Crowdfunding Expected to Continue Surge into 2022
There were many elements of the crowdfunding community that surged in 2021 and can be expected to continue their surge into 2022. The innovative fundraising strategy, which has become increasingly popular over the past few years, continues to demonstrate its efficiency and lasting potential.
Sherwood Neiss, Principal at Crowdfund Capital Advisors, is one of just many investors in the crowdfunding space that saw 2021 as a catalyst. According to Neiss, “2021 was the tipping point for Investment Crowdfunding… Investors poured capital into next-gen startups at a record rate, entrepreneurs launched offers at a record pace, and Venture Capital which once ignored these issuers, are now actively seeking early deal flow in the space.”
Some investors recognize that much of last year’s crowdfunding rally—initially sparked by a 140 percent increase in startup and small business investing in 2020—can be attributed to the financial and economic consequences of the global pandemic. But it also remains clear that this momentum shift is likely permanent. When compared to previous fundraising strategies, modern crowdfunding is often more affordable, more efficient, more inclusive, and offers capital seekers access to a wider base of capital—all factors that have proven to be very appealing to investors across many different sectors.
The Origins of Modern Crowdfunding
Modern crowdfunding, particularly digital crowdfunding, was not always allowed in its current form. In fact, it was not until the passage of the Jumpstart Our Business Startups (JOBS) Act—first signed into law in 2012—that these current practices were currently enabled. The omnibus law covered many different topics. Notably, it loosened some SEC regulations and disclosure requirements, allowed broader forms of advertising, increased general access to crowdfunding, and also increased the range of companies that can offer stock without registration.
The bill, which was largely drafted in the shadow of the then-recent financial crisis, was primarily designed to help minimize financial and bureaucratic burdens placed on small businesses and business startups. However, there were many peripheral industries that would benefit from this new legislation as well, particularly, real estate.
The real estate industry—with consistent demand for large capital infusions—was among the first to utilize newly legalized digital crowdfunding strategies, at scale. By 2020, the real industry was raising more than $15 billion per year via crowdfunding, with each year outperforming the year before it.
Potential for Continuous Future Growth
In 2022, both the real estate and general investment crowdfunding communities expect to make some major strides. 2021 was already an extremely productive year, with one estimate claiming, “Total financing in 2021 exceeds all investments from 2016 through 2020,” observes Neiss.
Digital crowdfunding—in real estate and other spaces—did not begin at the onset of the COVID-19 pandemic but there is no doubt this pandemic helped significantly expand some already existing trends. The need for a more robust investor base, highly liquid movement of capital, and affordable fundraising strategies has helped ensure that digital crowdfunding is now a mainstay.
Digital crowdfunding helps increase successful closings, decreases the amount of time it takes to close deals, and allows enterprises of all kinds to operate at a larger scale. As long as these variables remain, the widespread adoption of crowdfunding strategies can be expected to continue.