Data from UK crowdfunding platform Seedrs shows that community funding was 20% lower in March than it was in Spring over the last three years.
"Activity, both in terms of campaigns going live and volumes of investments, has slowed a bit from what we would normally expect," Seedrs chairman Jeff Lynn told Sifted.
"The 20% drop... was primarily from startups not going live," he explained, with numerous campaigns perhaps anticipating reduced investor appetite.
Fellow crowdfunding platform Crowdcube has seen a similar drop in investment.
“Over the last few weeks, we’ve definitely seen a slowdown. It's been a gradual decline, though we're monitoring it on a daily basis," said Crowdcube co-founder Luke Lang.
"We recognise doing a crowdfunding campaign might not be right for everyone," he added.
According to Crowdcube, 9 of the 27 pitches launched on its platform last month have not reached their targets yet.
"We expect that raising finance will now take longer than usual," the company noted.
Among those who have delayed a raise is fintech app Coconut. Its chief executive Sam O'Connor confirmed to Sifted that they have pushed back their planned campaign with Crowdcube to September, but have secured venture capital funds in the interim.
The drop in crowdfunding activity is also likely to be indicative of dampened risk-appetite among angel investors, many of whom use sites like Crowdcube and are a vital source of seed funding.
"Many angels will look at the idea of buying liquid stocks 30% down as a [better] buying opportunity... than putting money into startups that have a five-year payout," said one angel investor centred on the fintech space.
Meanwhile, venture capital funding for seed companies has dropped 22% globally since January, according to CB Insights.
Despite the general slow-down, Crowdcube says it had simultaneously seen a boom in interest for Medtech, digital GP services and farm-to-table delivery companies.
As a result, the platform still helped 17 startups rake in a total of approximately £5m from 6,000 investors last month.
Meanwhile, Seedrs is preparing a funding round for The Cheeky Panda, a toilet roll company ("you can just imagine how popular they are right now").
Activity levels could be stabilising already, notes Lynn, as the UK approaches the end of its third week in official lockdown.
"When the enormity of Covid really hit mid-month we saw a steeper drop (probably in the 50% territory) for the first week or so. But then over the past week, as everyone has started settling into the new temporary reality, we've seen a sharp uptick," he noted.
Crowdcube's Lang also argued that community funding could become more attractive for startups during a downturn.
“They’re going to be more resilient [than other small businesses]. Their crowdfunding communities are going to rally around them... Like, I’m an investor in a local beer business and I want to back them."
A helping hand
To prevent crowdfunding from stagnating, both Seedrs and Crowdcube are implementing a series of emergency measures.
For instance, both platforms will allow companies to extend their campaigns if they don't initially hit their targets.
Seedrs has also launched online pitching events and online office hours to allow founders and prospective investors to engage digitally. In addition, the company promised to improve the pace at which they approve campaigns, although it's unclear how they will do this while guaranteeing the same standard of due diligence.
For their part, Crowdcube has said it will help businesses access the money they raise quicker than usual.
Crowdcube's Lang also seems to be involved in lobbying the government on startups' behalf. One of the recommendations he shared is temporarily increasing the tax relief for those who fund private companies to 80% rather than 30%. That would mean that if you invest £100 into a startup, you'd get £80 back from HMRC.
“The startup sector will suffer without crowdfunding and angel investor relief," Lang noted. “This is not a normal situation, this is an emergency."
He concluded that, while the government had responded fantastically overall, the Chancellor's support package excludes startups, meaning small business are being "sent to the slaughterhouse".
The tricky business of crowdfunding
Still, if a mass retreat in investor funds does happen (as many predict), it won't just hurt early-stage companies that are short of cash; it will also hurt the crowdfunding companies themselves.
Seedrs and Crowdcube are both still loss-making after 10 years, and rely on startups using their platforms to raise funds (they take a cut of the money raised).
While both companies are propped up by venture funding and are relatively lean, they're not especially cash-rich and could be vulnerable in a prolonged crowdfunding hiatus.
"It's been harder than we expected [to turn a profit]," Seedrs' Jeff Lynn told Sifted earlier this year.
These platforms are also reliant on the public's participation in crowdfunding, which could be threatened if more portfolio companies fold. Research shows that ~21% of British crowdfunded companies went into administration between 2013 and 2015, but that number could spike in a downturn given that startups in the UK are not yet eligible for state support and many face low cash reserves.
Indeed, if crowdfunding capital retreats, the platforms will suffer.
But Jeff Lynn remains hopeful.
"This will be an excellent test of the extent to which startups as an asset class are uncorrelated with the wider economy," the Seedrs chairman told Sifted. "Times are clearly tough, and for some businesses they're quite dire, but when you're looking at the full startup ecosystem, diversity cushions against extremes, so overall [we think] things for a platform like ours won't be as tough."
He added: "Our expectation is that net [investor] returns may not move that much, but their distribution will; some companies that were doing well may wind up struggling now... while others will see growth accelerate during the period."
Nonetheless, according to Seedrs data, the average crowdfunding investor backs a single startup, which concentrates their risk and lowers users' likelihood of tangible returns.