New Crowdfunding Rules to Boost Investment in Startups
With IPOs turning into a fragile investment method and SPACs taking over, a change in crowdfunding rules is set to boost investment in diverse startups. The changes allow investors and founders to raise up to $5 million from crowdfunding, marking a significant increase from $1.07 million in 2020.
This opens the door to new opportunities for startups that have so far struggled with raising funds the traditional way. Startups that have capped under previous rules can reopen their campaigns and test the waters with investment interests before filing the mandatory paperwork with the SEC.
According to some forecasts, the new rules could pave the way for $1 billion in crowdfunding offerings in 2021. That’s a significant jump from the $250 million in the past year. Ever-rising interest in potential startup unicorns proved that $1.07 million was not enough to cover the needs of smaller companies.
Regulation Crowdfunding has traditionally been the standard route for small businesses and under-represented founders in Europe to raise money. It allows entrepreneurs to set what they would like to offer instead of just equity – some of them offer interest-bearing notes or revenue-sharing agreements. Crowdfunding also allows regular people to get involved.
The pandemic accelerated its evolution as it provides a simple route to funding. Several platforms offer people a chance to participate in the success of young companies struggling to get financing through traditional means.
The popularity of Regulation Crowdfunding has increased from last year and is bound to skyrocket in 2021. Throughout 2020, startups have been using this method to raise funds, and Wefunder, a crowdfunding platform, reported a four-fold investment volume throughout the year. Namely, in February 2020, $2.8 million was invested in startups ranging from self-driving cars to next-door coffee shops, and in February 2021, it reported an $11.4 million volume. These are considerable amounts coming from both regular people investing $100 to angel investors “paying it forward.”