Netcapital Inc. is a pioneering fintech company that has revolutionized the private capital markets landscape. With its scalable technology platform, the company has empowered private companies to raise capital online, while providing individual investors with unprecedented access to these previously exclusive investment opportunities.

Company History

The company’s history can be traced back to 2016, when it was founded with the mission of democratizing private equity investing. Recognizing the limitations of traditional funding methods, Netcapital’s founders set out to create a more accessible and efficient platform for both issuers and investors. Through its SEC-registered funding portal, the company has since facilitated hundreds of successful capital raises, connecting a growing network of companies with a diverse pool of investors.

In its early years, Netcapital focused on building its technology platform and expanding the number of companies listing on the funding portal. The company’s primary revenue streams came from listing fees and portal fees based on the amount of capital raised by issuers. To further support its clients, Netcapital established a wholly-owned subsidiary, Netcapital Advisors, which provided strategic advice and marketing support to companies using the funding portal.

Growth and Expansion

As part of its growth strategy, Netcapital expanded its services in 2020 and 2021. The company acquired MSG Development Corp., a business valuation company, to enhance its offerings. Additionally, Netcapital launched a unique game website that allowed users to invest in professional athletes’ careers, further diversifying its revenue streams. Despite these expansions, the company maintained its focus on growing the core funding portal business.

By 2023, Netcapital had achieved significant milestones, building a network of over 100,000 users and facilitating capital raises for more than 50 companies on its funding portal. This growth demonstrated the increasing appeal and effectiveness of Netcapital’s platform in connecting private companies with investors.

Financials

Netcapital’s financial performance has been marked by both challenges and opportunities. In the fiscal year 2024, the company reported revenues of $4.95 million, representing a 42% decrease compared to the previous year’s $8.49 million. This decline was largely attributed to a 52% drop in consulting services revenue, which fell from $7.1 million in fiscal 2023 to $3.44 million in fiscal 2024. However, the company’s funding portal business experienced a significant increase, with portal fee revenues surging by 109% to $874,368 in fiscal 2024.

The company’s profitability has also been impacted by various factors. In fiscal 2024, Netcapital reported an operating loss of $3.44 million, a stark contrast to the $2.27 million in operating income generated the previous year. This was primarily driven by a $2.7 million unrealized loss on the value of the company’s equity securities, as well as a $1.05 million impairment charge related to its intangible assets. The net loss for fiscal 2024 was $4,986,317, compared to a net loss of $2,954,972 in fiscal 2023. Consequently, the loss per share increased to $0.41 in fiscal 2024 from earnings per share of $0.63 in the prior year.

In the most recent quarter (Q1 2025), Netcapital’s financial performance continued to face challenges. The company reported revenues of $142,227, a significant decrease from $1.52 million in the same quarter of the previous year. The net loss for Q1 2025 was $2,527,170, while operating cash flow (OCF) and free cash flow (FCF) both stood at negative $1,963,645.

Strategic Initiatives

One of the company’s key initiatives in recent years has been the expansion of its service offerings. In May 2024, Netcapital announced that its wholly-owned subsidiary, Netcapital Securities Inc., had applied for broker-dealer registration with the Financial Industry Regulatory Authority (FINRA). This move is aimed at unlocking new revenue streams and expanding the company’s capabilities in hosting and generating fees from Regulation A+ (Reg A+) and Regulation D (Reg D) offerings.

Secondary Trading Platform

Additionally, Netcapital has made significant strides in the development of its secondary trading platform. In July 2024, the company announced the launch of a beta version of this platform, which provides investors who purchase stock through the Netcapital funding portal with the potential for secondary trading through access to a registered Alternative Trading System (ATS). This partnership with Templum Markets is expected to enhance liquidity for Netcapital’s investors and issuers.

Business Segments

Netcapital Inc. operates in two main business segments: the Netcapital Funding Portal and Netcapital Advisors.

Netcapital Funding Portal Segment

The Netcapital Funding Portal is an SEC-registered funding portal that enables private companies to raise capital online. The portal charges a $5,000 listing fee and a 4.9% portal fee for capital raised at closing. Beginning in fiscal year 2024, the portal also generates a 1% success fee paid in equity of the funding portal customer. Additionally, the portal generates fees for other ancillary services such as rolling closes.

In the three months ended July 31, 2024, the Netcapital Funding Portal facilitated 16 successful closings, down from 7 in the prior year period. The total capital raised through the portal was $1.17 million in the current quarter, a 60% decrease from $2.96 million in the three months ended July 31, 2023. The average amount raised per successful closing was $280,980 in fiscal 2024, up from $128,170 in the prior fiscal year. However, 4 offerings hosted on the portal in the current quarter terminated without raising the minimum capital, compared to 3 terminations in the same period last year.

Netcapital Advisors Segment

Netcapital Advisors, a wholly-owned subsidiary, provides marketing and strategic advice to companies in exchange for equity positions and/or cash fees. In the three months ended July 31, 2024, Netcapital Advisors did not earn any equity securities from consulting work, compared to $1.11 million in such revenue in the prior year period. Consulting revenue from Netcapital Advisors decreased by $33,700 to $0 in the current quarter, as the subsidiary has been focused on assisting with the launch of the proposed broker-dealer business.

Future Prospects

Despite the challenges faced during fiscal 2024, Netcapital remains optimistic about its future prospects. The company has seen continued growth in the number of successful offerings on its funding portal, with the average amount raised per offering increasing from $128,170 in fiscal 2023 to $280,978 in fiscal 2024. This demonstrates the increasing appeal of the Netcapital platform among private companies seeking to raise capital.

Cost-Cutting and Revenue Diversification

Furthermore, the company’s focus on cost-cutting measures and the diversification of its revenue streams through the proposed broker-dealer business and secondary trading platform suggest a path forward. Netcapital’s management team is committed to navigating the current market conditions and positioning the company for long-term success.

Liquidity

As of July 31, 2024, Netcapital reported a cash balance of $855,180. The company’s debt-to-equity ratio stands at 0.0645, indicating a relatively low level of debt. Netcapital has a $34,320 line of credit with Chase Bank, which bears interest at 10.9% per annum. The company’s current ratio and quick ratio are both 0.269, suggesting potential short-term liquidity challenges.

Industry Trends

The online private capital raising market has seen steady growth, with the CAGR of Regulation Crowdfunding offerings increasing by 32% from 2020 to 2023. However, the overall private capital markets have faced headwinds due to macroeconomic conditions, which has impacted Netcapital’s business. The company is focused on expanding its offerings to include Regulation A+ and Regulation D deals through its pending broker-dealer license.

Conclusion

In conclusion, Netcapital Inc. is a dynamic fintech company that has made significant strides in democratizing private capital markets. While the company has faced some challenges in recent years, its innovative solutions, expanding service offerings, and dedication to its mission position it well for future growth. The company’s focus on increasing the average amount raised per offering and the total number of successful offerings demonstrates its potential for recovery. As Netcapital continues to evolve and adapt to the changing landscape, it remains a compelling player in the private equity investment ecosystem, despite the current financial headwinds.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.