Investment Crowdfunding Exits vs. Failures: A 2018-2024 Data Analysis

CHART OF THE WEEK 📈

• Out of 6,375 companies that have executed Reg CF and Reg A+ campaigns since 2016, KingsCrowd has tracked a total of 77 investment exits (1.2%) and 186 failures (2.9%)

  • Exits to date: IPO (21), M&A (49), repurchase/return of capital (7)

  • Failures to date: Asset Sale (15), Bankruptcy (8), Shut Down (160)

  • Note: the actual failure and success rates are both slightly higher than reported. KingsCrowd only tracks exits and failures that are publicly announced, shared with us, or that we can determine from a company’s website and social media. Our complete database of exits and failures can be viewed here.

• Both exits and failures occurred a median of 28 months after their first investment crowdfunding raise and a median of 16 months after their last investment crowdfunding raise.

  • 21 issuers (0.3%) appeared to have shut down and returned no capital to investors within just 120 days of their last raise’s close date. Investors should be on the lookout for “raises of last resort”.

• In 2022 and 2023, interest rates rose sharply, causing a spike in startup investment failures—mostly distressed asset sales and shut down businesses. Companies saw downturns in their businesses and/or could not raise subsequent capital and had to shut down.

• There have been a small number of crowdfunding IPOs to date: 21 IPOs, or 0.3% of all past issuers. However, very few crowdfunded stocks have performed well post-IPO in the climbing interest rate environment without significant investor demand.

• While 186 failures to date in investment crowdfunding may seem alarming to new investors, that is quite encouraging for several reasons:

  • That’s only a 2.9% failure rate among all companies that have raised capital via Reg CF and Reg A+ (and some Reg D). That’s far below the average failure rate of 60% for Pre-Seed/Series A startups.

  • Considering Reg CF only launched in May 2016, the average Reg CF company is still relatively young (median of 2.3 years since closing their offering and 5.4 years since founding). Startups tend to fail in the early years, while positive exits generally take longer (8-12 years on average for angel investments with over 10X returns).

  • The number of shut down businesses includes companies that raised both equity and debt, and debt companies don’t typically have an “exit.” So, the relative number of positive outcomes for equity-backed companies is higher than the numbers indicate.

• The takeaway: it’s still in the very early days of Reg CF and Reg A+. Many of the best-performing companies on paper are continuing to grow. Traditional angel investments that return 10X or more take 8-12 years on average to exit, so we’re still likely several years away from more significant positive exits.

To read more insights, including how investment crowdfunding compares to angel investing, see the full story HERE.

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PITCH REVIEW 💸

Brief: Ashley Black Experience, inspired by founder Ashley Black’s personal health battles, has become a notable force in health and beauty e-commerce, focusing on fascia science. The company's flagship FasciaBlasters technology, a line of over 100 products, has successfully tapped into the body's healing capabilities, leading to $170 million in lifetime revenues and a strong 1.7 million customer base with a high repurchase rate. It’s raising $3M with a Pre-Money Valuation of $70M and a minimum investment of $100.

Key People: Ashley Black is the founder and President of Ashley Black Experience. She has made significant strides in the health and beauty industry, focusing on fascia health, driven by her personal health challenges, such as juvenile arthritis. With 19 years of experience, Black has grown her company to impressive heights. Her leadership has resulted in over 100 products utilizing the patented FasciaBlasters technology, central to the company’s success and innovative approach to fascia health.

Interested in Ashley Black Experience? Access the deal report HERE 🔓📈

Summary

Here's what we like: With the aforementioned $170 million+ in lifetime revenues and a substantial customer base of 1.7 million, the company has demonstrated its ability to scale and maintain a strong market presence. The 58% repeat customer repurchase rate underscores its users' high satisfaction and loyalty, indicating a solid foundation for future growth.

The company’s deep understanding of fascia science and its proprietary FasciaBlasters technology gives it a competitive edge in the burgeoning US Anti-Aging market. The patented technology not only differentiates Ashley Black Experience from competitors but also offers a barrier to entry for potential new entrants, securing its position in a slightly competitive landscape.

Despite a projected revenue decrease in 2024, the company's profitability appears to be on the rise. Current margins show a projected net profit of approximately $2.38 million. Despite revenue fluctuations, this shift towards greater profitability demonstrates the company's operational efficiency and potential for sustained financial health.

The founder's personal journey and commitment to improving health through fascia research lend a compelling narrative to the brand, enhancing its marketing efforts and customer engagement. Ashley Black's status as a recognized figure in the health and wellness arena further amplifies the brand's visibility and credibility.

Here's what we don't: Despite the Ashley Black Experience's impressive achievements and a strong customer base, several factors present potential risks to investors. The company operates in the highly volatile health and beauty sector, particularly focusing on anti-aging and fascia health, subject to rapidly changing consumer preferences and regulatory scrutiny. While the company boasts a 58% repeat customer repurchase rate, the reliance on a single product line, the FasciaBlasters technology, could limit growth potential if market trends shift away from this niche.

Moreover, the revenue projection for 2024 shows a concerning trend with an anticipated ~30% decrease from the last reported revenue in 2022 (based on the current run rate from the last three months). Although the company is expected to run more profitably, with a projected net profit of ~$2.38 million in 2024 (based on current margins from the last three months), the declining revenue trend could signal saturation in the company’s current market or inefficiencies in scaling the business.

The low barriers to entry in the e-commerce sector and the slightly competitive landscape also pose threats. Without significant and continuous innovation, Ashley Black Experience may struggle to maintain its market position against emerging competitors who can quickly enter the market with similar or improved products. The health and beauty industry is notorious for its fast-paced innovation and consumer-driven trends, requiring companies to evolve to stay relevant constantly.

ON THE POD 🎙️

This week, Chris dives into Epilog, a company revolutionizing the autonomous vehicle industry. CEO Michael Mojaver, with his extensive background in vision and physics, has created a device, SideCar, that enables regular cars to become autonomous. This episode covers the intriguing possibilities of transforming any car into a self-driving vehicle for $1,000, vastly more accessible than current market options. Michael details Epilog's journey from an intensive R&D phase to now focusing on commercialization, highlighting the company's potential rapid growth in the AI-powered automotive space.

Listen to the full episode here

STAFF PICKS 🌶️

Gameflip

Gameflip is a digital marketplace specifically designed for gamers to buy and sell gaming items securely. Boasting a community of around seven million users, Gameflip facilitates a seamless and safe trading environment backed by advanced technology. Since its founding by JT Nguyen and Terry Ngo in December 2014, the company has seen over $160 million in sales.

• Pre-Money Valuation: $36.8 million

• Minimum Investment: $250

PlusMusic 

PlusMusic is innovating in the music streaming sector, focusing on the gaming industry. They've created an AI-driven platform that integrates music into gaming, offering a dynamic, adaptive experience where music from emerging artists and labels aligns with live gameplay. This unique approach enriches gaming and opens new opportunities for artists in the gaming world. Currently, in the pre-revenue phase, PlusMusic is gearing up for an invite-only launch, marking its entry into this exciting, intersecting space of music and gaming.

• Valuation Cap: $15 million

• Minimum Investment: $500

VitaBowl

VitaBowl merges nutritious, chef-refined superfood meals with personalized nutrition services. Designed by a 3-star Michelin Chef, these meals cater to the health-conscious consumer, offering both taste and significant health benefits. Beyond just meals, VitaBowl's integration of telehealth services connects users with nutritionists for tailored meal plans, embodying the "Food as Medicine" concept. VitaBowl caters to high-profile B2B clients like Cedars Sinai and UCLA Health and has shipped over 200,000 meals.

• Pre-Money Valuation: $9.9 million

• Minimum Investment: $199