A startling 65% drop in venture funding in the United States during the first half of 2023 has created a significant gap in the market, and equity crowdfunding platforms like StartEngine look to capture that growth.
The Decline in Venture Capital
Globally, venture capital funding fell by 48% to $173.9 billion, with the number of deals dropping by 19%, data from research firm PitchBook revealed. The U.S. and Europe were hard hit, with declines of 65% and 69%, respectively, while Latin America saw the steepest fall at 86%.
The drop in investment comes despite an enormous $40 billion infusion into AI startups, including a $10 billion investment by Microsoft in OpenAI and $1.3 billion for rival Inflection AI. The success of AI companies like OpenAI's ChatGPT has sparked significant interest in the sector.
For reference, equity crowdfunding raised $242 million in the first six months of 2023. This includes $163.9 million through Regulation Crowdfunding and $78.1 million through Regulation A. Meaning equity crowdfunding currently has .14% share of the venture capital market.
In the first six months of 2022, equity crowdfunding raised $220.6 million through Regulation A and $227.6 million through Regulation CF raises. In total, equity crowdfunding raked in $448.2 million in the first six months of 2022. This represents a decline of roughly 46%. This means that while both markets have declined, equity crowdfunding is actually gaining market share on the venture capital market.
In the first half of 2023, the median amount raised by new founders in their first 30 days on StartEngine was $332,000, a dramatic increase from just $81,000 in Q1. This growth is seen as a potential indicator that higher-quality founders are increasingly drawn to StartEngine
Equity Crowdfunding's Rise Amid Volatility
StartEngine, a leading platform for equity crowdfunding, has identified this market disruption as an opportunity. With the recent acquisition of SeedInvest, StartEngine now boasts one of the most active investor communities in the industry.
They have also become one of the first to launch a Marketplace for startup shares, further solidifying their position as a leading force in the equity crowdfunding space.
StartEngine's community has led the industry in overall fundraising for several months of 2023, outpacing other equity crowdfunding platforms. Their aim is to make equity crowdfunding the default financing solution for startups.
Other platforms like Wefunder have used the opportunity to approach large venture-backed names like Substack and Arrived Homes to raise bridge rounds on their platforms.
While venture funding saw a record high of $745.1 billion in 2021, the current slump has affected all stages of investment. Funding for the first seed round experienced the most substantial decline at 44% in the U.S.
Many firms, still sitting on considerable funding secured in 2021, feel little urgency to return to a market that expects much lower valuations. Some investors, however, anticipate a moderate resurgence in demand in the latter half of the year.
As traditional venture funding wanes, StartEngine's aggressive positioning and unique offerings present a notable exception. Their success amid the general decline of venture capital investment serves as a testament to the increasing importance and potential of equity crowdfunding in today's rapidly changing financial landscape.