A New Model of Wealth Creation…Why Now?
The 5 Why Series: Why #4
Introduction
At Bioverge, we are democratizing early-stage investing in the $2 trillion healthcare market, while offering founders access to capital and an ecosystem of resources to help push the boundaries of human healthcare.
Our mission is simple:
To help you invest in healthcare startups transforming tomorrow
Our goal is also simple: To build awareness of innovative investment opportunities and provide investors with the tools and resources necessary to make informed investment decisions.
As part of our journey, we’re using the 5 Whys Six Sigma technique to tackle head-on the fundamental problem we’re solving (you can read more about our approach here). This is our fourth blog in the series and the key question we’ll be answering is…Why Now?
The Rise of Equity Crowdfunding
In 2015, the crowdfunding industry more than doubled, raising $34.4 billion, with $2.5 billion invested through equity-based crowdfunding. According to CrowdExpert’s David Pricco:
“We’re expecting 75–100% growth in U.S. equity crowdfunding volume of capital raised in 2016, approximately $3.5 to $4 billion” [note: 2016 data has yet to be reported]
By 2020, Forbes estimates equity crowdfunding will eclipse traditional venture capital fundraising and reach $36 billion.

In a recent report by Goldman Sachs, “The Future of Finance: The Socialization of Finance,” analysts note:
“Crowdfunding…is potentially the most disruptive of all of the new models in finance…we see these models capturing significant dollar share from traditional venture capital”
We’ll even go one step farther as we believe crowdfunding has the potential to displace entrenched investment banks and traditional fund managers.
Total Addressable Opportunity for Crowdfunding

So what’s all this mean, for you, and for us? We’re witnessing a fundamental shift in the way people invest and allocate assets. Just as a new generation of “robo-advisors” are transforming how people invest in the public markets, equity crowdfunding platforms are transforming the investment landscape in the private markets.
We see several major enablers of growth driving these changes: innovation, behavioral demographics, and strong network effects.
Enablers of Growth #1: Innovations in Crowdfunding
According to the the Goldman Sachs report “In a very short time, crowdfunding has evolved from being a primarily donation and charity fundraising platform (GoFundMe) to a rewards platform (Kickstarter) and with an increasingly favorable regulatory environment, to equity investment platform.”

The leader in the space is clearly AngelList, which saw ~$535 million worth of investments through the platform in 2016. AngelList currently has a run-rate of ~40 deal per month, by far the largest volume of any platform. Other platforms such as FundersClub, which has invested ~$83M in over 230 startups, have scaled rapidly in recent years by focusing on accredited investors via Regulation D 506(b) offerings.
Since Congress approved the rules governing Title III of the JOBS Act on May 16, 2016, WeFunder has been the clear leader in the Regulation Crowdfunding space, allowing anyone (e.g. not just the wealthy) to invest in startups and small businesses.
As Congress works to improve Title III through the Fix Crowdfunding Act, new innovations will continue to emerge propelling the industry forward.
Enablers of Growth #2: Demographic Impact & Changing Consumer Behavior
A major driver of growth in equity crowdfunding is demographics. As the demographics of this country slowly shift, consumer behavior is shifting along with it, largely driven by Millennials (a.k.a. Generation Y, defined as being born from the early 1980’s through the early 2000's).
Survey’s show Millennials are significantly less invested in stocks than prior generations (28% for Millennials vs. 46% for non-Millennials) and have a much higher interest in crowdfunding (47% for Millennials vs. 17% for non-Millennials). One of the major attractions of equity crowdfunding is the ability to invest in specific companies or projects that align with specific interests of Millennials which are generally tied to having a positive social or environmental impact.

In fact, this trend is not limited to Millennials: >71% of investors ages 18–67 would not invest in a company that has a negative social or environmental impact, even if they could make money.
Clearly socially responsible investing is not limited to equity crowdfunding and can be achieved via the public markets, however, with crowdfunding investors are actually investing in the company, as opposed to simply buying and selling secondary shares in the public markets (i.e. companies never actually see that capital unless they originate an offering such as an IPO, follow-on, PIPE, etc.).
Enablers of Growth #3: Strong Network Effects
There has been a lot written about network efforts in a more elegant and detailed manner than we intend to tackle here, but suffice to say the value of a platform is enhanced as the number of campaigns and investors grow.

The more startups that are successfully funded inherently draws in more entrepreneurs to start fund raises on the platform, attracting more investors, and creating a virtuous cycle of growth on both sides of the marketplace.
A Tale of Two Markets
It should come as no surprise that companies today are staying private much longer (and raising much larger amounts of capital) than ever before. In 1996 there were 706 initial public offerings, but in 2016 there were only 105, (the lowest level since 2009). According to the New York Times columnist and UC Berkeley professor Steven Solomon:
“The drop-off in activity is largely attributed to the disappearance of the small offering. In 1996, average proceeds for an initial public offering were $85.7 million, and 54 percent of these offerings were considered small, with a market capitalization below $75 million in inflation-adjusted dollars. In 2014, however, average proceeds were $186.4 million and only 4 percent of offerings were small.”
The consequence of companies staying private longer, according to Scott Kupor — Managing Partner at Andreessen Horowitz — is the average investor is missing out on investing in companies “during their most dramatic phases of growth. That prevents ordinary investors from getting in on the wealth creation…”
A New Model of Wealth Creation

There are several solutions to fixing this problem and to ultimately “unshackle the middle class.” One potential solution involves forcing companies to go public earlier, which we don’t view as a favorable solution. The more ideal solution is to democratize the investment process so every investor (from mutual funds to individuals) has equal access to high-impact and high-growth private companies.
At Bioverge, this is exactly the problem we aim to solve. In doing so, we are democratizing early-stage investing in the $2 trillion healthcare market, while offering founders access to capital and an ecosystem of resources to help push the boundaries of human healthcare.
-The Bioverge Team
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Disclaimer: Bioverge is not a registered investment advisor and nothing contained in this blog is meant to be a recommendation on how to allocate your assets or is intended as investment advice. Returns presented here are not necessarily representative of the companies listed on Bioverge and do not reflect projected returns. This blog is meant for informational purposes only.
