As early-stage startups need to go through a series of stages with their investment rounds to gain capital and momentum, the industry of crowdfunding has been an invaluable asset to new companies launching year after year. For many, the ability to tap into a much wider spread of investors is attractive, allowing them to draw in more capital than if they had only tried to secure funds from more traditional sources.
Recently, however, the overall benefits of crowdfunding for early-stage startups have been dampened due to market conditions. The global pandemic caused by the Covid-19 virus has meant that investors are more cautious when it comes to investing their money, leading to a flat year for crowdfunding in 2020.
But this doesn’t mean that the crowdfunding industry is sinking – it just indicates that the market is healing and that more caution is needed. This is likely to mean that bigger fundraising calls will be more successful than those looking to draw smaller amounts of capital, but this should be looked at as a temporary setback rather than a sign of a declining sector.
In fact, a flat year for crowdfunding in early stages should be seen as a sign that the industry is maturing. By shying away from risk, investors are also calming the potential bubble of ‘unicorn’ startups – those with billion-dollar valuations that are predicted to make headline investments but that, by their very nature, carry an incredibly large risk.
Of course, there are some new companies that are still using the advantages of crowdfunding for their launch, but those that are in a more established stage of their business journey should recognise the potential of the sector for the future. By closely watching the data, and being mindful of the dangers of big-valuation investments, investors can be more strategic with their investments and support many more businesses in the coming year.
Ultimately, while it is undeniably a larger challenge to raise capital in the current market, early-stage startups should still be looking to crowdfunding as an option in 2021. The data released in 2020 may have suggested that crowdfunding has cooled off, but this should act as an opportunity to reshape the industry, setting it up for more realistic and helpful investments in the future.
