It’s time for the classic end-of-the-year article — predictions for the next 12 months. Now, I’m not going to make any crazy specific conjectures. That’s just asking to be wrong. But I do think there are some major trends that are going to continue influencing the private markets through 2021. And if nothing else, it’s a good mental exercise to try to imagine how those trends will impact the crowdfunding and alternative assets ecosystem.
2020 was pretty huge for cryptocurrency — bitcoin in particular. Bitcoin broke its previous all-time high and set a new record at $24,000. There was massive institutional movement into bitcoin in the latter half of 2020. And I don’t see any major reason for that to stop in 2021. I think it’s possible we’ll see bitcoin break $24,000 and set another record. But beyond that, I think we’ll also see the beginning of retail investors’ shift into the crypto coin. The stability that institutional investors have provided will make the coin more appealing to everyone — not just fintech and insurance firms with millions to invest.
DeFi — decentralized finance — also looks like it’s on the rise. There seems to be a (gradually) growing sentiment that traditional banking and monetary policy hasn’t really kept up with technological advances. As the times change, so must institutions — or be left behind. I’m curious to see whether some banks, payment companies, and investment firms sense the shifting winds and try to pivot into their own DeFi or digital banking play (beyond PayPal and Stripe that is).
Despite general economic hardships, 2020 was also a great year for equity crowdfunding. The number of startups that successfully closed raises increased more than 40% from 2019. And more than $185 million was invested via online crowdfunding platforms (compare that to $104 million in 2019)! That is seriously robust growth.
And I think 2021 is going to keep it going. There are a couple of reasons why. First — from an investor standpoint — startup investing is still one of the best ways to generate wealth. Recent IPOs have gotten a lot of attention in the public market. But the thing is that by the time most companies actually go public these days, their high growth is behind them. And it’s always the early investors who see the most gains from IPOs. I think that simple fact is going to keep driving everyday investors towards the online private markets.
And there’s good reason for crowdfunding to keep increasing from a startup perspective too. One of them is how expensive it is to live in California. I know, I caught you off guard with that one, huh? But hear me out. Before Regulation Crowdfunding democratized startup investing, the San Francisco Bay area was the hub of venture capital and tech startups that needed capital. Investors and entrepreneurs needed to be in the room where it happened — and that room was probably in SanFran. But online crowdfunding changed the game. Today it isn’t essential that a founder be able to meet with prospective investors in person — not when they can use the Internet to present their idea to hundreds of thousands of people all over the country.
And as a result of California’s high cost of living, there’s a tech exodus happening. Now, we tend to think of that in terms of established companies — like Tesla and HP. But startups aren’t immune. In fact, during 2020 startups from 45 states and territories conducted crowdfunding raises — and that only covers the equity deals! So with a strong work-from-home habit formed in 2020 and a growing movement away from California, I think startups that aren’t in SanFran will turn to online crowdfunding in even larger numbers.
The other big reason for increased deal flow in 2021? The increased Reg CF and Reg A+ limits, of course. Raising the limit for Reg CF from $1 million to $5 million is going to have a huge impact on the crowdfunding ecosystem. It’s not just that more money is appealing. It’s more fundamental than that. A startup can do so much with $5 million — and more operating capital increases the chances for investors to see returns. The higher limit is also likely to attract more mature startups to the ecosystem — drawing companies that might have pursued other means of funding to a place where everyday investors will have the chance to invest. It’s just an all-around win, and I think deal flow is only going to increase because of it.
Oh, and on top of more deal flow, I think we’ll see high quality startups too. Again, a lot of that is due to the new $5 million limit. But it’s also a result of the ecosystem’s growing maturity. As equity crowdfunding makes a name for itself, people will think of it as legit. And that improving reputation will draw better and better startups into the space.
So there you have it. The continuing rise of bitcoin. The growth of DeFi. And the exciting prospect of even more deal flow with higher quality startups.
It won’t be too hard to improve on 2020 in a lot of ways. But I think 2021 is ready for the challenge. And I’m excited to see it happen.
Wall Street has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has KingsCrowd.
About: Aryelle Young
Aryelle Young is a published writer and editor with experience across industries. She has worked with an independent publishing company and as a proposal writer for a government contractor. Her original work has also been published in various journals and one short story collection. At KingsCrowd, she strives to provide insightful and actionable content for all readers. Aryelle graduated with a Creative Writing degree from George Mason University.