Online Platforms, Global Networks Drive Globalization of Angel Capital

The last decade has seen a rapid expansion and deepening of the types of vehicles that fund startup firms in the U.S. and worldwide, according to The Globalisation of Angel Investments – a new study from Josh Lerner, Antoinette Schoar, Stanislav Sokolinksy, and Karen Wilson. In particular, the authors have seen a growing role for angel groups and other more “individualistic” funding options, such as super angels or crowd sourcing platforms. To support their claim, the authors examine the records of 13 angel investment groups based in 12 countries, with applicants from 21 nations.

In addition to their findings about the globalization of angel investments, Lerner and his colleagues also found that angel investors have positive impact on the growth, performance and survival of the firms they fund. The positive impact of angel financing remains consistent, regardless of the country’s level of venture activity and its entrepreneur friendliness. They also found that angel investors enhance the ability of the funded firms to obtain follow-on financing.

As Lerner and his colleagues point out, one recent trend driving the globalization of angel capital is the proliferation of equity crowdfunding platforms that target accredited investors and increase interest in equity-crowdfunding projects by angels. In the first quarter of 2015, equity-backed crowdfunding projects reached $662 million in total investment in the United States. Much of this investment activity can be attributed to angel investors due to the U.S. Securities and Exchange Commission requirement that individuals engaged in crowdfunding must be accredited. In an article from cnbc.com, Erich Smith, the director of data analytics at Crowdnetic, predicts that, "Equity crowdfunding is going to double every year as more and more investors get to know about it." Crowdnetic is an online platform that tracks equity investments in real-time,

While equity crowdfunding typically gets the most headlines, peer-2-peer (P2P) lending and other debt-based crowdfunding dominates the industry. In 2014, debt-based crowdfunding raised nearly $11.1 billion in capital. Several P2P sites currently active in the U.S., including Lending Club and Prosper, have created online mechanisms to stimulate the flow of these transitions. P2P lending also is popular among investors in the United Kingdom.

Global crowdfunding fundraising eclipsed $16 billion in 2014, up from $6.1 billion in 2013, with the industry set to more than double again in 2015. In Crowdfunding Industry Report, Massolutions projects that the global crowdfunding market will raise $34.4 billion in 2015. These numbers include, but are not limited to, equity crowdfunding. Much of this growth is also due to the growth of donation and reward-based crowdfunding websites.

While the North American market remains at the heart of the crowdfunding industry with $9.5 billion raised in 2014, much of the recent global growth is due to the rise of Asia as a major crowdfunding region. Asian crowdfunding activity grew by 320 percent, to $3.4 billion raised in 2014. Asia has now moved slightly ahead of Europe ($3.26 billion) as the second-biggest region by crowdfunding volume.

The growth in Asia and the strength of the European markets may be attributed to their embrace of equity crowdfunding portals and national regulations that allow individuals, both accredited and non-accredited to invest in startups. In the UK, there are currently 40 crowdfunding portals that allow individuals, to make equity crowdfunding investment. Earlier this year, Germany adopted security rules that allow non-accredited investors to make equity investment through crowdfunding portals.