Thanks to the JOBS Act in 2016, the non-accredited investor, aka the average joe is able to invest into startups when they are worth small amounts, that could potentially be worth more, way more. What would be interesting is between evaluating these promising small startups, what if you could own the equity crowdfunding platforms that offer these startups themselves? The analogy of the gold rush in the supposed Golden State of California in the 1800s was that those chasing the gold ultimately did not get rich in the end for the most part. Instead, it was the ones selling the tools, the shovels and pickaxes, that got rich. The equity crowdfunding platforms make money with every company that raises via cash paid fees and small equity stakes, regardless of the company quality or if the company should succeed. If you could find some of the likely more successful platforms with this business model that is in high demand from future aspiring startups to list and raise capital, this would be akin to the modern-day sellers of in demand tools for the gold rush. Let’s take a look at some of the equity crowdfunding platforms that are available in Canada and the USA and see how the valuations and raises have stacked up so far.
Frontfundr
According to Frontfundr themselves on the website, they are Canada’s leading online private markets investing platform and an exempt market dealer. They serve primarily Canadian entrepreneurs to raise capital. They have over 40,000 users, 10 exists from previous raises, with $150m funds processed through the platform as of May 2023. Founded in 2013, Frontfundr did it’s first equity crowdfunding raise on its own website in 2017. They raised money at a $4 million valuation. As of April 2023, Frontfundr again raised money on its own platform at a valuation of $25 million, with this author writing investing into it. That is roughly a 6x valuation in 6 years. Not bad for starting at just $4m. Now imagine if the private investing market takes off and Frontfundr maintains highest market share of this space. Where could the valuation be in 5, 10 years? It’s possible an acquisition could occur at several multiples above the existing $25 million valuation.
Equivesto
Founded in 2016/2017, Equivesto is also a Canadian equity crowdfunding platform. They raised on there own website at a $15 million valuation in April 2022, raising $238,700. An Angel round was done in October 2019, raising $1 million at an unknown valuation. Equivesto has been coming along slowly and steadily. Like Frontfundr, the most likely method for a liquidity event figures to be an acquisition by a US firm.
Startengine
Startengine was founded in 2014 and is a US based equity crowdfunding platform. They boast one of the top 3 largest deal platforms in terms of dollar amount traffic, along with Republic and Wefunder. They were #1 in money raised for company listings, ahead of Wefunder at #2 and Republic at #3. They have been aggressively expanding, with the buyout of another equity crowdfunding platform SeedInvest. With Kevin O’Leary as a paid sponsor, they have raised $87.6m to Dec 10, 2021, and was last valued at approximately $870m. Imagine being able to get in on the seed round in June 2014 when Startengine first raised. If the value at time of raise was ~$25m, that’s already 35x in less than 10 years. Wow. At that valuation, it is already approaching the $1 billion market cap, unicorn status, and if it ends up being the market leader, a valuation between $3-$10 billion market cap is entirely possible. And with being the leading platform for highest amount of money raised, it figures that the best quality companies would continue to raise here.
Wefunder
Wefunder is an equity crowdfunding platform that has the 2nd highest amount of capital raised for its platform companies. Founded in 2011 in San Francisco, it’s estimated post money valuation at the end of 2019 was somewhere between $50m-$100m. The annual fund rate is over $200 million since 2021. With the 2nd highest amount of deal flow, if Wefunder were to raise an equity round to its investors on its on platform, the valuation figures to be dramatically higher in 2023 or later.
Republic
Republic, based in New York in 2016, had the 3rd most dealflow in 2021 and 2022, with no additional investor fees in equity raises as one of its signature perks. It’s post money valuation in October 2021 was estimated at $500m to $1B, and a Series B round was closed in April 2022, with the most recent acquisition of Seedrs in December 2021 for $100M. In total, they have raised $214M since inception. For a company that has achieved closing in on unicorn status in just 6 years, like Startengine, Republic is moving quite quickly and figures to continue to be one of the main players in the space for many years to come.
Microventures
Microventures was formed in Austin in 2011 and has raised $3.4m in funding over 5 rounds. They take a 10% fee, half from issuer and from investors, with 10% carry on top of each successful raise. They have had previous opportunities to invest in the likes of uber, Airbnb, lyft, slack. They boast over 200,000 investors, and over $450m transacted.
What to do
After taking a look at several equity crowdfunding platforms, it’s fair to wonder whether the first movers, the current market leaders, will end up being winners in the future, or bust out from here. What about an idea to hedge them (and more companies) by just buying into all of them? Particularly for a smaller Canadian market that is up for grabs, why not just into both the #1 and #2 market leaders and see if one or both get acquired? While overlooked with just a tenth of market size compared to the US, Canadian markets in various industries tend to operate in an oligopolistic manner, with just a few winners capturing the majority of the market share. If this trend remained the same in the equity crowdfunding field, buying the top 2 figures to be a prudent decision. They either take control of a small market, or get acquired. If another competitor figures to have potential, buying into them makes sense to. One of them likely has potential to 10x+ over the next several years, so even if 2 or 3 of 4 worst case go to zero, that’s still a decent return.
For the big 3 US platforms in Startengine, Wefunder and Republic, amongst many available, they have already gained so much market share and equity in such a little short period. Investing in them may not necessarily lead to life changing returns, but the risk has been derisked to such a point that investment in them would garner attention. Additionally it still remains to be seen how equity crowdfunding, as well as the texture of public markets could affect the total size of the private market. With companies increasingly staying private for longer and longer, the entire public market in the future could start to shrink in total overall size, with the private market becoming increasingly larger. This leads to an overall larger pie for all startup investors, and so taking a piece of the deal makers, the ones selling the shovels for the entire private market, would make a lot of sense. So that could entail investment into the 4 platforms aforementioned, and even more into say the remaining 6 of the top 10, in hopes that 2 or 3 of the current top ten will become the primary market share leaders when the private market space has become more mainstream. And only then would the value of said equity be possibly worth life changing returns.
Disclaimer
This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.