Crowdfunding Success Rates

The global crowdfunding market could generate up to $9096 billion per year by 2025, the World Bank (2013) estimates. China would contribute $4650 billion, followed by Europe and Central Asia (about $14 billion), Latin America and the Caribbean (about $11 billion), East Asia and the Pacific (about $8 billion) and other regions. Equity crowdfunding is becoming an important marketplace for fundraising, and soon will pose strong competition to the Alternative Investment Market, the London Stock Exchange’s sub-market for smaller companies, says Julia Groves, Founding Chair of the UK Equity Crowdfunding Association. These 2 forecasts have one thing in common: they both stress the potential of crowdfunding. What results have already been achieved?

1 in 5 companies which raised funds on the 5 main equity crowdfunding platforms in the UK between 2011 and 2013 have failed, a report of AltFi Data and Nabarro (2015) shows. Out of 367 companies which attracted £18 million (over $26 million) in total, 20% are no longer operating. 22% have gone to follow-on rounds at a higher valuation or realized a return on investment (RIO) estimated at 33.79% after tax deductions. 28% have either failed or are having financial difficulties. “A 33.79% average return on investment in so little time is a serious number, hard to be beaten by even the most aggressive stocks exchange brokers. The rate of failure is surprisingly low as well, which brings credibility to the industry,” iCrowdNewswire comments on the results.

In 2013, Capital Crowdfund Advisors (CCA) analyzed several hundred successful crowdfunding campaigns across North America, Europe and Africa. Rewards, debt and equity-based campaigns were classified as successful if they raised $107,810. If taken separately, the threshold for equity campaigns was $178,790. CCA found out that the quarterly sales of successful campaigners increased by 24% on average across all the crowdfunding types. Equity crowdfunding turned out to be the most profitable: quarterly sales increased by 341% on average. In addition, 28% of campaigners secured extra investment from angel investors or venture capitalists within 3 months, while 43% were negotiating deals with institutional investors. CCA also calculated that “[e]very hour invested in a crowdfund campaign returned $813”.

Crowdnetic (2015) reports that in the first quarter of 2015 the 17 main securities-based crowdfunding platforms in the US recorded capital commitments of $650 million in total, 35% more than in the previous quarter. The capital distribution across crowdfunding offerings was the following: equity (62%), convertible debt (22%), debt (9%), real estate (6%) and other (1%). The capital ratio was quite consistent with the previous quarters, Crowdnetic notes.

In April 2015, Rory Eakin, COO of CircleUp, one of the crowdfunding platform pioneers in the US, disclosed that more than 90 companies raised over $100 million on their platform. He also added that the revenue of companies which received funds in 2014 increased by 86%. In addition, 30% of them started raising follow-on capital. “For those with priced initial and follow rounds, they have an average unrealized internal rate of return of 80 percent”, Eakin estimated.

References:  [1] Claer Barrett and Naomi Rovnick, Financial Times / [2] AltFi Data and Nabarro via Financial Times and iCrowdNewswire / [3] Cheryl Conner, Forbes / [4] David M. Freedman, AIMkts