Just this past July 20, the Crowdinvesting Observatory of the Politecnico di Milano published its usual annual report on industry trends.
The report is the result of the analysis of the performance of the crowdfunding market in Italy between July 2022 and July 2023.
Crowdinvesting: what it means
Let us first clarify a matter of terminology: the Observatory specifies that the scope of its studies is "crowdinvesting," not simply "crowdfunding."
In fact, the term crowdinvesting gives a more precise indication of the perimeter of crowdfunding that the report focuses on. When people talk about crowdinvesting, they are always talking about crowdfunding, but the reverse is not always true.
Crowdinvesting is the investment of capital in online collections of resources that give an opportunity to earn a return on that capital: equity crowdfunding, lending crowdfunding, debt crowdfunding.
Not part of the crowdinvesting set, however, are types of fundraising such as donation crowdfunding and reward crowdfunding, which do not provide monetary rewards for participating in campaigns.
However, the report mentions these forms of fundraising in passing, explaining their characteristics and including some of their data in the summary picture of crowdfunding in Italy: the collection of these two types of crowdfunding amounted to 52.3 million euros in the last twelve months.
A general overview of crowdfunding in Italy
For the first time, the crowdinvesting market experienced a year-on-year contraction in the amount of total inflows, which stood at 343.79 million euros-a very slight contraction (-1%) due mainly to the results of the first half of 2023.
The decline is mainly due to the negative performance of nonreal estate equity crowdfunding and minibonds, while lending crowdfunding continues to grow and real estate is driving the entire sector in both lending and equity.
The overall number of platforms has also declined, either as a result of acquisitions and mergers or because some weaker players have closed their doors. The prospect of compliance with the onerous requirements of the EU Regulation that can no longer be postponed has probably influenced these phenomena.
Finally, return results for investors who participated in crowdfunding campaigns remain positive.
Nonreal estate equity crowdfunding: data and reasons for the decline
Nonreal estate equity crowdfunding and debt crowdfunding (minibonds) are the crowdinvesting sectors that have experienced the most substantial declines.
Let's start with the numbers of nonreal estate equity crowdfunding, which constitutes 83.1 percent of all equity crowdfunding campaigns launched in the past year:
- 48 active portals (compared to 51 last year)
- 207 published campaigns (compared to 219 last year)
- 83.1 million euros raised (compared to 97.79 million last year)
- stable success rate around 90%
- average value of the collection target 180,126€ (compared with 231,772€ last year)
- average investment value 6,077€ (compared to 4,935€ last year), median 1,999€ (stable).
Thus, the sector lost about 15 percent in terms of capital raised (11 percent if those of real estate projects hosted, however, by generalist and non-specific equity platforms, which we do not count, are included in the capital raised).
Following are the reasons hypothesized and summarized by the report:
- rising interest rates and subsequent competition with bonds and government securities, which have become attractive to investors again;
- uncertain economic situation due to inflation and geopolitical tensions;
- Increased investment in startups by Italian venture capital funds;
- investor disillusionment with issuers' performance in the years following the campaign.
It is especially this last point that companies that want to raise capital need to think about: capital alone is not enough. The equity crowdfunding campaign is not an end point, but rather a starting point, and it must be embedded in a broader path, with long-term strategies. The goal should not only be to raise capital, but also and above all to grow the skills of the team, broaden professional network, and implement marketing and sales processes that will make work in the company more efficient, increase sales, and put the company in a position to make capital raising systematic.
In fact, the report shows that many firms see a surge in growth immediately after the equity crowdfunding campaign, but this stops in subsequent years. Another interesting finding is that firms that do more than one equity crowdfunding campaign are more successful because they enter into the view we just explained.
The growth of non-real estate lending crowdfunding
Non-real estate lending crowdfunding is seeing a decrease in dedicated, i.e., generalist platforms, down from 12 to 10, but it continues to grow as capital raised.
With 39.36 million euros raised, the division nearly doubles the previous year's 19.24 million.
The current economic situation has led to an increase in interest rates, even in lending crowdfunding, making the instrument more expensive for businesses but more attractive for investors: the average interest rate in 2023 is 8.56%.
Loan repayment is in 60 percent of cases bullet type, that is, in a lump sum when the loan matures, while in 40 percent it is amortizing type, with periodic and scheduled repayments that include both interest and a portion of the principal.
Real estate crowdfunding: leading the way in crowdfunding in Italy
Real estate crowdfunding is the fastest growing crowdinvesting sector that raises the most capital, considering both lending and equity together or even individually.
Specifically, real estate lending crowdfunding dominates, with 115.79 million euros raised (+39.3%), rising to 118.62 million if campaigns for real estate projects launched on generalist platforms are also considered. The flexibility, speed and repeatability of lending campaigns makes this tool more suitable for real estate.
In fact, real estate equity crowdfunding follows with some distance, with 56.42 million euros raised (+31.3 percent), which rises to 60 million considering also real estate projects of generalist platforms.
We have addressed in a previous article the reasons for the great success of crowdfunding for real estate, which is confirmed again this year.
Equity crowdfunding companies: an identikit
The report then offers a brief analysis of the characteristics of the companies that do equity crowdfunding specifically.
Innovative startups still clearly prevail (62 percent). They are followed with a clear gap by SMEs (18 percent), which are on the rise, and innovative SMEs (12 percent), and investment vehicles (8 percent) close the ranking.
The geographical origin of businesses shows the primacy of Lombardy, which has remained constant over the years, followed by Emilia Romagna and Lazio.
Economic sectors, on the other hand, see a majority representation of information and communication services, significantly distancing professional, scientific and technical activities and manufacturing.
Let us finally give some numbers related to these enterprises:
- median value of pre-campaign sales €43,850, average value €355,911
- median value of pre-money valuation 2 million euros
- median value of pre-campaign membership numbers 4
Equity Crowdfunding Investors: an identikit
Investors in equity crowdfunding campaigns are almost exclusively individuals, who for the most part (37 percent) make investments between €1,000 and €4,999.99.
A very significant finding is reconfirmed: the vast majority of investors surveyed (26,661 out of 35,273) invested in only one equity crowdfunding campaign. Only 412 invested in 10 or more campaigns, all others are in between.
This indicates that investors mostly come from the individual company's network, and are neither serial investors nor general users of the platform: in this article we explain in detail what this means for those who decide to do crowdfunding.
It should also be noted that the gender gap among investors remains deep: only 14 percent are women. The prevailing age groups, on the other hand, are those between the ages of 31 and 50.
There are many insights to reflect on left by this 2023 report, which emphasizes how next year will be crucial for the turning point that the EU Regulation will bring to the crowdfunding world. While waiting for the next report, stay updated on all the news by joining the Turbo Crowd Facebook group! If you want to know how to become part of all these figures you just read, book your first free consultation with us now.