The recent economic and social environment has increased the popularity of equity crowdfunding companies – companies that connect companies and start-ups to potential funders with a wide range of investment appetites. Because the COVID-19 pandemic made it difficult for up-and-coming businesses to access traditional sources of funding such as bank loans, crowdfunding became an attractive alternative. Additionally, with the rise of social media and other online platforms, it has become easier for crowdfunding companies to reach a wider audience and connect with potential investors.
For investors, crowdfunding has given them the ability to invest in promising start-ups and companies that may not have been accessible before. Crowdfunding platforms offer investors the opportunity to invest in high-growth companies that have the potential for significant returns. The global crowdfunding market was worth $17.51 billion in 2021, and it is expected to reach a value of $42.93 billion by 2028. The past year has shown that even in a down market, equity crowdfunding platforms are succeeding.
Netcapital is a fintech firm that has established itself as a leading player in the crowdfunding market. The company’s scalable technology platform empowers private companies to raise capital online while offering accredited and non-accredited investors access to new investment opportunities in private companies. Netcapital’s financial perfomance is worth noting, with the company reporting a 48% growth in revenue to $5.4 million at the end of January 2023. Additionally, its equity portfolio surged by 50% to $19.2 million over the same period and is currently greater than Netcapital’s market cap as of this writing – reflecting Netcapital’s commitment to investing in synergistic companies and presenting opportunities through possible exits. Netcapital boasts a gross margin of over 95%, and the company has a laser focus on providing founder-friendly capital to late-stage investors/owners by making it possible for virtually anyone to invest in multiple high-potential growth projects – with the goal of turning customers into loyal brand ambassadors.
The company’s strategy for scaling its portal business is centered around three key tenets. The company plans to increase the pipeline of high-quality scale issuers by building referral partnerships and targeting Reg A+ offerings. At the same time, it is also growing its investor community and transaction volume by partnering with niche agencies to support issuers in driving investors to their offerings. Lastly, Netcapital expects to launch secondary trading functionality, which will create new revenue streams for the company and support the growth of both the investor and issuer communities.
Netcapital’s success is evident its issuers raised 12% more capital in the first four months of 2023 than they did in 2022. Furthermore, the average dollar investment has reached an all-time high. As the only publicly traded equity crowdfunding portal, Netcapital seems well-positioned to compete with its larger rivals, especially with the introduction of its upcoming secondary trading functionality.
That said, crowdfunding transparency is ‘’on the upswing” The fact is that crowdfunding has been in operation long enough that some transparent sign posts are appearing. The companies on the Crowd finance 50 Index, for example, are operating companies that represent sectors that everyone knows: commerce and industry, consumer goods, energy, finance, health care, materials, services, and technology.” said Patrick W,Mckeon speaking to Investor Place
The company’s model is attracting the notice of analysts – Think Equity recently initiated coverage on the company giving Netcapital a Buy rating and a price target of $5, significantly higher than its current price of $1.37. This rating demonstrates confidence in the company’s ability to excel in the space and prove to be a strong competitor, and Netcapital seems like a company to watch in the coming time
‘’Regarding Capital Raises for Start-Ups in the wake of COVID-19. I’d say the answer lies in the length of time it takes for markets to stabilize and recover. Startups are usually financed by private equity, not traditional lending. If investors have been hit hard in their traditional portfolios, they may be more inclined to retract available capital in the riskier markets. That being said, it may be a rather unique time for start-ups in that capital comes in human form and not just financial. With projected short-term inflation rates of 30% or greater, startups may have a much better opportunity attracting key talent to the team in exchange for equity than raising capital and hiring it. So there could be a silver lining to this. All in all, this comes down to how long the country is impacted by COVID-19. If we can ease social distancing in 30 days, we can return pretty quickly. If we continue much longer, and fear wrecks havoc with consumer confidence, [it] becomes the new norm. Time will truly define this.” said Denny Hummer, an incubator manager with Startup Lewisburg, the startup incubator of Bucknell University’s Small Business Development Center, on his conversation with Investor Place about equity crowdfunding.
Produced in association with Benzinga
Edited by Eunice Anyango Oyule and Judy J. Rotich