond. But it’s more complicated than that.
When we take a broader view of the U.S. investing landscape, things start to get more ambiguous. Economic upheaval makes it impossible to say what’s going to happen—especially in a market still in the infancy stage of its potential. But while I can’t make predictions about the financial future of the industry, I can definitively share where I think the industry will thrive:
• Social impact investing: There will always be companies working to make the world a better place. As the data shows, younger generations are ready to support these companies, and ECF gives them the opportunity.
• Diversity and inclusion: ECF has taken steps to become a leader in uplifting diverse communities as the world becomes more inclusive. The ground the industry has already gained toward a more equitable future will merely be a launching point for growth in this area.
• Equalizing wealth disparity: ECF was adopted to help reduce the immense wealth disparity in the United States. Allowing non-accredited investors to invest in growth-stage companies (just as the wealthy have for decades) is an unmatched opportunity.
• Affordability: With investments on Republic starting as low as $10, and as low as $100 on other platforms, ECF is an ultra-affordable way to invest. It’s also cheaper and faster to launch a Reg CF campaign than it is to launch an IPO. Growth-stage companies needing capital to sustain them could be more likely to choose the affordability of crowdfunding.
Welcome To The Future Of Investing
Regulation crowdfunding is readier than ever to take on the economic challenges of the future because we’ve learned from the mistakes made by the industry’s forefathers. Diverse growth and our focus on making positive social changes are culminating in an industry built to foster a better future for us all. I’m extremely proud to be part of it and hope you’ll join us either as an issuer or an investor.
As for what the remainder of 2022 will look like for ECF? All I have to say is: We’re ready—bring it on!
Forbes Agency Council is an invitation-only community for executives in successful public relations, media strategy, creative and advertising agencies. Do I qualify?
Go to Source
Author: Krishan Arora, Forbes Councils Member
