Crowdfunding Rises to Challenge in Wake of COVID Venture Belt Tightening

September 1, 2020

The metrics are now largely in for capital market trends inQ2 and, at the lower end of the market at least, tell a compelling story of fundamental shifts in private capital raising. COVID-19 and the associated market panic tore contagion-like through the venture capital space, leading to significant belt-tightening. At the same time, crowdfunding activity got red hot.

Digging into the numbers a bit, overall venture deal volume dropped from 2,861 to 2,197 sequentially according to a recent report from Pitchbook, amounting to a 23% sequential decline. That number amounted to the worst VC deal volumes since Q4 of 2012. The comps got even worse at the lower end of the market, with seed through Series B rounds dropping 44% sequentially last quarter according to Crunchbase (down from Q1’s 964 deals to 541). But the greatest share of pain was experienced in seed rounds, which saw a 57% quarter-on-quarter decline (from 483 to 209). Pitchbook’s comps were similar, showing a drop from 570 seed deals to 316 (the worst quarter for seed volumes since Q3 of 2011) as seed dollars invested slipped from $1.4 to $1.0 billion (the lowest numbers since 2016). Overall early stage VC volumes dropped significantly as well, from 848 to 630 (again, a near-nine year low), as early stage VC funding dropped from $10.3 to $7.8 billion (the smallest total deployed in nearly three years).

Source: Pitchbook

Conversely, crowdfunding firms (who typically compete with angel investors, seed and Series A VC money) raised $48.2 million last quarter, a whopping 44.7% pop compared to Q1’s $33.3 million. Deal count was roughly flat at 218 vs. 223 in Q1, and down slightly from Q4’s 233, but the increased capital raised shows that deals which were well-received tended to be much more well-received. Additionally, many more platforms were active, with 25 funding portals raising capital for investors during Q2, well up from 15 in the first quarter. We appreciate that the aggregate crowdfunding numbers are much smaller than those for venture, but that’s exactly as things should be for a new kid on the block. We think it’s more telling to focus on the degree of growth for crowdfunding last quarter, and—even more importantly—the industry’s inverse positive performance compared to significant declines for traditional private capital market solutions.

Read Complete Article