Instead of going public or using more traditional capital raising methods like bank loans and venture capital to raise money and achieve scalability, more and more exciting private companies are using crowdfunding to raise capital and achieve scalability each year. Here are some of the key reasons why:
The crowdfunding markets are experiencing booming high growth
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.
2022 is also forecast to be a massive year for private company crowdfunding, especially in the US with Regulation CF (raise up to $5 million a year) and Regulation A+ (raise up to $75 million per year) capital raising limits increasing for high growth private companies.
It can be potentially more flexible and cost-effective route to raise capital than traditional methods while allowing issuers to maintain control
An issuer for a private company can use more traditional methods such as bank loans, angel investors, and venture capital to raise capital, but crowdfunding has evolved and developed into a potentially more cost-effective route for capital raising, despite initial costs being higher.
This is especially true for start-ups and smaller companies, who can use a crowdfunding raise to test the market and get feedback before increasing spending or enabling access to capital when other options such as a bank loan or venture capital are not available or attractive.
A private company can build a community of investor advocates and customer base while increasing brand awareness
Private company crowdfunding is potentially one of the best methods issuers have available to accelerate their capital raising while increasing their brand advocacy and customer engagement as well as attract potential investors at the same time. As your number of investors increases, so will advocates for your company in the marketplace, driving more investors to your business to become part of your community.
This also grows your company’s customer base, as investors are likely to convert to customers while advocating your brand to more potential customers, providing another stream of income during your raise.
The private company investment and crowdfunding market is ever-evolving
With the Jobs Act introducing Regulation CF and Regulation A+ crowdfunding coinciding with the continued emergence of the internet, investing in private companies has become more lucrative in the last decade, with changes to how you can invest helping transform the market.
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, offering up the possibility as this market develops.
These new regulated ATS platforms for secondary trading have the potential to create 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 upcoming 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.