Reg CF 2023 – Top Platforms and Year in Review

TLDR – 2023 Reg CF year in review:

• In 2023, Reg CF companies raised $420 million total – down 0.7% from $423 million in 2022
• $1.7 billion total has been raised under Reg CF since 2018: $1.57 billion (92%) in equity, SAFEs, and Convertible Notes, and $154 million (8%) in debt and revenue-share securities.
• The top two platforms alone – Wefunder ($132M) and StartEngine ($117M) – raised an astounding 59% of all 2023 Reg CF dollars. Dealmaker Securities claimed the third spot this year at $33.8 million, and Republic rounded out the top four at $30.7 million. 
• 1,434 companies launched new raises in 2023. Of companies that closed, 1,157 companies (79%) successfully hit their minimum goal, while 314 companies (21%) did not successfully hit their minimum goal.
• The average successful Reg CF raise in 2023 raised $366k in an average of 4 months (121 days)
• Successful raises on the top 10 platforms raised from an average of 408 investors and saw an average check size of $1190
• 11 companies that closed in 2023 hit the maximum Reg CF limit of $5 million
• Women-founded businesses raised $90.3 million (21.7% of total) and minority-founded businesses raised $118.3 million (28.4% of total)
• Reg A companies (i.e. excluding Reg A fractionals and real estate) raised $225 million in 2023, roughly half of Reg CF in 2023 and down from $391 million in 2022

Reg CF Annual Summary (2023)

2023 was a year that started off with significant economic and geopolitical uncertainty. After the record $500 million dollars invested under Regulation Crowdfunding (Reg CF) in 2021 with near-zero interest rates, The Fed began its cycle of interest rate hikes to combat inflation, and we saw a pullback in Reg CF investments in 2022 by nearly 15% vs. 2021. 

Coupled with the collapse of FTX in late 2022 and the issues in early 2023 with Silicon Valley Bank and First Republic (heavily used by VCs and others in the tech and startup ecosystem) – it was a period of time when many investors took a hard look at their high-risk assets and questioned whether their approach and allocation was worth the risk.

So how did the Reg CF online startup investing industry fare in 2023? 

Despite the rough start and increasing interest rates – which tend to be a drag on high-growth stocks and startups – 2023 saw Reg CF activity end the year only very slightly down (-0.7%) from 2022.

Reg CF saw $420 million deployed by retail investors, nearly flat compared to 2022 ($422.9 million). 

Debt and revenue-share deals in small businesses increased by $300k compared to 2022 but still made up only 8.6% of the annual Reg CF dollars invested in 2023.

But the year-over-year trend doesn’t tell the entire story of 2023. Looking at quarterly investment data, we can see that Reg CF investments actually bottomed in Q3-Q4 of 2022 and have been recovering since Q1 of 2023.

There were also some news highlights among the top platforms in 2023, including:

• StartEngine’s acquisition of SeedInvest was approved by regulators
• Republic launched its Note token
• StartEngine relaunched its secondaries marketplace, listing hundreds of company’s shares for sale
• Wefunder ($175 million valuation cap SAFE) and StartEngine ($1.32 billion valuation priced round) both closed on their own fundraising rounds

Let’s now dive into the top Regulation Crowdfunding platforms of 2023.

Top Platforms of 2023 for Investment Crowdfunding

As of January 2024, there were 92 active FINRA-registered funding portals (6 currently suspended due to failure to pay dues and fees), as well as a handful of broker-dealers in the Reg CF space, such as Dealmaker Securities and Dalmore Group. 

With so many options available for both investors and founders, what did the actual investment activity look like in 2023?

Similar to past years, the majority of investment volume came from just a few of the platforms. 

Top 10 funding platforms in 2023 by Reg CF dollars invested and number of investors:

Wefunder ($131.9 million) and StartEngine ($116.8 million) alone accounted for 59% of all Reg CF dollars invested in 2023. Along with Dealmaker Securities and Republic to round out the top four, 75 cents of every 1 dollar raised in 2023 came from just these four platforms. 

However, while these platforms have obviously seen success at scaling their Reg CF marketplaces, one of the benefits of Reg CF is that it allows for diverse and niche issuers and platforms to provide different types of capital in different ways.

For example, when looking at the number of new raises launched on each platform in 2023, we can see that some of the small business funding platforms – such as Honeycomb, Mainvest, and SMBX – also enter the picture.

While Wefunder and StartEngine are still at the top in terms of deal count, this measure shows that it isn’t only about the amount of capital raised when determining how impactful these funding platforms have been to startups and small businesses. It can also be about how many founders and small businesses can access alternative funding sources.

Women and Minority Founder Funding Stats

Another advantage of Reg CF is its potential to enhance access to capital for women and minority (non-white) founders. This is attributed to the fact that Reg CF enables a diverse crowd of retail investors to choose who to support, in contrast to the traditionally dominant group of white-male venture capitalists.

If we look at how many women-founded and minority-founded startups were funded, we can see that Reg CF does allow more diverse and underrepresented founders to receive funding compared to VC:

Source: Women-founded VC data from Pitchbook for 2023. KingsCrowd data for women-only businesses is underestimated due to the fact that we only track if there is one or more women founders, compared with the Pitchbook data of 7.0% for all-women teams (1 or more women founders).  Minority (non-white) founder VC data from Diversity VC, 2018-2020.

Furthermore, in terms of amount of capital raised by women and minority founders, women founders raised $90.3 million (21.7%) and minority founders raised $118.3 million (28.4%) in 2023 under Reg CF. 

Success vs. Failure Rate in Reg CF

The number of new offerings in 2023 was 1,434. Of offerings that closed in 2023, 79% were successful (i.e. hit their minimum campaign goal), while 21% of closed offerings either failed to meet their minimum target or withdrew for other reasons. 

Looking at annual success trends, the 80/20 success-to-failure ratio of Reg CF campaigns has been relatively flat the past three years and has improved compared to the 2018-2020 vintage of raises:

Average Investor Check Size

The overall average investor check size across all Reg CF investments and platforms in 2023 was $1,190 per investment.

When looking at successful raises in 2023, the data show that there are different types of investors on each of these platforms, as elucidated through the variation in the “average investor check size” on each platform:

Note: of the top 10 platforms ranked by number of successful offerings, Netcapital, SMBX, and Raise Green do not publicly disclose the number of investors; and thus, average check size cannot be calculated for those platforms.

Of the top platforms with significant investment activity, Dealmaker Securities (a broker-dealer, not a funding portal) came in with the highest average check size at roughly $2,000, while most of the top 5 platforms by successful deal count ranged from roughly $1,000 – $1,500 on average.

Notably, this is an increase in StartEngine’s average check size compared to 2022 ($1,105) – perhaps due to their acquisition of SeedInvest, which had a much higher 2022 average check size of $3,376.

While Wefunder’s average investment size was largely unchanged vs. 2022, Honeycomb, Republic, and Mainvest also saw increases in their average check sizes in 2023. As an industry, this data may be suggestive of the trend where several platforms have seemed to be focusing on “higher-quality” deals over a higher quantity of deals. In a similar vein, several of the top platforms launched their “private”, accredited-only offering programs this year, such as StartEngine Private and Republic Deal Room.

Also, as the economic conditions in 2022-2023 were harsher than in prior years, it’s possible that some of the “fair weather” startup investors of 2020-2021 have left the markets, leaving behind more serious and stoic investors who are willing to invest in down markets. It’s also possible that the investors who have stuck around are focusing their time and effort on higher-conviction bets.

Average Raise Size by Platform

Using the same set of the top 10 platforms by count of successful raises, we can see a much larger variation in average capital raised (per successful raise) compared to the average check size. 

For example, while the small business debt and revenue share platforms (HoneyComb and Mainvest) have similar average check sizes to the other top platforms, those small business platforms tend to raise much less on average for each successful deal.

Of the top 10 Reg CF platforms by number of successful raises, Dealmaker Securities raised far and away the highest on average, albeit from a smaller number of Reg CF raises compared to many of the other top 10 platforms (43 successful raises in 2023).

In terms of very successful raises, here are the platforms with campaigns that closed in 2023 with over $1 million raised per campaign:

Note: the long tail in this chart from truCrowd to Honeycomb all had one raise exceeding $1 million raised.

Regulation A Offerings in 2023

While Reg CF tends to attract earlier stage companies – due to the $5 million cap on how much can be raised every 12 months, and the lower cost of capital and lower disclosures – Reg A (typically referred to as “Reg A+” since the JOBS Act) typically attracts later-stage companies with more resources and looking to raise up to $75 million.

In 2023, Reg A offerings that were publicly available on major platforms and through the issuer’s own websites raised $225 million – a drop of 42% from the $391 million raised in 2022. 

Similar to Reg CF, Reg A saw a high in 2021, raising more than $536 million. However, while Reg CF held steady from 2022-2023, Reg A experienced a significant drop of 42% from 2022 into 2023. 

This might suggest that fewer later-stage companies are raising capital online right now or that companies are turning to Reg CF to raise up to $5 million for short-term capital. For example, we’ve seen some massive companies in 2023 – like Boxabl ($3.4B valuation) and Substack ($585M valuation) – utilize Reg CF not only to raise capital but also take advantage of the other benefits offered by Reg CF, such as turning your customers into investors.

2021 was also the first year that Reg CF issuers were able to raise up to $5 million instead of $1.07 million, which could be enticing some of the companies to use Reg CF that may have previously gone with Reg A. 

With some industry proponents even advocating that the SEC increases the Reg CF limit beyond the current $5 million – to as much as $10 million or more – we’ll have to see how and if that continues to impact how issuers look at using Reg A.

2023 Investment Crowdfunding Summary

Regulation Crowdfunding has demonstrated in 2023 that it plans to stick around. Raising $420 million from over 300,000 investors, especially during a time of heightened uncertainty and risk-off behavior, as we saw from late 2022 into early 2023, continues to demonstrate the promise of Reg CF. It shows Reg CF’s potential to increase access capital for issuers and provide alternative investment opportunities to retail investors in a way that has seen surprisingly little fraud.

But here at KingsCrowd, we think we are still in the very early innings of what online startup investing can truly become. 

That’s why, similar to Reg CF investors and our customers who are still investing today, we’re also in this for the long term. By introducing more tools to help founders (like our startup valuation tool and 10 steps to raising capital online), as well as tools to help investors track their investments over time, we’re committed to being there for the future and helping to provide a solid foundation for the industry to grow.

Let’s not trick ourselves into thinking it’s all sunshine and rainbows. There are still challenges that the industry faces, both structurally and from an adoption perspective. For one, many investors (myself included) feel that the high valuations of 2020-2021 have still not adjusted accordingly in Reg CF to the current macroeconomic environment and public market comps. In fact, December 2023 saw average Reg CF valuations hit an all-time high of $39.2 million.

Furthermore, while there have been some positive acquisitions and a few successful IPOs in the industry, Reg CF doesn’t yet have the poster-child example of a company that raised using Reg CF, grew from that crowdfunded capital, and had a truly successful and massive exit (100X+). When (not if) that happens, we believe there will be a flood of interest for the industry, as both issuers and investors may start to see the potential that we see that crowdfunded capital can unlock for all stakeholders. At KingsCrowd, we are committed to supporting all those stakeholders and shaping a future that aligns with the incredible vision we all share for the world.