Private equity markets around the world remain subdued due to economic challenges and geopolitical strife. At the same time, online capital formation, a growing component of capital markets, remains robust – at least in the US.
According to a report by Crowdfund Capital Advisors (CCA), the number of deals issued under Reg CF (Regulation Crowdfunding) declined from 147 in March to just 91 in April. In regards to money raised, the amount was solid as capital commitments hit $65.4 million – said to be eh second highest amount ever since March of 2021 when commitments topped $70 million.
For issuers that closed funding rounds in April, 54 firms raised $131 million in total – again, the second-highest amount ever.
Valuations have taken a bit of a hit – similar to VC markets – as median valuations declined from $16.5 million to $11 million from month prior. For post revenue issuers, valuations declined by 34% from $19.5 million in March to $12.8 million in April. The drop in valuations should be anticipated as markets are competitive and firms in need of growth capital need to entice investors in a choppy market.
CCA Principle Sherwood Neiss said the market activity proves that there is a “massive appetite for these deals.”
“While there might have been fewer deals in April, the reality is startups still need capital, and Investment Crowdfunding is where they will find it. We expect to start to see an uptick in deals in May as these issuers realize opportunity exists here.”
Jason Best, Principal at CCA, added:
“Given the market correction, Investment Crowdfunding investors may benefit from lower valuations. We are starting to see valuations drop for both pre-revenue and post-revenue issuers, off from their monthly highs.”
CCA predicts that more firms will raise capital online as VC markets become “stagnant” as these firms are “sidelined.”
Another note of interest is that 54 issuers were able to raise over $1 million each, with six raising the maximum amount of $5 million.
In 2021, Reg CF saw its funding cap increase from an anemic $1.07 million to $5 million. This material change has certainly helped platforms attract more mature firms, as more issuers view Reg CF as a viable path for growth capital. Industry insiders would like the funding cap to increase to $20 million to improve relevance as a step in the capital ladder.