SeedInvest, one of the largest investment crowdfunding platforms in the US, has released a performance report on investor returns. SeedInvest has been in operation since 2013 following the creation of accredited crowdfunding under Title II of the JOBS Act (Reg D 506c). Since that date, SeedInvest has become a full stack crowdfunding platform offering investments in the three different crowdfunding exemptions to both accredited and non-accredited investors.
According to SeedInvest, investors on their platform have generated an unrealized Internal Rate of Return (IRR) of 17.4%1 since 2013. In comparison, this number is 1.5x greater than the 11.7% median return calculated by research firm Cambridge Associates for U.S. venture capital funds of the same vintage. The term of the report was up to the end of 2017.
Investing in early stage companies is a very risky venture as many startups will inevitably fail. By investing in a diversified portfolio of young companies, investors can mitigate this risk as successful firms can offset the failures. This is exactly how professional Angel investors and VCs make their money.
SeedInvest said that the top 10% of their listed investors generated an a whopping 76.86% IRR while the bottom 10% delivered a negative 7.4% IRR. SeedInvest estimated that only 1.3% of their platform investors who have invested in three or more companies have generated negative unrealized IRR.
SeedInvest is a highly selective platform accepting less than 1% of the firms that apply. The company states it has reviewed more than 25,000 individual firms since 2013.
As the investment crowdfunding industry evolves inevitably the industry’s success will be measured by the returns delivered to investors and not just by the ability for early stage firms to raise money efficiently online. While still very much in the early days, the more established platforms are starting to publish their investor returns.