Investment Crowdfunding: Average Transaction Sizes
Investment-based crowdfunding is fundamentally different from perk-based crowdfunding. In 2011, the average successful perk campaign raised ~$4,000, while the average investment-based campaign brought in ~$112,000 (1).
It makes sense. Outside of product categories —where pledges are effectively a pre-ordering mechanism— backers typically limit their pledges to fairly small amounts. Often, they pledge an amount benchmarked to a perceived value they cognitively assign to the perk. Exceptionally generous benefactors step in from time to time, of course, but it’s safe to say this is the exception and not the rule. And this is exactly the way perk crowdfunding should be. The founders of Kickstarter have been adamant about its platform not being a mechanism for funding for-profit businesses. It’s not what perk crowdfunding is designed for; but investment crowdfunding is.
Enter investment motivations. The opportunity to potentially receive your principal back, and then some, supports individual commitments of much larger sums. Hence, the significantly higher raise sizes you see in investment crowdfunding campaigns. But just looking at the top-line average of $112,000 isn’t enough. The picture is more nuanced, and interesting.
Across platforms, the average transaction size varies dramatically, as unique models and target markets speak to companies with differing capital needs. By way of example, let’s contrast two very different equity crowdfunding platforms: Seedrs (UK, all investors) and CircleUp (US, accredited only). Seedrs focuses on technology startups, the majority of which are idea-stage. Reflecting this, Seedrs’ median raise, across 9 deals, has been $48,000 — just enough to fund the development and validation/invalidation of a minimum viable product.
CircleUp on the other hand serves emerging-growth consumer product companies, many of which have current revenues in the millions. The capital needs of these companies are very different; and CircleUp’s average raise —$826,000 across its first eight deals— reflects this. A couple points to note here: (i) CircleUp’s market is liquidated by accredited investors who have much higher individual funding capacity; and (ii) capital needs of CircleUp companies vary widely, with the highest raise being $2.3 mn and the lowest $.5 mn.
Here’s a graphical comparison across platforms, including a table with the supporting data.
Differing crowdfunding models that target unique markets, these figures aren’t directly comparable. But they all work. And herein lies the takeaway. So long as our regulators provide the freedom to innovate — our private sector will. As it always does, and just as the private sector in the UK, Netherlands, and Australia already has. (A small sample, I’m excluding many more.)
My apologies, please endure my brief rant. Without smart and effective regulation, our crowdfunding markets will never truly work.
If our regulators do their job — for both accredited (title II) and non-accredited (title III) investors— we’ll see innovative platforms emerge to serve a great diversity of companies. Across all industries, geographies, and maturities. Crowdfunding will step in to support these companies, many of which are enormously underserved today, e.g.: (i) growth companies too small for private equity and not sexy enough for venture capital; (ii) startups in underserved geographies; and (iii) underbanked main-street small businesses.
These are just a few of the many company archetypes that stand to benefit from investment crowdfunding. It’s really quite maddening. While open and democratized marketplaces across the globe are busy funding companies, creating jobs, and fostering innovation, our regulators sit in silence.