Is Equity Crowdfunding Recession-Proof?

This industry is thriving during the downturn!

Photo by Elisabeth Wales on Unsplash

While everyone else is downsizing, and expecting the worst in the coming months, equity crowdfunding seems to be thriving and growing. Several large portals have noted little to no downsizing during this time, and some have ramped up hiring, recorded record growth, and more. In some ways, it makes a lot of sense. When a market downturn happens, many large funds now have less expendable income so they tend to cut riskier investments. One of the first areas to get cut is VC which means there are lots of great companies not getting the funding they need. Before equity crowdfunding, if a company didn’t get funding through venture capital, they really didn’t have much recourse. Now, any company that meets the SEC qualifications can apply to raise through a funding portal. While there’s lots of money on the table from VCs, it’s a lot more straightforward to raise money from equity crowdfunding than it likely is to break into the VC world.

However, when that money starts drying up, now it’s even harder for these startups to raise money. So where do they go? Yes! Equity crowdfunding.

As such, one of the leading equity crowdfunding portals recently announced that this was actually the case. It seems they have seen as much as twice as many companies applying to raise capital as last year. They have currently sustained as many as 150 companies raising on the platform relatively consistently. However, twice as many companies doesn’t necessarily mean growth. Just because companies are going on the platform doesn’t mean they’re raising money necessarily.

However, a few other notifications seem to similarly indicate growth. For example, StartEngine has over doubled their team in the past 6 months:

So, that could mean they are nearing as much as 150 to 200 employees. However, that number of obviously always changing, so it's unclear exactly how many they have currently. Nonetheless, it means they are still ramping up hiring during this time while many others are announcing hiring slowdowns and freezes. Also, there have been quite a few instances showing they are growing their base during this time as well. For example, they recently a milestone of hitting 800,000 investors:

and raising as much as $600 million just a few months ago. This means they have obviously raised more since then, but it’s still a good milestone nonetheless:

and lastly, there’s a note from the CEO of StartEngine, Howard Marks, noting that many of these aspects coming together are creating a “perfect storm” that might be churning due to these market factors: