At KingsCrowd, we categorize companies into three business types — Life-Style, Growth, and High Growth. These categories represent the scaling potential for a startup. Life-Style businesses are focused on profitability over rapid growth, such as standalone restaurants, movies, and sports teams. Growth businesses have the potential for robust and rapid growth — but will likely not reach unicorn status. Often, these startups operate in industries where multiple players can win in the market, such as food and beverage chains and consumer packaged goods. High Growth business types are those that we believe have the potential to be a unicorn in their respective markets. A potential example of this is a Business-to-Business (B2B) Software-as-a-Service (SaaS) company that requires little capital investment to scale nationally or even internationally.
But which of these business types sees the most funding?
For this Chart of the Week, we take a look at the total dollars raised by each business type in 2020. This chart only covers Regulation Crowdfunding campaigns from last year. Coming in at the lowest total funding are Life-Style businesses. They received $39.8 million, which represents around 20% of the total deals last year. This small percentage could be a result of many startup investors looking for a potential return of at least 10x to justify the risk they take on as early investors and not finding it in many Life-Style startups.
In second place comes the High Growth businesses with a total amount of $61.6 million. Although these companies are more likely to give a return of 10x or more, they also impose the highest risk. On top of that, High Growth companies tend to be more difficult to find. As stated by Republic, “a company only has .00006% chance of becoming a unicorn.” Given that slim likelihood, it becomes reasonable for High Growth businesses to only account for 30% of total investments for 2020.
Lastly, Growth companies received the most funding overall with $97.5 million in investments — around 49% for the year. The popularity of Growth businesses might be due to the balance between risk and return that these startups offer. The return is greater than what can be gained from Life-Style startups while the risk is lower than that offered by High Growth companies. It is also possible that more Growth style businesses choose to pursue crowdfunding and thereby naturally receive higher levels of investment.
Note: all data used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the crowdfunding market.
Wall Street has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has KingsCrowd.
About: Inez Sanjaya
Inez's background is in the startup ecosystem, which she is very passionate about. Inez has experience working in a startup, a Google-backed accelerator, and lastly in Plug and Play Tech Center. Prior to this, she was a part of VU Venture Partners doing deal sourcing and conducting due diligence. Inez graduated from the University of California Berkeley with an Economics degree.