“Silicon Prairie is pushing the industry so that it is less about whose platform you use (because investors will go directly to the Founder’s “own” website) and more about the Founders/Issuers themselves. Which means, CF portals are headed to the plumbing side of things, a la Internet Service Provider (“ISP”). No one cares who your ISP is and no one will care who provides their funding portal’s plumbing.” Samson Williams, internal email on Silicon Prairie’s new “private portal” offering.
Investment Crowdfunding turned 5 years old in May 2021. Why do you care about what this VC killing kindergartener is up to? Simple, the ability for Founders to raise up to $5M via RegCF is changing the culture, perception and reality of venture investing. How? This article will shed light on how and why this matters to you as a Founder, an Investor and more importantly as an Investomer.
Founders are the Future of Funding
Investment Crowdfunding is “new”. As such the focus, glory and fanfare goes to the Funding Portals. The MiVentures, Brite.us, Silicon Prairies and of course the OG, legacy portals like WeFunder and StartEngine. Those brand name funding portals that charge $50k and 8% before a Founder’s campaign can even go live. Legacies though are hard to preserve in the face of rapid innovation.
For instance before January 2019 there were 45 Funding Portals, with less than 15 actively engaging Founders. Since January 2019, 24 new Funding Portals have come online, with each actively engaging Founders and pushing deal flow. In that period the crowdfunding industry has seen a 100% increase year-over-year. In 2019 $112M was raised via RegCF. In 2020 that number rose to $214M. In 2021 total investments via RegCF are on track to exceed $400M. Which puts the industry well on track to doing over $1.5B in 2022.
Yes, yes. Compared to the “traditional” capital markets $1.5B isn’t even a rounding era. However, $1.5B for what will be a 6 year old industry is a sign of the time. While RegCF might just be old enough to go to Kindergarten this year, and won’t have its first BILLION dollar year until next year, It would behove VC and PE markets not to confuse the toe of the hockey stick with the heel or the shaft.
From 2021 to 2025, we can expect 100%+ year-over-year growth in the RegCF space. What does that mean in simple terms? Simply put, by 2025 RegCF could be a $12B and growing industry. All, by the time that Kindergartener is in 6th grade, VCs will have to ask themselves, “So, are you smarter than a 6th grader?”
The Rise of the Private Portal, aka Walled Garden
DISCLAIMER - By the time you’re reading this Brite.us would have launched at least one Private Portal or Walled Garden with a university. We recommend you do that too, cause well, it only makes sense.
Private Portals are why crowdfunding will experience a boom. What is a “private portal?” Well it's not a Walled Garden but they’re similar in that:
- Custom domains
- Where deals show up under a branded page, backed by the license and operations of a FINRA registered portal
- Where Issuers pay 1% (Silicon Prairie) or 2.75% (future aspirations of Brite.us) success fee
For instance, if you want to raise money from The Crowd as a VC Fund, you’re going to do it via a private portal. If I told you that a Kindergartener was going to disrupt the Venture Capital industry by the time they hit 2nd grade you’d look at me crazy like. Alas, by the time RegCF learns long division, this will be a common sense practice for the VC world. It's the old, “If you can’t beat them, buy them so you can derisk and increase your deal flow.” adage.
Focus on Founders and Investing in People
What this move means for the investment crowdfunding community is pretty straightforward.
- The name of the crowdfunding platform you select won’t matter
- Because your name/domain will be where your offering is housed (Brite.us or Silicon Prairie will be the equivalent of the ISP (internet service provider) of your crowdfunding campaign. Meaning, your website uses some ISP and your customers don’t care. So too, when you go to raise capital, no investor is going to care if you use Brite.us or Silicon Prairie. Much like no investor has ever asked you if you have Comcast or Verizon.)
- This will drive more organic traffic to Founders / Issuer’s websites
- Increasing sales revenue during crowdfunding campaigns
- In addition to money received as investments into the business
- You won’t be handing over your investors to a platform that will likely spam them to invest in other things
This will be a pivotal moment as Founders and their products will be the entire show. This will of course move the startup community forward by forcing wannapreneurs to be actual businesses before attempting to seek funding. The real funny thing about this is that VCs, Private Equity and Hedge Funds will rejoice. They will rejoice because customers will play a greater role in establishing realistic valuations, Founders will have been educated on many of the nuances of capital formation and fundraising, deals will be derisked as more investors share risk. And last but not least, by 2025 there will be more VC worthy and eligible startups to invest in.
While VCs are fond of cutting $10M checks to their bros, who have a powerpoint. What they really would like to do is see more mature startups, whose Founders have demonstrated track records of traction and success. Nothing demonstrates a track record of success like a startup raising $5M using RegCF and amassing a small army of 5k to 7k free marketers, fans and brand ambassadors.
The Funding Portal Pivot
What private portals and Walled Gardens will also do is cause Funding Portals to pivot. Whereas the legacy portals like WeFunder, StartEngine and Republic have paid the iron price to be the forerunners of the crowdfunding space, in many regards they’re like AOL, Yahoo and EarthLink. Early front runners who burned bright, hot and faded as newcomers embraced innovation and pivoted the industry. However, nothing prevents the legacy platforms from leading this pivot. 5 Predictions for Funding Portals by 2023:
- All RegCF portals will offer a private label option
- At least 50 universities will have a private labeled RegCF domain (Brite.us will probably own 90% of those)
- At least 30 VCs with more than $100M AUM will also have private labeled RegCF platforms
- Walled Gardens will be an industry standard
- The costs to raise funds on FINRA licensed platforms will drop, with at least two portals offering 1% or less success fees to raise money
- Silicon Prairie and Dalmore Group already do that but Dalmore Group isn't’ technically a RegCF portal
- Broker Dealers (BDs) will increase their “poaching” of RegCF deals by 400%
- Currently BDs can not only share fees but can also raise money for would be RegCF issuers directly from their pool of accredited investors, as well as opening up those offerings to Retail Investors
- GoingPublic.com will have its first $1B RegA+ fundraising year and launch an ATS/Exchange to not only enable liquidity for issuers GoingPublic helps raise money for but also for other offerings looking to unlock capital
I realize I said 5 predictions and wrote 7. Fret not. The last two aren’t actually predictions as they’re as set in stone as the sun rising in the east and tether exploding in on itself. Too, I didn’t mention how music based crowdfunding offerings and platforms will explode as Music executives and entrepreneurs embrace the best of mid-1990’s Master P No Limits and Bryan "Birdman" Williams and Ronald "Slim" Williams’ Cash Money ethos.
The state of the Investment Crowdfunding industry and league is strong. As of June 2021 there are 64 FINRA licensed crowdfunding portals and with the Private Label option, we can anticipate a 200% increase in funding portals by 2023 and the flow of money that these portals enable for Main Street businesses and entrepreneurs.
About the Author
Samson Williams is a serial entrepreneur and accidental investor. When not starting business with his enemies (“Entrepreneurship is hard. I only recommend it to my enemies.”), Samson is an Adjunct Professor at Columbia University in NYC and University of New Hampshire School of Law where he teaches on blockchain, cryptocurrencies and the Space Economy. Samson is also President of the Crowdfunding Professional Association and investor into two investment crowdfunding platforms Brite.us - CrowdInvesting Done Brite and GoingPublic.com. For more information on Samson visit www.SamsonWilliams.com and follow him on social @HustleFundBaby.