Regulation CF and Regulation A+ crowdfunding has recently transformed private company investment – companies or issuers can now raise up to $75 million a year, while investors can build potentially lucrative portfolios of high growth start-up ventures.
It has also reduced the need for private companies to go public, while weakening the early stranglehold that VCs sometimes have been accused of exerting on these high growth private companies previously.
Such private companies can now enjoy much more flexibility and control over their operations and capital raise requirements, and many have built huge communities of advocates/investors, to help further their objectives, amplify their brand, and ongoing investment requirements.
According to Pitchbook data, global crowdfunding exploded from $8.61 billion in 2020 to $113.52 billion last year – a 1,021% increase – and the US market alone doubled year on year through Regulation CF and A+, with much higher numbers raised and over 32% oversubscribed, according to SEC (Securities & Exchange Commission) filings.
Here's why more investors choose private company crowdfunding over the public market:
Potential to invest earlier in a high growth company
By the time many exciting private companies go public these days, their share value has already been realised during their scalability phase. The days of 1000% increases in share value on major stock exchanges tend to be a thing of the past and are more likely to happen in the years preceding this as we’ve seen with many private company unicorns in the last five or six years. For instance, Uber’s share price has dropped by over 21% since going public, and Coinbase is gone down by over 23% in the past six months.
However, when Microsoft, Amazon and Google went public decades ago, they quickly delivered returns of 340%, 500% and an astounding 3,900% respectively in the first 24months – amazing returns for early-stage investors.
But Reg CF andReg A+ crowdfunding opportunities, as well as Reg D institutional rounds, have reenergized this huge private securities market, opening up the potential to realise value much earlier.
Private company crowdfunding is a way to diversify your portfolio
An investment top tip is “don’t put all your eggs in one basket” so that at least some of your capital survives or grows even if one or several other investments fail.
So, portfolio diversification via crowdfunding significantly reduces investment risk as your capital is spread across unique markets, while early-stage start-ups and private companies are less prone to the fluctuations that afflict the public market.
Crowdfunding is also starting to open up the potential to get involved in more meaningful impact investments that smaller investors had little or no access to beforehand
When investing in the public market through established brands and recognised names, your investment will have little or no value to the issuer unless a substantial amount of capital is invested.
So, an investor should look at start-ups and high growth private crowdfunding companies if they hope to see their capital make a difference. They could then potentially contribute to revolutionary platform solutions reaching a international or global market, enabling high scalability and making the investment potentially more financially and emotionally rewarding.
You'll also most likely receive more communication and interaction with the company itself, who will value your investment and contribution to its mission and include you inits investment community newsletters, company updates, media communications and alike.
The private market continues to become more accessible and flexible for investors
Since the JOBS Act expanded capital raising methods for high growth private companies through Reg CF and Reg A+ crowdfunding to up to $75 million a year, the private securities market has become more open for investors to expand their portfolios.
And the private securities market may also be transformed further, with award-winning fintech innovations from pioneering companies such as Rialto Markets with its regulated alternative secondary market trading platform, known as an ATS, enabling private company shares to be traded to offer more flexibility and control over investments.
These new regulated ATS platforms for secondary trading potentially open up more liquidity (cashing out on value) in a private securities market forecast to grow from $7 trillion in 2021 to $30 trillion in 2030.
To learn more about the future of private company crowdfunding, register for our forthcoming investment and crowdfunding webinar:
‘Deal Quality and Structure’ taking place on Tuesday March 22nd, 2022 at 1 PM CT or register for our entire investment and crowdfunding webinar series and newsletter by clicking here.
Full Webinar Series Schedule
“Deal Quality and Structure” Tuesday, 22nd March 1pm CT
“Platforms, Broker-Dealers and Other Providers” Tuesday, 26th April 1pm CT
“Regulated Secondary Trading in Private Securities” Tuesday, 17th May 1pm CT
“Building your own Community of Advocates” Tuesday, 7th June 1pm CT
“What’s Next for Crowdfunding?” Tuesday, 28th June 1pm CT
