I’ve never been a fan of equity crowdfunding, whether for entrepreneurs (link), investors (link), or society generally. My thoughts notwithstanding, it’s been with us since the JOBS Act of 2015, and it certainly gets a lot of press. As it turns out, a lot more press than money. In 2020, for example, the total amount of money raised via equity crowdfunding was a bit over $200 million (that’s with an “M”). The conventional VC market approached $200 billion (note the “B”). Which is to say, conventional VC investing exceeded equity crowdfunding by something like three orders of magnitude. A hundred or more individual conventional deals exceeded, in dollars, the entire crowdfunding market.
Frankly, I’m surprised that we haven’t seen more crowdfunding. My thinking back when the crowdfunding train got rolling – despite my skepticism about the merits of the concept – was that accredited investor crowdfunding, at least, would become a larger part of the VC universe by now. Syndicated accredited investor crowdfunding, where a “sponsor” investor, usually with some brand equity, takes a role akin to that of the “lead” investor in traditional venture deals, seems like a natural evolution of the traditional venture model.
I’m also surprised we haven’t seen more crowdfunding abuse. While there have been some shady deals and outcomes, you don’t hear much about them. Perhaps that’s because there are so few deals, most of which are too small to make too much of an impact when they crater. Or perhaps – just perhaps – it’s because there has been less … fraud … in the market than I was thinking there would be.
Will crowdfunding ever live up to the hype? That’s a tall order, there being so much hype. I remain skeptical, more or less for the same reasons I was skeptical back when the JOBS Act was just starting to play out. Why would an entrepreneur with a good deal (a deal that professional risk capital investors would be interested in) take money instead from a gaggle of amateurs? And why would professional investors, notorious for almost never even looking seriously at “over-the-transom” deals, spend any time looking at deals advertised on the internet version of a highway billboard?
So, by all means, John Entrepreneur and Jane Investor: take a good look at crowdfunding options. And then drive by.
In 2020, for example, the total amount of money raised via equity crowdfunding was a bit over $200 million (that’s with an “M”). The conventional VC market approached $200 billion (note the “B”).