- Equity crowdfunding has seen several successful exits with investors reaping returns.
- Cruise Automation is the biggest exit to date with an acquisition value of over US$1 billion.
- CrowdCube has the most number of deals, but only 0.8% of companies have exited.
- OurCrowd & SeedInvest have the highest rates of successful exits at 16.2% and 10.7% respectively.
- Oculus Rift is still the most successful crowdfunded exit, but investors did not get equity.
Equity crowdfunding is the hottest new investment vehicle that have opened the venture capital and private equity doors to the rest of the world. Retail investors, hoping to make huge returns, have moved away from public shares to deep dive into private companies. As more equity crowdfunding platforms pop up amidst the global fintech hype, you begin to wonder, is that all there is to it? Is it all just hype? How much can you really make off equity crowdfunding? Are there any success stories? We take a look at some of the most successful crowdfunding stories.
Biggest Exit by a Crowdfunded Company – Cruise Automation
Founded in 2013, Cruise Automation is an American company that creates autonomous driving technology, one of several companies that are racing to present driverless cars to the public. They raised Series A and B funding via AngelList Syndicates. Having already raised US$18 million from institutional investors, Cruise Automation raised another US$200,000 through 2 rounds of crowdfunding. The rounds were not open to all investors on the platform and only invited investors had access to this investment deal.
In March 2016, General Motors acquired Cruise Automation for over US$1 billion dollars, officially turning Cruise Automation into the first Billion Dollar Exit for a crowdfunded company. The lucky few who managed to get invites to their Series A and B rounds saw the value of their shares shoot up by 1,011% (Cruise Automation was valued at approximately US$90 million during Series A and B rounds)!
AngelList Syndicate is a unique crowdfunding platform because rounds are led by professional angel and venture capital investors that have already vetted and approved these companies and are willing to bet their own money on the company’s success. Not all deals on the platform are by-invite only – 35% of deals on AngelList Syndicates are open to all platform users.
The Platform That Funded the Most Companies – CrowdCube
UK-based equity crowdfunding platform, CrowdCube, currently holds the title for having the most number of deals. Launched in 2011, CrowdCube has had the benefit of being one of the first equity crowdfunding platforms, allowing it to gain traction and notoriety ahead of new incumbents. However, has CrowdCube produced any success stories?
According to Crunchbase, CrowdCube has closed a total of 489 investment deals, and have only produced 4 exits. That’s 0.8% of all listed deals. The statistic is startling but it is in no way an indicator of the platform’s success rate. It should be noted that startup investing is a long-haul game and many of these companies may be enjoying positive revenues and paying out dividends (look at AirBnB). That said, let’s take a look at the exits made by companies funded through CrowdCube.
Platforms with the highest rate of successful exits – OurCrowd & SeedInvest
Having a huge pool of companies to invest in is all well and good, but eventually, crowdfund investors are looking to realise the monetary gains from their investments. Based on this, two crowdfunding platforms have managed to produce successful exits that make up 10% of their pool of investment deals – OurCrowd and SeedInvest.
OurCrowd is an Israeli equity crowdfunding platform that was founded in 2013. To date, they have listed 74 companies, out of which, 12 have made successful exits. That’s an impressive 16.2% of companies that have realised their end goal. 1 exit came in the form of an IPO – Rewalk Robotics, which listed at a valuation of US$36 million.
The other relatively successful equity crowdfunding platform is SeedInvest. Founded in 2011, the New York based platform has funded 56 companies. Out of these 56, six (10.7%) of companies have been successfully acquired.
Biggest Missed Opportunity – Oculus Rift
Many may argue that Oculus Rift raised funds through crowdfunding, and therefore is the biggest exit for a crowdfunded company (Facebook acquired Oculus Rift for US$2 billion). However, Oculus Rift raised funds through Kickstarter, a rewards-based crowdfunding platform. So, instead of issuing shares to crowdfund investors, they promised gifts and tokens of appreciation that came in the form of VR headsets, Oculus Rift merchandise and ‘thank you’ notes. This essentially means that investors did not get to enjoy actual monetary returns.
Oculus Rift made a wise move to retain company shares, enjoying the maximum benefits from Facebook’s acquisition. Backers that invested via Kickstarter believed in the product and were willing to support the cause. If Oculus Rift had listed on an equity-based crowdfunding platform, investors would have enjoyed a whopping 145x return on their investment. According to an early Oculus Rift Kickstarter backer, Carlos Schulte, “I would have rather bought a few shares of Oculus rather than my now-worthless $300 obsolete VR headset.”
Equity crowdfunding is still a risky investment vehicle and you need to understand that most startups end up failing. Unless you have sufficient funds to diversify your investment portfolio, it would be wise to stick to traditional investments. However, as seen from the examples above, equity crowdfunding can reap handsome rewards. Read this to learn about this relatively new method of investing and what you need to look out for.