Venture capital and the risk capital it deploys is found nowhere else in the world. It has funded America’s most vibrant and successful tech companies like Apple, Google, Meta, and Twitter. The industry continues to grow at a rapid pace. According to Venture Capital Investment Global Market Report, the venture capital market is expected to grow from $208B in 2022 to 533B in 2028—over double in six years!
Much of this capital will arrive at startups that aren’t ready for it. They will lose their shot at unicorn status because the dollars masked deficiencies in their networks and business models.
Downsides of Early VC money
The Reg CF portal MicroVentures has posted a series ofblogposts related to venture capital. They explain both the up and downsides of this funding method. The downsides are exacerbated by startups without sufficient leverage bootstrapping and Reg CF can provide.
Downsides include:
Loss of control: Founders accepting VC money give up equity, these are voting shares that rise or fall during the negotiation. Usually included is a seat or multiple ones on the board. With this power, VCs can change force a change in company direction, or steer the company toward short-term results at the expense of long-term growth. In fact according to the Harvard Business Review, between 20% and 40% of founders are sidelined or forced out altogether.
Equity Dilution: Even if the founders survive, they are giving up substantial equity to a VC. This may set up showdowns for years to come. VCs may be distracted by the next shiny object. Founders to wilt on the vine without the promised support, but with much less ownership.
Grueling Process: The process of being selected for VC money may involve several rounds and rejections. Founders may also end up with the wrong VC. He may not match with the industry or have compatible leadership dynamics with the founders.
The Case Against Early VC money, Reg CF first
Founders can solve some of these issues by building out a customer and investor base before seeking VC money. This provides leverage for later negotiations when they already have the ‘social proof” of a successful Reg CF round. At that point equity, company direction, and vision shift to the founders .They walk away and do another Reg CF round, of nonvoting equity or interest. Because of this, VCs are changing their tune toward Reg CF.
Other advantages of Reg CF
Broaden your investor base: Unlike other funding models, Reg CF can diversify your investor base from both a financial and geographical standpoint. Reg CF portals can accept investors from anywhere in the US, giving your business a potential foothold in all 50 states.
Turn your customers into marketers: Reg CF allows your customers to become financially invested in your business and see their investment grow as your business grows. This provides a free marketing campaign for your business with every new investor.
Incentivize your investors: Reg CF allows you to provide perks as part of the investment. Depending on the product this could include the product itself, ‘founder’ status on your website, access to events, or anything else that may induce an investment.
Prove value to institutional investors: A successful Reg CF raise can show larger, institutional investors your business is ready for the big money. Many larger investors are now requiring “social proof” of a company’s business model. Your business can show larger investors value and momentum and provide your business “bridge money” while larger investors evaluate your model.
Reg CF held steady in 2024 amid economic uncertainty, venture capital pullback, and political turmoil. The federal exemption, which debuted in 2016 and allows retail investors to meaningfully participate in the private capital markets, is slowly emerging as a capital-raising force.
The indispensable Crowdfund Capital Advisors (CCA), the preeminent Reg CF data curator, recently reviewed Reg CF 2024 progress and the numbers range from steady to exciting. For starters Reg CF issuers raised $574 million in the past year. And a larger percentage of that capital now goes to post-revenue companies than ever before. This signals a maturing Reg CF market. Moreover, venture capitalists continue to warm to the exemption. Parallel offerings where Reg CF offerings take place besides Reg D 506(c)—an accredited-investor only offering—also rose significantly in 2024.
Reg CF 2024 – Slow and Steady
By other metrics Reg CF is either holding steady or down from its 2021 COVID highs. Job creation and economic multiplying effect are two reasons Congress passed the JOBS Act of 2012 which created Reg CF. These issuers are now on average supporting 10 jobs for a total of just 112,000. Further, CCA estimates Reg CF issuers have pumped over $26 billion into the US economy.
Source: Crowdfund Capital Advisors
Reg CF 2024 was a steady if not spectacular year, Economic headwinds and the presidential election likely contributed to uncertainty that tainted all capital raising last year. But the future still looks bright. The 2025 outlook is bright as COVID fades and a semblance of general stability sets in.
Reg CF Advantages
Companies that raise with Reg CF in 2025 can expect the following advantages.
Broaden your investor base: Unlike other funding models, Reg CF can diversify your investor base from both a financial and geographical standpoint. Reg CF portals can accept investors from anywhere in the US, giving your business a potential foothold in all 50 states.
Turn your customers into marketers: Reg CF allows your customers to become financially invested in your business and see their investment grow as your business grows. This provides a free marketing campaign for your business with every new investor.
Incentivize your investors: Reg CF allows you to provide perks as part of the investment. Depending on the product this could include the product itself, ‘founder’ status on your website, access to events, or anything else that may induce an investment.
Prove value to institutional investors: A successful Reg CF raise can show larger, institutional investors your business is ready for the big money. Many larger investors are now requiring “social proof” of a company’s business model. Your business can show larger investors value and momentum and provide your business “bridge money” while larger investors evaluate your model.
No one ever accused venture capitalists of humility. They promote themselves as societal prophets, peering into the future and funding the hotshot startups that change the way people live while taking a large part for themselves.
To be sure they have, in aggregate, funded such companies and in the process supported Silicon Valley’s vanity-plate-adorned luxury car market. Nearly every major Silicon Valley startup that made it big at some point ventured up. The rest are currently looking for VC money as they hone their pitches in meetings before the splendored demigods.
But despite self-perception, VC track record is quite poor. For every Facebook there are three social-media startups with lots funding but no users. According to Harvard professor Shikhar Ghosh 75% of venture-backed businesses fail and up to 40% of those are total wipeouts.
Reg CF provides startups market advantages
Equity crowdfunding (Reg CF) which allows retail investors to risk their money on startups and private businesses offers a new avenue to test market acceptance and improve VC success rates. Reg CF has already proven more resilient than other companies as Crowdfund Capital Advisors noted in a lengthy report on Reg CF earlier this year. Collecting data from the Bureau of Labor statistics, 50% of new businesses failed in the first five years, but that figure reduced to just 17% for those that did a Reg CF raise.
In fact, Reg CF offers startups and small businesses numerous advantages including;
Broaden your investor base: Unlike other funding models, Reg CF can diversify your investor base from both a financial and geographical standpoint. Reg CF portals can accept investors from anywhere in the US, giving your business a potential foothold in all 50 states.
Turn your customers into marketers: Reg CF allows your customers to become financially invested in your business and see their investment grow as your business grows. This provides a free marketing campaign for your business with every new investor.
Incentivize your investors: Reg CF allows you to provide perks as part of the investment. Depending on the product this could include the product itself, ‘founder’ status on your website, access to events, or anything else that may induce an investment.
Prove value to institutional investors: A successful Reg CF raise can show larger, institutional investors your business is ready for the big money. Many larger investors are now requiring “social proof” of a company’s business model. Your business can show larger investors value and momentum and provide your business “bridge money” while larger investors evaluate your model.
VCs warm to Reg CF, acknowledging low risks
Now after years of sneering at or ignoring Reg CF, those institutional investors (venture capitalists) are recognizing these advantages. A CCA blog post notes the VC-Reg CF relationship is “evolving.” It specifically cites legendary VC firm Andreesen Horwitz joining a Reg CF raise for Levels Health. The reason is becoming more obvious by the day. Reg CF allows companies to validate their market at low VC risk.
At present, the most Reg CF raises can offer is $5M. A VC anchor investment of $250k jumpstarts this raise and allows the company to prove retail support and long-term viability. It also increases brand loyalty through various perquisites and aligns economic interests. This makes a good bet for both the venture capitalist, the company, and the retail investors who can invest alongside professional investors on the same terms.
Reg CF is expected to reach new heights in the coming decade. After shunning the scrappy exemption for years, VCs who care about success rates are finally taking notice.
Bye Bye, Gary. Donald Trump’s election means the certain exit of SEC Chair Gary Gensler. The controversial Biden appointee sees the writing on the wall and will reportedly exit by Thanksgiving. Many people will cheer this news. Gensler’s anti-crypto stance chafed the burgeoning community of Web3 entrepreneurs, coders, and wonks. For example, Trump drew raucous cheers at a Bitcoin conference, when he announced he would fire Gensler “on day one.”
Gensler departure means Reg CF outlook bright
But while crypto gets the attention, other parts of the emerging decentralized economy are also cheering new blood at the stodgy commission. Regulation Crowdfunding (Reg CF) got a revamp in the closing days of the first Trump administration. The regulator increased offer limits, increased investor limits, loosened communication rules, and allowed cap-table-friendly special-purpose-vehicles (SPVs). These moves as well as a generally business-friendly administration helped boost Reg CF’s profile and prowess according to Crowdfund Capital Advisors (CCA)—the leading Reg CF data curation outlet:
From 2016 to 2020, the percentage of successful campaigns grew from 49% to over 70%
Investor participation also surged, with investor checks increasing from 21,750 in 2016 to 360,702 by 2020
From 2019 to 2020, the industry saw a jump in total funds raised from $133 million to $247 million, correlating with Trump’s tax policies and deregulation efforts
Of course, some of this surge is due to COVID and investors becoming more comfortable with online investing. Nonetheless, hopes are high for Trump’s second term for Reg CF and investment growth in general.
Industry insiders see bright outlook for Reg CF in second Trump term
When asked about Trump’s second term prominent industry lawyer Doug Ellenoff told Crowdfund Insider:
Obviously, the speed and expressions of change will be determined in part by the specific new replacement [for Gensler], but directionally, I believe that the impact of deregulation will be seismic. . . The activity level of capital formation transactions will accelerate off of a nicely forming 2024 base. I would fully expect broad support for many crowdfunding changes to advance and expand it as a useful marketplace. I would begin to push now.
Among the proposals that may come with the push, CCA suggests increasing the Reg CF offer cap to $20 million. (Good). This would likely toll the death knell for Reg A+ Teir 1, which has a similar cap but forces issuers to deal with shuddersome state regulators.
CCA also suggests creating a $2 billion “co-investment fund” whereby retail investors would invest alongside the government so as to “[mitigate] risk for individual investors.” (Bad). As I have written before this is a terrible idea and the opposite of a deregulatory stance. The government has no business using taxpayer dollars as public venture capitalists. Startups should rise or fall on the benefits they bring to the market, and individuals should not invest money in these relatively risky ventures they can’t afford to lose.
America First for the private capital markets
Overall, however, along with the rest of the capital markets, the Reg CF future looks bright. CCA estimatesReg CF investments could “jump from an estimated $563 million in 2024 to nearly $750 million in 2025.” This would mean more jobs, more innovation, and more robust economic growth. “America First” in the private capital markets looks “Great Again.”
Now, as we approach mid-decade, Reg CF is again ascendant. And it will continue rising. As the decentralized, “sharing” economy moves beyond its West Coast origins and the rest of the country embraces it. By next decade, B-to-C businesses will incorporate Reg CF into their capital-raising strategy or risk being left behind.
Some numbers from the report:
284.5% Average growth in revenue between the year an issuer was successful and the following year
17.8% Bureau of Labor and Statistics Reports that approximately 50% of all new businesses fail within 5 years. Within Investment Crowdfunding, only 17.8% of funded companies have gone out of business.
$2.2B invested $75.6B worth Companies that have been funded and priced to their most recent valuation
Average investment size nears $2.5k
Average raise topped $500k for the first time in 2023
Total investment topped $150M for the first time since 2021
Trends show a bright outlook for Reg CF in 2025 and beyond
Here are a couple interesting charts among the hundreds in the report:
Why companies will choose Reg CF in 2025
More companies are looking for ways to integrate their business with their customers and build brand loyalty. Here are a few ways Reg CF helps:
Broaden your investor base: Unlike other funding models, Reg CF can diversify your investor base from both a financial and geographical standpoint. Reg CF portals can accept investors from anywhere in the US, giving your business a potential foothold in all 50 states.
Turn your customers into marketers: Reg CF allows your customers to become financially invested in your business and see their investment grow as your business grows. This provides a free marketing campaign for your business with every new investor.
Incentivize your investors: Reg CF allows you to provide perks as part of the investment. Depending on the product this could include the product itself, ‘founder’ status on your website, access to events, or anything else that may induce an investment.
Prove value to institutional investors: A successful Reg CF raise can show larger, institutional investors your business is ready for the big money. Many larger investors are now requiring “social proof” of a company’s business model. Your business can show larger investors value and momentum and provide your business “bridge money” while larger investors evaluate your model.
Whether you’re inclined to defend ‘MAGA Country’ or exclaim ‘Black Lives Matter,’ new research suggests your crowdfunding campaign should exclude your politics.
A group of academics recently researched nearly 20,00 Kickstarter campaigns. They found those who were overtly political raised less money than apolitical campaigns—although the distribution wasn’t even. Companies using conservative speech garnered 9% less money and those with liberal speech 17%. Relying on “expectancy violation theory,” the researchers found the political messages turned off potential backers because it created a negative expectancy and harmed credibility. According to the researchers, this theory, “assumes that behaviors are a rules-based system grounded in society’s psychological or cultural standards and that individuals develop normative expectations about the appropriate behaviors people should use during communication.” In settings where political speech violates expectations, the speakers come across as unprofessional.
Millennials mix crowdfunding and politics
The research runs counter to certain demographic and social realities. Post-COVID, more companies have engaged with crowdfunding for less conventional reasons as shutdowns upended people’s lives and the economy. Further, Millennials have become heavily involved in crowdfunding campaigns as they’ve entered middle-age and are more likely to let their political flags fly than previous generations. One study showed three of four Millennials had donated to a crowdfunding campaign during the pandemic. And many of these were political in nature ranging from held ‘Build the Wall’ to #metoo.
Of course, crowdfunded startups aren’t the only companies dealing with political landmines. Millennial Alissa Heinerscheid famously drove Bud Light off a revenue cliff with her promotion of transgender influencer Dylan Mulvaney. Other public companies receiving pressure from Wall Street’s ESG/DEI fetish have become targets including Harley Davidson, Tractor Supply, Coca-Cola, and Netflix.
Those companies have the ballast and built-in good will to survive political scandals. Startups in an already challenging funding environment do not. Thus, the message is clear for founders. Talking politics to your apolitical funding crowd comes with risks you may not be able to afford.
