VC Syndication & Crowdinvesting Market Review (part 1)
The world of finance and investments is becoming increasingly global. Both early startups, growing businesses and mature exchange-listed companies are capable of fundraising online successfully from any part of our planet. At the same time, an investor’s opportunities are no longer bound to a given city or country. In a matter of several clicks one can become a shareholder of a promising venture. And people tend to admire such free movements of capital. One party is ready to attract it while the other is eager to profitably invest.
Somewhere in between of mid-to-low risk stock index investing and wild world of crypto investing there is a more balanced opportunity to seize high risk / high return opportunities. Here we talk about the growing number of venture financing offerings available via the crowdinvesting (or ‘equity crowdfunding’) marketplaces. We are also about to widen the segment being considered by adding platforms allowing for venture deals syndication between qualified investors. In the upcoming series we’ll walk through the descriptions of the key market players, their comparison and overall market analysis & outlook.
AngelList pioneered the market with the idea of a social network bridging startups with angel and VC investors. The company has since offered various additional services, from recruiting new talent to investing in early stage ventures. As of January 2020, more than 5 million companies have their profiles on AngelList, making it the most popular resource for venture financing worldwide. AngelList serves as an infrastructure services provider for VC funds and syndicates and its corresponding assets under management have approached $1.8 billion by the end of 2019. The year resulted in 1657 startups raising new rounds led by 335 VCs and angels.
As for investing on AngelList, it is currently supported in 3 ways:
- Deal-by-deal syndicates are led by experienced angels and allow investors to select deals on their own and back them with as low as USD 1000.
- Access Fund provides an opportunity to buy a share in a diverse portfolio of venture investments managed by AngelList itself for those ready for a minimum of USD 100 thousand.
- Dedicated support for “family offices, institutions and active investors” ready to put at least USD 500 thousand per year into venture financing.
- Versatile opportunities for qualified investors and family offices.
- Entry as low as USD 1000 thanks to deal-by-deal syndicates
- Investors must meet both US SEC requirements and their local regulations.
- No transparent startup pre-assessment done.
Crowdcube mainly focuses European early stage startups and is one of the leaders in the region, competing with Syndicate Room and Seedrs. According to Crowdcube website, over the last 8 years 816 projects have raised over £580m via the platform with 23 of them delivering returns via exits, 703 still in development and remaining others being discontinued. Most prominent deals include funding neobanks Revolut (~1900% return) and Monzo (~2500% return). As recently reported, 3 out of 16 active UK unicorns were fueled by funds raised on Crowdcube.
- Focus on the UK and Europe, offer UK-specific tax relief opportunities for investors.
- Crowdcube highlights its sector focus: food & beverage, fintech, consumer goods, consumer internet.
- Available for backers from any country unless it contradicts their domestic legislation on private investing.
- Startup due diligence is not supported.
- No secondary market for the shares bought via the platform. Backers need to wait for a liquidity event (IPO, M&A, management buyout).
As of March 2020, Crowdfunder has 38 active equity crowdfunding campaigns and claims to have over 200'000 members and 15'000 accredited investors among them that have helped to raise more than $150 million. In April 2016 Crowdfunder team even launched their internal VC Index Fund that the platform’s users could invest in, targeted at 300 early-stage deals, making it significantly more diversified than traditional VCs. However, since then there has been almost no news about that fund.
- VC index fund launched but silent.
- Subscription fee for startups (USD 299–499 per month), no success fee.
- No startup due diligence performed by the platform itself.
- New user onboarding is a bit confusing.
- Platform’s self-reported stats/results are changing from page to page without any dates mentioned.
EquityZen focuses on Pre-IPO investments, collecting interest from accredited investors registered on the platform and searching for private equity holders ready to sell shares before liquidity event. For each deal that gains substantial interest from the platform’s users EquityZen creates an investment fund, owned by the investors in that deal, which then receives shares of a given target company. As reported on its websited, EquityZen has so far closed over 10'000 deals with 200+ firms by connecting more than 70'000 shareholders and investors. Together with single company offerings, EquityZen provides opportunities to invest in their Managed Funds, portfolios of up to 25 Pre-IPO companies selected by the EquityZen team.
- Focus on the pre-IPO opportunities.
- The U.S. Accredited Investor status compliance is required.
- In-house due diligence is provided by the EquityZen team.
- Investors can participate deal-by-deal or allocate their money into EquityZen Managed Funds.
Another one crowdfunding platform from the U.S., Fundable is a part of the Startups.com ecosystem of educational and acceleration services for early-stage ventures, which also comprises website construction software Launchrock, virtual assistance provider Zirtual, marketplace for startup mentoring and advisory Clarity and business plan online builder Bizplan. Average investment among the 20 most recent deals on Fundable has exceeded $2.6M, which can be considered as a substantial amount for a crowdfunding campaign. The company’s website states that it has helped startups raise over USD 584M to date.
- Allows for both rewards-based and equity raises.
- Part of a larger ecosystem of startup-oriented service providers.
- Accredited investor status needed to see full details on the startup listings.
- Fundraising available only for the companies registered in the U.S.
- $179/month subscription fee for the startups, no success fee.
This is the end of the part one in our series about the VC access & syndication market. We’ll continue to describe key market players in the upcoming posts, compare them and highlight market trends. Stay tuned!