Woman raises money during pandemic

Equity Crowdfunding During a Pandemic

How Has Covid19 Affected Equity Crowdfunding?

While the world around us has fallen into chaos, one industry has experienced an unexpected boom: Equity Crowdfunding.

It’s true. 2020 is the Year of the Crowd.

There has never been a better time to start an Equity Crowdfunding campaign than now. For the fourth year in a row, Equity Crowdfunding has reported huge increases in investments across America. In fact, May 2020 was the second-highest monthly raise in Equity Crowdfunding history, with over $15.5 million raised. And that’s during a global pandemic with high unemployment and unstable markets!

But don’t just take it from us. Shark Tank’s Mr. Wonderful – and StartEngine’s new strategic adviser – has a lot to say about Equity Crowdfunding during the pandemic.

“The venture capital environment has frozen. If you didn’t close that term sheet pre-pandemic, you haven’t closed it now. These guys have basically stopped doing deals…It’s very hard to get a meeting for a new [venture capital] deal.”

It’s also predicted that, much like the crowdfunding platforms Kickstarter and Indiegogo came out of the Great Recession, Equity Crowdfunding could do the same in 2021 – and be competitive with VCs within 3 years.* If things keep up this way, the Equity Crowdfunding market will be saturated within a few years, as more and more people realize what a great opportunity it is. Remember when being asked to donate to a Kickstarter was a novel idea? Exactly.

Let’s look at some concrete numbers:

  • In 2016, there were 61,000 investors in Equity Crowdfunding who invested $56 million total. This past year the number of investors reached over 265,000, who invested $138 million!
  • During the past year, about $700 was invested into Equity Crowdfunding campaigns and startups every minute!
  • The average success rate for companies using Equity Crowdfunding to raise capital continues to be over 60% (compared to a measly 2% from venture capital.)

So why is Equity Crowdfunding now the most successful way for small businesses to raise money in 2020, while the world’s economy is taking its biggest knock in decades? We don’t have the answer for certain. Perhaps it’s because people are eager to support small businesses – especially those run by women and people of color. Plus, the SEC has created temporary amendments to its Equity Crowdfunding regulations in order to provide relief to small businesses looking to raise capital. It could be because people with non-variable salaries have more time to invest in exciting new ventures online. Or maybe it’s because huge corporations have lost their luster, and Wall Street seems like too volatile (and too greedy) a place to put your money right now.

Whatever the reason, 2020 has officially become the Year of the Crowd when it comes to finding investments. Equity Crowdfunding is here to stay. Investments are taking off, platforms are posting record numbers, and more and more companies (and more and more investors) are looking to take part in what they have to offer. So if you’re looking to raise money for your small business, the time to do it is now.

PS. Still not convinced? Read more about why recessions can be the best time to start a business here.

 * Yahoo Money

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