Crowdfunding Levels Increase, Good or Bad?

In March 2021 the SEC (Securities and Exchange Commission) increased the amount companies can raise from a crowdfunding campaign. The amount was previously $1.07 million during any 12-month period but was increased to $5 million this year. According to PitchBook, the average deal size for angel and seed deals during Q1 2021 was $0.6 million and $2.6 million, respectively, which are now both well within the updated crowdfunding levels. Although startups may view crowdfunding as a strong alternative to raising angel or seed capital, start-up teams should be cautious about focusing only on the financing aspect of a raise.

Launching a new company is a highly risky adventure which may involve working alone or with a small team. Many start-ups find it difficult to find advisors or mentors willing to listen and help solve problems for little or no compensation. Crowdfunding may be helpful for raising capital, but that is where it stops. We advise most start-ups to consider raising capital from angel investors or early-stage venture capital funds, as most early-stage investors also act as a built-in advisory group.

We work with founders and start-up companies to discover the best source of capital and part of the discussion involves understanding the non-monetary options different types of capital can provide. While crowdfunding may be an easier route to raising capital, companies should evaluate the non-monetary benefits of crowdfunding vs traditional routes.