Many investors see venture capital backing as a signal that an investment opportunity is high quality and worth investing into. The idea here is that venture firms have done all the heavy due diligence and therefore the investment is de-risked. And as a result, investors are usually willing to pay higher valuations in companies with VC-backing. Today’s Chart of the Week explores whether this phenomenon is also seen in the world of equity crowdfunding.
- From 2021-2024 YTD, the median valuation of VC-backed companies was nearly 50% higher than non-VC backed companies.
- The average valuation for VC-backed companies was 41% higher than non-VC backed companies.
- We can see that VC-backed companies raising an equity crowdfunding round demand higher valuations than companies that do not have such backing.
- While this analysis is not necessarily showing absolute causation, we can certainly conclude that having VC-backing is certainly helpful in demanding higher valuations.
How do VC vs. Non-VC Backed Capital Raise Amounts Differ in Equity Crowdfunding?
We also analyzed whether or not VC-backed companies actually raise more than non-VC backed companies.
- The median capital raised by VC-backed firms is 82% higher than companies without such backing.
- The average capital raised by VC-backed firms is nearly 110% higher than companies without such backing.
- Again, this statistical analysis does not control for all variables, and is simply meant to show that there is certainly a positive relationship between VC-backing and dollars raised.
When analyzing startups in the equity crowdfunding space, it is important to take into account what VC-backing really means. Venture capital firms, for the most part, are investing into a large number of companies every year hoping for one to be a “fund returner” (ie. 10X+ returns that will make up for any other failed investments). Therefore, just because a VC firm invests into a startup, that doesn’t always mean that it is a solid investment opportunity.
Always ensure you are conducting your own due diligence and utilizing all the tools available to ensure that a company is truly worth investing into.
