VWV Volumes #17: VP of Stakeholder Management Casey Shay'23 on the Power of Equity Crowdfunding
Equity crowdfunding is revolutionizing the world of venture capital by breaking down the barriers of VC and redefining what it means to be a venture capitalist.
What is Equity Crowdfunding?
Equity crowdfunding (ECF) is the offering of private company securities to anyone willing to invest, including non-institutional investors. This means that the many people that are not venture capitalists by trade can invest in startups across all stages. Previously, venture capital has been dominated by large firms with deep pockets who put up barriers to entry in order to reap the impressive returns of VC. Now, ECF is enabling everyday people to invest in the potentially “next big thing,” and penetrating the exclusive circle of venture capitalism.
ECF Landscape
There are a few main equity crowdfunding platforms, such as WeFunder, StartEngine, and Republic. The SEC regulates these websites as they enable unaccredited investors to invest in companies. What that means is that there are more restrictions and limitations to ECF than traditional VC investing. Prior to 2021, unaccredited investors were only able to invest in rounds raising $1.07 million or smaller. This number was extended in March of 2021 by the SEC to $5 million, showing its growing prevalence and popularity. The 2020 global ECF market size was estimated to be $12.3 billion and expected to increase at an 11.3% CAGR from 2021-2027.
How ECF is Helping Minority Founders
Throughout its history, venture capital has had a clear underrepresentation of minorities. For example, despite African Americans making up 13% of the population, African American founders have received 1% of total venture capital funding. This may stem from the historically homogeneous white population that composes venture capital, while equity crowdfunding aims to make raising capital far more equitable. As a more diverse investor population is given access to these rounds, we may see an increase in funding for minority led startups.
The Future of Equity Crowdfunding
The future of equity crowdfunding is bright, but currently, the majority of startups are still being financed through traditional methods. As the number of startups on ECF platforms increase, we hope to see a more diverse, less exclusive world of venture capital.
More Resources:
Forbes Article detailing the fundamentals of equity crowdfunding:
https://www.forbes.com/sites/howardmarks/2018/12/19/what-is-equity-crowdfunding/?sh=141e777c3b5d
TechCrunch Article about the Future of ECF:
How ECF is Leveling the Playingfield for Minority Entrepeneurs: