The Best Industries for Regulation Crowdfunding

By: Sherwood Neiss Jason Best, Principals Crowdfund Capital Advisors, LLC

Into the second year of Regulation Crowdfunding there are now over 475 companies that have filed offering documents with the Securities and Exchange Commission (SEC) to raise up to $1,070,000 from their customers, communities, friends, and family. But in which industries are these investors most interested in deploying their capital? The good news for companies considering using Regulation Crowdfunding, is that these online investors have a diverse appetite. While software/gaming application companies receive the most commitments, breweries, entertainment companies, personal transportation vehicles, restaurants and personal services (i.e. fitness training, veterinary, grooming, etc) aren’t far behind. The key data points for potential issues to understand are: 1) How much money do you need to raise for your business in relation to the average amount raised for your industry?  2) Where is the crowd is engaged in deals and dollars? Meaning is there enough interest in your business (industry) to crowdfund. And 3) what is the crowd’s average check size – to determine how much you can realistically raise from your network compared with what you need?

At Crowdfund Capital Advisors, we track all Regulation Crowdfunding offerings across the entire industry. Our team of analysts maps each company to Morningstar’s Global Equity Classification Structure^©. There are 148 industries in Morningstar’s classification. Once the data from each offering is on-boarded and cleansed, each offering is tagged with this Morningstar classification so we can track not only the progress the offering is making towards its funding target but which industries are receiving the most interest, and ultimately, which offerings close successfully.

Now that the market is over a year old, we can begin to see signs of where the crowd has an appetite and hence where prospective Regulation Crowdfunding companies should be considering this an attractive funding mechanism for at least a portion of your capital needs. The following Tree Map visually displays all the data to date. Each leaf measures an industry the number of commitments and the number of backers. The larger the leaf the greater the number of commitments the darker the leaf the greater the number of backers.

Source: Crowdfund Capital Advisors, LLC

By Number of Campaigns

Digging into the data, Application Software (i.e. Electronic Gaming and Software) had the most number of offerings (n=94). This was followed by Breweries, Wineries & Distilleries (n=29), Entertainment companies (i.e. movie studios, theatre, music, sports league, entertainment parks, n=29), Personal Service companies (i.e. spas, barber, kids activities, photographers, clubs, pet services, rideshare, wedding services, n=28), Restaurants (n=28), Consumer Electronics (n=25), Personal Transportation Vehicles (i.e. electric bicycles, cars, boating, etc., n=23), Apparel (n=21), Consumer Packaged Goods (n=19) and Retail (n=18).

However, when we filter for only those campaigns that hit their Minimum Funding Target and hence were successful, we see an interesting outcome. Electronic Gaming and Software drops to 40, a 43% success rate; Breweries, Wineries & Distilleries companies falls off but not as much to 23, a 79% success rate), Restaurants (n=18 or 64% success), Personal Service companies (n=17 or 61% success rate), Personal Transportation Vehicles (n=15 or 65% success rate), Entertainment companies (n=14 or 48% success rate), and Apparel (n=12 or 57% success rate). So, while the Gaming industry had the most offerings, the greatest success was with Brewers, Wineries & Distilleries who enjoyed 79% success followed by Personal Transportation Vehicles, 65%, Education 63%, Personal Services 61% and Restaurants with a 61% success.

By Dollars Committed

Where is investor money going? When we filter by a total amount of capital committed (table to the right) we see that Software and Gaming companies received the most commitments. (Keep in mind, until a campaign closes and is funded those dollars are just pledges and not actual investments). This is followed by Breweries, Wineries & Distilleries and Personal Transportation Vehicles. These Top 10 industries received 71% of all the capital committed to Regulation Crowdfunding campaigns.  

By Dollars Funded

However, Committed Dollars don’t mean much unless a campaign hits its Minimum Funding Target. So, we again filter for campaigns that did so and hence were “Funded.” The table at the right shows that nine of the Top 10 industries that received the most commitments also received the most Funded dollars – Computer Hardware fell off the list and Medical Devices was added. Pay close attention to the conversion rate of Committed dollars to Funded dollars. The higher the conversion means that if you are in any of these industries your chances of receiving the money that is pledged is greater than some of the other industries.  It will be interesting to see if this trend holds over the next few months.

By Total Investors

Finally, we answer the question, what industries are driving the most investor interest? The table at the right answers this. Again, Software and Gaming had the most backers, followed by Entertainment, Breweries, Wineries & Distilleries and Personal Transportation. The Top 10 here represented 74% of all the individual backers. So if you aren’t in one of these industries it doesn’t mean you won’t attract the crowd, it just might be more challenging.

But perhaps most important is what’s the average check size for industries where campaigns are funded? Here are the current results: Entertainment $2,448, Personal Transportation, $2,375, Personal Services, $1,292, Breweries, Wineries & Distilleries, $1,231, Software and Gaming: $1,196, Apparel $979, Computer Hardware $857, Restaurants $598. This seems to indicate that that so far, crowd investors are willing to more money individually into things that benefit them or they consume directly.  Seems they are investing in brands, experiences, and people the trust.

Conclusion

While we talked extensively about the “Top 10’s” as we analyzed the data, it is very important to understand that there have now been successful campaigns in 56 of the 148 industries in the Morningstar classification system, and the geographic distribution of campaigns is also expanding (now at 44 states). Investors are deploying capital across a significant and growing number of industries across the country.  They are especially investing in companies that deliver a direct benefit/relationship with the product, in addition to the desire for long term appreciation of their capital.  We estimate that over $100M will be committed to Regulation Crowdfunding campaigns by the end of 2017.  All from a standing start 18 months prior.  This is a strong early signal of the long-term success of this funding channel. 

Crowdfund Capital Advisors (CCA) delivers strategic insights to government agencies, financial institutions, regulators and multilateral organizations seeking to both create and implement innovative strategies to utilize crowdfund investing (CFI) technologies to drive innovation, job creation and entrepreneurship. We also study and invest in the emerging ecosystem of crowdfunding and the new solutions being created that will impact the broader private capital markets. We are passionate about creating innovation, entrepreneurship and jobs through the use of crowdfunding.  CCA delivers strategic services and implementation programs that create, proprietary deal flow for professional investors, better access to capital for businesses and policy and regulatory innovation for governments.