Equity Crowdfunding in 2022
After recently closing a community capital round at OpenGrants, we are thrilled to host Jonny Price from Wefunder and discuss everything you need to know about raising equity crowdfunding in 2022. If you are considering crowdfunding for your startup, this is for you!
In This 1-Hour Session, We Covered:
- Why equity crowdfunding?
- How to prepare for crowdfunding?
- Lessons learned from OpenGrants Wefunder Round
- How Wefunder is changing the crowdfunding ecosystem
- The future of community capital
About the Speakers
Sedale Turbovsky, CEO & Co-Founder, OpenGrants
Sedale Turbovsky is the CEO and co-founder of OpenGrants, a venture-backed startup focused on building modern infrastructure for funding. He has been an entrepreneur since childhood. After honing his leadership skills as an outdoor guide in his younger years, he started his professional career as an independent consultant focused on delivering data products and digital strategies to enterprise clients in South America. He is experienced in independent grant writing and public/private partnerships at the highest level, having worked directly with OpenGrants’ current strategic partner, Momentum.
Jonny Price, VP of Fundraising, Wefunder
Jonny is the VP of Fundraising at Wefunder, a platform that lets anyone — not just rich people — invest in startups they love. Wefunder is a Public Benefit Corporation that helps founders raise up to $5M per year from their customers and community, as well as VCs and angels. Previously, Jonny started his career in strategy consulting at Oliver Wyman, before joining Kiva.org in 2011 to launch their U.S. lending operations. He has served on the Federal Reserve Board’s Community Advisory Council, and studied History at the University of Cambridge. Originally from the UK, Jonny now lives in Nashville with his wife Ali, and three children, Felicity, Carlyle and Margot.
Read the Transcription
Please note, this transcription is automatically generated and may contain some spelling and contextual errors.
All right, everyone. Welcome. Super excited to have you all here. My name is Sedale Turbovsky. I am the CEO and co-founder of OpenGrants and really excited to have Jonny Price here from Wefunder. This is the equity crowd funding in 2022 webinar. And if you are here for that, then this is the right spot. If you are not here from that, you should stay.
Cuz it’s gonna be really awesome. We are going to have a really great discussion about what equity crowd funding is, where that fits in the capital stack for founders and dive into. A little bit about what the current market means for this space and we’re gonna have a great discussion.
So super excited to have y’all here as we let people roll in. I just wanna talk quickly about a couple housekeeping things. So for everyone’s safety and security, we have this fairly locked down. If you do have questions for us and we will have Q and a at the end, please feel free to use the Q and a tool.
Chat will be unavailable. We will also have this available as a recording post. We will create a transcript and we’ll send it out over social channels, as well as if you signed up with your email for this, you’ll get a follow up email with that information. So super excited to have you all here.
Once again, my name is Sedale Turbovsky. I am the founder and CEO of OpenGrants, and we are the easy way to win grant funding. We put on these educational chats to not only educate our community about capital, but also to really expand. And one of our main goals is to get folks to think about the capital stack super strategically.
Think about where different kinds of capital can come in and fill fill a need and how you can use those different tools to move things forward. And of course our expertise is grant funding, but I’m super excited to have Jonny Price here. He is the VP of fundraising funder. And I will let you introduce yourself, talk a little bit about who you and and what you’re up to.
I, yeah, absolutely. Can you hear me okay. Yes. Loud and clear. Great. So yeah, Jonny Price VP of fundraising at Wefunder, as you can see on the slide. My resume in a nutshell is that I grew up in the UK started strategy consulting over there for a firm called all of Wineman. Did that for six years partway through that came to volunteer at a nonprofit in san francisco called kiva.org.
That does crowdfunded micro loans for entrepreneurs around the world. That’s what brought me over to the left side of the pond. I joined Kiva fulltime in 2011 to launch their us lending program. So most of Kea is known for supporting entrepreneurs in Africa and Southeast Asia or south America.
And I led the team that was bringing that model to support mom and pop shops, small businesses here in America. So we ran that for seven years. And then a few years ago in early 2018 came to join. Wefunder which is also crowd funding for entrepreneurs in America slightly different model as we’ll get into most of what we do is equity.
We do some debt as well much larger sum. So the Kiva loan was average $5,000. The average campaign. On Wefunder is about $400,000. So yeah, excited to tell you guys more. My role on the Wefunder team is basically top of funnel working with founders, just there evaluating their different fundraising strategies and helping them understand the pros and cons of raising money from their community and customers on a platform like Wefunder.
So lots of conversations with founders and then helping them to get set up and get set up for success on the platform, raise as much money as possible. Have been doing this for four and a half years. Really love it, love the role, love the team. It’s a very mission driven company.
We’re a public benefit corporation and B Corp. So we have a really clear mission to democratize angel investing, let everyone invest in startups, not just rich people and also get more capital flying to founders and especially underrepresented founders by enabling them to pull in capital from new pools.
And yeah, also excited to talk more about our mission over the next hour, but great to be here.
Awesome. Yeah, my pleasure. And as you mentioned, one of the reasons we love, Wefunder, we raise capital and we, funder is because of this, this mission of kind of democratizing access, not only to capital for founders who are looking to raise, but also democratizing access for people who are interested in investing and getting into this asset class, which I think is super exciting as a founder.
I hadn’t really taken a look at Wefunder until we raised capital. And I just started putting together my first my first like deal memos that I just sent to my wife. And I’m like, Hey, can I spend money on Wefunder please? Yeah, love, love the platform, love the ethos and the mission.
And just wanna say again, thanks everyone for joining us. Please use the Q and a tool. If you have questions, we will open this up four questions after, before we dive into our first question here. And just kinda like cover, like what is equity crowd funding definitely want to Just take the temperature of the room out there.
Thank you all for joining us. Let us know how you’re feeling. I know there’s a lot of things happening in the world. Some of them super exciting, some of them kind of depressing and would love to know what are you excited to learn about today? How are you feeling? So do participate in that.
And as your answers come in, the first question I want to tee up for Jonny really is like, what is equity crowd funding? While we think about that it’s looks like a bunch of folks are participating everyone mostly excited and energetic. Cautiously optimistic is coming in close second, looking for some midweek inspiration.
So hopefully we can really get those deliver on all of those things. So really excited to have y’all. I’m gonna go ahead and end the poll. And we can dive into that first question so you talked a little bit about transitioning from Cuba which is a bit different to to Wefunder and talked about this like different kind of crowd funding, which is equity crowd funding.
So can you just give us the one on one what is equity crowd funding? How is Wefunder different from say your Kickstarters or other crowdfunding platforms?
Yeah, absolutely. So Kickstarter Indigogo to biggest examples of perks based crowd funding. You’re basically, oftentimes there’s like presales or it’s donations oftentimes, and maybe you getting a T share or something in exchange.
Maybe you’re getting a discount on a product but it’s presales oftentimes or donations with Wefunder and investment crowd funding. The people that are backing your round investing in your company, they are actual investors in the company and we call it equity crowdfund. 90, 95% of investment volume on we fund is equity.
We actually do allow for some debt offerings as well. So you just like a bank would lend to a small business at an interest rate of 8% or whatever, so you can borrow money on Wefunder. So we do debt as well as equity, but the key difference of Wefunder versus a Kickstarter is this is an investment.
And then what that means in practice is that because you are offering the crowd investors, the potential of making return on their investment, they are oftentimes willing to invest a lot more money than they would buy your product for or back you on Kickstarter for. And so the average Kickstarter rounds I’m forgetting the exact number, but I think it’s in the order of kind of 40 or 50 K something in that ballpark.
You, the average we under raise is more like 400 K the average kind of contribution on Kickstarter is $80 on we under it’s a thousand dollars. So if you’re giving people the opportunity to invest in equity in a company or lend to the company with a hope of return, you can usually raise a lot larger sums of money.
So that’s Wefunder as opposed to Kickstarter or investment crowd funding, as opposed to perk space, crowd funding. And then the other obvious comparison is to how comparing to how startup. Historically, and the vast majority of startups today still raise money which is from accredited investors.
A accredited investor is an individual. Who’s basically a millionaire. It’s you’re making like 300 K of household income, or you have a million dollars of assets excluding your primary residence, your house or an institution like a VC. And so normally when startups are raising money, they’re raising from VCs, they’re raising from a credited angel investors in large checks and they use an S sec exemption.
It’s like a way of raising money. SCC exemption is the technical nomenclature for it. But the S E C exemption is called regulation. D that’s. Our vast majority of startups in America are using regulation D to raise money with regulation D there are two things which are different.
So we fund there, firstly you can only raise money from accredited investors. So roughly 8% of the population are accredited. So you can’t raise money from 92% of the population. And then secondly, generally there are exceptions, but generally you’re limited to privately soliciting investors. You can’t, for example, post it on Facebook and say, Hey, we’re raising money.
You come check it out. So with we fund though, we use a different S E C exemption instead of regulation, D we use what’s called regulation, crowd funding reg CF and with R CF both of those two things are, I would say fixed. Certainly different. So firstly, you can now raise from everyone. So a hundred percent of the population can now invest in you, not just the richest a credit investors can still invest a credit investors account for about 50% of investment volume on Wefunder, we have a lot of, rich people riding 10, 20, 50 K checks on Wefunder, but then 50% of the investment volume is coming from unaccredited investors.
And again, like I said earlier, this is a really important part of our mission, which is basically. Why should only rich people get to invest in startups. Why should only rich people have access to invest in the next Uber or the next Airbnb? Shouldn’t we let everyone participate in these wealth creation opportunities.
Just as anyone can invest in the public stock market, just as anyone can invest in crypto, just as why should it be that anyone can’t invest in their local coffee shop? We do main street businesses, as well as tech startups, or invest in a startup founder that you went to college with. So let’s democratize it and let everyone participate as an angel investor.
So that’s the first difference of regulation. Crowdfund is now you can raise from anyone in your network, anyone in your LinkedIn connections, any of your customers and community. And then the second big differe. Is that now you can publicly promote, so you can tell everyone about it by posting on social media, you can put out a press release, you can go on a webinar like this one and talk in depth about the company and the investment opportunity.
We also have a million investors on, Wefunder that you put, we put you in front of typically they’re bringing, 20, 30% of the rounds. So the lion share is on you as the founder to, to hit up your network and pitch it and raise the money. But usually you’re getting a boost from Wefunder investors as well.
But those are two of the real, real important differences between, raising capital conventionally through RegD from angels and DCS versus raising capital through regulation, crowd funding on a platform like Wefunder.
Yeah, that’s great. Thank you for that description. I love the thing that we loved about it.
Personally was a lot about not only the democratization, like we wanted, more people, not just, accredited investors, who we love and we love working with, but and to lightly touch on, there’s a huge opportunity for us. We see, our customers are particularly passionate about our platform.
They love it. They love what we’re doing. And most of our rays in fact, came from those folks. We were able to just go out and say, Hey, OpenGrants users. Guess what? You can now invest in OpenGrants. And it was a great message. And it also goes to the, the core of some of the ethos of what we’re really in OpenGrants, which is the idea that, down the road, we can deeply incentivize.
Not only, people at companies, but also people who are participating with companies to continue to use a product and continue to help the company grow, provide us feedback insights into how we make the product better. And if they’re an owner, they have that ownership, as an investor, they now have some ownership in the company.
They have some skin in the game. And it is a great tool. I love you, so you’ve been doing this for four years now. And this is why, one of the reasons I was super excited, I loved, I think pretty early on when we were working with your team, they started giving us all these stats like, oh a certain percentage of folks who actually commit fully convert to become investors.
And there’s all this really great stuff. That we found a lot of support from the Wefunder team. What. I wonder if you could tell the founders, cause I’m gonna go ahead and say that there’s a lot of folks on here who are probably interested in knowing, like, how do you do this successfully?
So what are the kind of things that you’ve seen that really like separate, successful from unsuccessful fundraising efforts on Wefunder?
I’m gonna answer that question, but I’m gonna do the classic, like interviewee tactic of just if a journalist ask your question, you’re just like, I’m gonna answer a totally different question.
Yeah. but then I’ll come back to that question before I get to that, which is like what makes success on Wefunder? Let me first outline kind of two use cases for we vendor. So this is if you’re a founder considering this option for me, there are two, two primary use cases. Who is a good fit to, to raise on Wefunder.
And the first is if you need help raising the capital. Maybe you’re a little early and you don’t yet have the traction and you you want to push the conversations with angels of VCs is too early conversations with angels and maybe going slowly, and this can be a way to push the gas pedal because you can still have those conversations with angels, whatever fundraising tactics you were doing in a reg D world, outside of Wefunder, you can still be having those conversations and you should, but now you can also.
Publicly promoted it, push it out to, text, like everyone in your phone saying, Hey, check it out, get in front of Wefunders, investor base. And so I, I think oftentimes we can help founders raise more money more quickly. So that’s the first use case. And the second one, and this is to your point on what you guys enjoyed about and saw value in with we under.
And this is, I think the cooler use case. Cause the first one, if you need help raising the money, you’re struggling to raise the money. You’re probably also gonna struggle and we fund it. It’s gonna be a bit of a grind. I think we make fundraising easier and we want to be expanding access to founders that otherwise would struggle.
And it’s a big part of our mission and that’s definitely a need there. But with the second one, it’s maybe you don’t need the help raising the capital. You can easily raise capital. You have angels and VCs lining up to invest in you, but you just see a lot of value. You buy our hypothesis that if you can convert your community and your customers and your users into investors and owners of OpenGrants, then they’re gonna be more loyal customers.
They’re gonna be more passionate brand ambassadors. They’re gonna have a higher net promoter score. They’re gonna tell all their friends about it. They’re gonna help you with hiring. If you send an update saying, Hey, we’re trying to find a designer right now. Do you know anyone? Do you now have like hundreds of people that are financially incentivized to help you find that designer?
And so that is like the real sweet spot for me. And so one of the coolest companies, the second coolest company we’ve had on, we found out after OpenGrants is this this banking quotes for startups called mercury. And so they, they’re redesigning banking for startups, really cool company.
They raised a one 20 million series B from Andreas and Horowitz and Cotu and other VCs did not need the money. Very obviously could very well funded had the best VCs in Silicon valley, throwing money at them opened, but opened up $5 million to let their customers invest. They funded up $5 million in one day, two and a half thousand investors.
By sending one email just because they wanted to let their customers invest. They saw value in that from a kind of brand building community building marketing perspective. And so they, that second use case I just get really excited about. And when founders are like, yeah, I could I, maybe I’m raising a series a and I’ve got three VCs who are interested and I could give the last, 15% of the rounds to another VC, but actually I think it’ll be really cool to let my customers invest.
I think I get excited about that would do good things for my business. So let me, instead of bringing on a fourth shades of gray VC, let me differentiate like the last 15% of my cap table by opening it up to my customers. So those are of the two, two use cases. For Wefunder, I just found this tweet.
I did yesterday, check it out. And this is in line with today’s point. This com this company, Leah. One of their investors said they were curing cancer in dogs. And so one of their investors, when they invested, we have a comment. Why did you invest in Leah labs? And this investor said, we lost three greyhounds to cancer.
If this money helps to provide a survivable treatment for canine cancer, it is well spent. And for me, that was just one example among thousands of what we fund is all about, which is investors, investing in companies, investing in causes, investing in founders, they believe in. And so yeah, that’s just in line with yeah.
As a founder, that second use case, what’s the value that you might get from recruiting your community and your customers, investors. Sorry, that was a very long winded tangent and answer to a question that you did not ask, but I think two use cases. One help you as a founder, raise more money more quickly, and secondly, let your community and customers invest.
Cuz you think that would do good things for your growth. And community brand building, et cetera. So then to, to your actual question that you asked about 20 minutes ago, on what makes for a successful we fund round? I talk about three. My framework is of three things. So the first thing is it a good investment opportunity?
So it’s if you. Easily raised from VCs and angels, cuz your growth is up into the right hockey stick explosive. And your total addressable market is huge. And your uni economics are amazing and your customers love you. And you as a founder have like the perfect background and you, your last company exited for 10 billion, et cetera, et cetera.
Then, you’re gonna easily be able to raise from VCs and angels in a world where Wefunder doesn’t exist and you will also easily be able to raise a Wefunder. And obviously a spectrum like, the lower, your valuation cap that I, the more favorable the terms are of the investment for investors, the more attractive an investment opportunity is the more money you’ll raise.
And the point is obviously pretty, pretty obvious, like the stronger the investment the more successful you’re gonna be on Wefunder. I see some companies it’s like the valuation is just way too high. It’s like not a compelling investment. Given the stage you’re at, you’re gonna struggle to raise and try to counsel folks as they’re launching, but ultimately we would don’t wanna be nannying or potentially deciding what their terms should be. So generally more of an open platform, but that’s one kind of tangible example there. So that’s the first thing is it a good investment? The second thing is around audience. How big is the audience? Obviously, if you have 50,000 customers, then you can send an email and convert a few hundred of them, maybe a few thousand of them to investors and it can go very quickly, right?
If you don’t yet have an audience, you can use Wefunder to build an audience for sure. But the smaller of an audience, you have, the harder it’s gonna be to fundraise, cuz you don’t have that audience to, to pitch the investment opportunity to on day one. And the audience can be customers or users of your products.
The audience can also be your LinkedIn connections or PE people in your friends everyone on your phone. That’s audience size. And then I also think audience passion. So if you have a customers that really love you, then you give ’em a chance to invest in your company.
Boom. So mercury bank, like I say, they raise $5 million in a day. They have 40,000 startup founded customers who just really love the product they rave about their products. And so when Imma the founder gave them a chance to invest they jumped at the chance. And you might have a really big audience, but if all your customers don’t really know your brand, aren’t really that stoked on the product, then, the size of the audience is maybe less important, I would say, than the passion that the audience has for you.
And so that’s on the audience side. And then the third part of the framework is around the founder, I would say hustle or brilliance and creativity and ability to invest time and effort. Fundraising is usually hard work. It’s usually can be a full-time job for a founder. And what’s cool about Wefunder is we provide you with a bunch of new ways to fundraise.
You can now go on a podcast and talk about it, put out a press release, use kind of TikTok to come up with like cool and creative videos to market the ability to invest in your company. Like these are all new things that you can’t usually do, but it takes you as the founder, having the ability and the brilliance to come up with these ideas and execute on them.
And then also the bandwidth and the time and the focus to dedicate to towards investing the time you need. And usually you get out what you put in, and obviously on the Wefunder team, we’re here to help you and help you think through what the strategy should look like. But at the end of the day, ultimately you, as the founder need to have the dedication and the focus and the ability to make it happen.
So that’s the framework that I kind of use for, what’s gonna determine success on wefunder.
Yeah, that’s great. I think I’ll just touch on that. The I think one of the things is certainly just like the hustle too. We were very grateful to have my team who sat down and we made a very intentional plan about what are we gonna do with this?
Wefunder campaign, how are we gonna get information out there? How are we gonna disperse? The updates above and beyond what we do on our, Wefunder page there was, there’s a lot of that, like intentional kind of creativity and planning, but then there was also the fact that I just sat on my couch one night and literally texted everyone on my phone.
Texting thing, this just founder down in San Diego, he raised a million on, we found that and I chatted with him I don’t know, a few days before the end of his campaign. And at the time, I don’t know how much he’d raised, like five or 600 K and I was just. Just like text everyone on your phone and he did it and he credits that to a like significant portion of raises and we’ve really optimized our checkout flow for mobile.
It’s super smooth on mobile. We find few thirds of site visitors to the invest page are on mobile so yeah, if you find texting great strategy.
Yeah. And honestly we laughed cuz there was some friends like way back in another life. I was a river. Which are, river guys are not known as the most affluent of individuals.
There are some folks I texted who I guided with, who are now at, some bigger tech companies or other things who just rolled in with quite bit, quite large checks that surprised myself. He surprised me. And so you never know like that, that network of people that you have.
Anyways, I really wanna, I really want you to take me on a river boat sometime.
I think that would be fun. And yeah, just, on that point, a hundred dollars is the minimum check size and we funded, yeah. The average investment is a thousand bucks. So our average campaign, you raise 400 K from 400 people. The median is just two 50 and the minimum you can actually set a higher minimum up to a thousand dollars if you want.
But most people, as I said earlier, the reason you’re doing this is you see a lot of value in engaging a large audience for people as investors in the company. And so therefore lower the minimum to a hundred bucks, have more people participate. And then, yeah, really like obviously the number of people it’s not just legally now with regulation, crowd funding, you’re legally able to accept money from mono credits and investors.
But practically speaking with RegD, if your minimum investment is 25 K or whatever, you set it as. Who can invest 25 K in a risky startup. But if you lower that to a hundred bucks now, way more people can invest. So the minimum check site is really cool. You can be an angel investor for a hundred bucks in a few minutes.
I, I saw a stat the other day. I think it was 300,000 people have made an angel investment in the last two years, according to Google, by typing how many angel investors in America. I think it’s 3000 deeply scientific research then deeply scientific. Yeah pretty serious, but like 0.1% of the population.
So we’re saying let’s hundred X that , that’s our goal.
Awesome. I love it. And I will say so. I see all the cool questions coming in. I think we’ll cut the sort of general questions a little bit short here of two more points I wanna dive into and then we’ll open it up for Q and a but I do wanna double down on that, that some of the most incredible promoters.
And folks who have really made some great connections for OpenGrants. Who’ve been folks who invested like $200 or a hundred dollars, like the, the network and the benefit of bringing these folks on board. It’s one of the reasons that Wefunders mission deeply resonated with us and that we went with Wefunder.
But I want to dive into a couple tactical things really quickly, and then we’ll get into the questions from the audience here, which I appreciate all of you. Thank you all for voicing your questions. I’m gonna throw out another poll and then set up this next question. So the poll just from the room would love to hear what is your biggest challenge right now?
And hopefully we can use this to also frame some of our responses to your questions. So please do respond to the poll here and we’ll try to navigate the questions and the best way to hopefully support some of your biggest challenges. So as you’re responding to that poll of just what’s your biggest challenge right now?
The two things I wanna address one is we’re all aware that there’s a bit of a economic correction call it what you will going on right now and that the climate around fundraising has changed. What do you what are you seeing? What does that mean for equity, crowd funding?
Do how are you seeing it impact in a certain way on, on the platform?
Yeah. I love the poles by the way, you know what country runs the most poles of any country in the world? Poland.
The dad jokes!
Working I’m a dad of three kids. Have to get at least one dad joke in there.
Yeah, to your question, macroeconomic impact on on re CF investment volume, we’re a two-sided marketplace. So our investment volume every month is driven by one. What founders are launching on the platform, what companies are launching on the platform, and then two investors investing in those companies.
And the first of those is by far the bigger driver of our investment volume. So if we have a mercury or a rep player or a levels, these are three companies that raise $5 million in a day. And Wefunder, they all Andrews and Horowits backed, and then they opened up an allocation to their customers. So if we have a couple of companies like that launch in a week, then our week is amazing.
And those companies are immune, $5 million is the max. They all sell it out in a day. And you can’t measure a kind of reduction in investment volume due to the market for those companies like that. Cause it’s they’re just kept by invest by the 5 million number.
So it’s like maybe they could have raised 25 million in an up market. And now they already raised 20 million in a down market, but they’re capped at 5 million from their customers. And so they raised 5 million in a day anyway. But the point is that like the supply, the number of companies launching and the kind of quality of companies launching as the main drive for investment volume.
We’ve seen a slow down investment volume in the last few months, I would say maybe 20, 25%. It seems to me mostly driven by a slow down in supply. And I don’t have any data to back this up. But my intuition is that in, in the kind of, entering into a recession, I know this a debate on that, but founders are a little bit more skittish.
Some of the folks answering Nepal where I think it’s cautiously optimistic, what’s gonna happen with interest rates what’s gonna happen with growth, is it gonna be harder for me to fundraise from investors? Am I gonna be able to on the valuation that. Could have done six months ago and maybe I could in another six to 12 months.
And so I think founders been just holding off a little bit over the last few months. I also probably think it’s a seasonality thing that like over the summer months, like generally fundraising slows down. And so I think we’ve seen a bit of a slowdown in founders launching on the platform.
There’s probably also, I think some slowdown on the investor side, it will be hard to believe that there’s not. If you look at like Robin hood activity or crypto activity on Coinbase, like I imagine there’s a slowdown on the VE side as well. It’s a little bit hard for us to disentangle the two. My guess based on nothing other than my own intuition, looking at investment activity.
And we fund very closely every day, my guess would be like 20% slow down in, in investment volume, something like that. But nothing too much. And again, like I said earlier, nothing that you can’t overcome, if you’re running a runway, you, or you need to raise the money. And obviously there’s like the investor side of the equation that’s as a founder, what do you need?
And if you need to raise money now, then you can overcome it by, like I said earlier having a growth chart up into the right, having a strong investment opportunity, having an audience and above all, like having the hustle to push it and work it and invest the time.
So you can definitely overcome it, but definitely some slow down to the market, just I’d say pretty minor. Certainly nothing drastic.
Great to know. I love and this one’s gonna be like lightning a couple notes. And thank you everyone for responding to the poll. I see a lot of the leader here is nailing down a funding strategy.
Like how do we get that done? And I think, that’s when I want to target this last little point too, and then let’s move into kind of the Q and a session here. So one of the things that I think is super cool about Wefunder, and then we’ve touched on this a bit and it’s the other thing I think that’s super neat about grants.
And I mentioned this earlier is that I, at least in my vision, this plays such a really cool space in like, when you think about your capital stack, like the different kinds of money you’re gonna use to run your company, there’s debt there’s non-dilutive money, there’s grant funding. And these all Different pivotal roles at different parts of your company.
Where do you see yourself personally? Like where do you see Wefunder ideally entering in the capital stack? Is it that Hey, I’m trying to get this thing started and off the ground. Or is it we just raised a series B and we have all the money in the world, but our invested, like our customers should invest or should you like raise a community around every time?
Is that what you should do? moving forward. And I obviously there’s maybe some bias there, but what do you, what are your thoughts?
it is gonna be a bias answer. Everyone should do it all the time. Seriously. I’ll unpack that. I also just put my email in the chat. These are great.
Questions I see, like in a lot of questions, we probably won’t have time to get through all 36, unless I start talking a lot more quickly than I have been over the last 30 minutes. So if you guys wanna follow up and get into more detail, my email is there. Jonny we.com. Yeah actually genuinely I do think this can fit across the spectrum when we’ve seen founders use this, like from friends and family rounds, the first money in through to series B.
And we’re talking with companies that are series C at this stage. So for the friends and family round, I honestly, again, I’m biased. I don’t know why you would do a friends and family round, not on we fund because this there’s no compliance issues. You can publicly promote it. If you want to, you can raise credits and investors.
You can lower the minimum check size to a hundred bucks. So one downside is our fee. So you pay us seven and a half percent of the raise. That’s the fee. That’s the only thing you ever pay us that is fixed. We don’t charge you more. If the investors are international, they’re investing with a credit card, you pay seven and a half percent.
There’s no fixed fees to launch. You’ll never pay us anything else ever that covers we. We roll up investors to one special purpose vehicle, one SPV on the cap table. And that fee covers the creation of that SPV and the administration of that SPV and perpetuity. So that, but that’s the one downside is the seven and a half percent fee, but I think we’re worth it.
We’re also gonna put you in front of we under investors, they’ll give a boost to the raise. So I think it’s just streamlines. You can create a video and share that video, and that’s so much leverage on your time as a founder. You still have to have conversations to pitch investors, but now you can share that video and just get so many more eyeballs on the company and your raises.
And so I, again, I’m biased, but I think everyone running a front of friends and family run should consider we funded to supercharge and streamline their friends and family round, and then Pree seed series a and series B. And it’s basically, my pitch is. Especially for consumer facing companies. I think if you don’t see any need or value or benefit from, recruiting your customers and community as investors, then, there’s less of a kind of reason to do Wefunder usually.
But if you see value in engaging your customers and community members alongside VCs, then as part of every round, I would say like up in mercury, one 20 million from VCs 5 million from customers. And that’s a really important point. Just to reiterate this, isn’t either raw thing with conventional investors.
Let’s. Say VCs, right? It’s not either I raised from VCs or we’ve under, I would say there’s benefits of both. A lot of VCs are great. They take a board seat, they add value, they open their role at deck. They can really help you to grow the company if they’re really aligned with you on the vision and where you’re taking it.
But there’s also a lot of value from recruiting an army of customers as investors. So do both. So and so really at any stage, I think it, it can go hand in hand with other sources of capital. It can be for main street businesses. It can be for tech startups. It can be for biotech companies anywhere in the country.
Like I say, we can do debt offerings. Most of what we do is equity. We do safes convertible notes, price rounds. So for me, it’s oftentimes it’s okay, we fund, what is the right capital strategy for you? When are you gonna raise capital? How much on what terms? And then Wefunder can plug in as a piece of that at any stage.
Again, if. Either value in, okay, we’re gonna expedite and streamline the fundraising process, help you raise more capital more quickly, or if you see value in engaging your customers in community, but yeah, that can come at any. And in terms of sequencing, like I think most of the startups that are raising capital that we funded if they are doing it in conjunction with raising from VCs, let’s say, I think the preference would be, I think the best practice will be you line up the institutional lead for the rounds.
They set the terms maybe there’s other VCs that are coming in and then you allocate part of the round at the end of the round to let your customers and community invest as opposed to doing it the other way round you, you can, sometimes you can use the crowd funding to create leverage, and again, expedite some of the conversations by creating urgency and FOMO.
But I think generally the best practice, if you can find an institutional lead for the round is to line that up and then add the community element in towards the end of the round. Awesome.
I love that. And yeah, I think the TLDR for me and all of this, and it is something that I’ve learned, this is my fourth venture back company is just that you wanna be very intentional and strategic about this.
And unfortunately I know always, there’s always people asking about what’s the best, or like, how do I do this? And honestly, the answer I’ve always given is you do it the way that makes sense for your company.
That’s how you do it. There’s very few kinda cookie cutter kind of templates.
It’s very bespoke.
Yeah. And I think one of the things I will add and, Is that the we fund team did help immensely in helping us understand a bit of like how they could plug in and just have those conversations, reach out, definitely use Jonny’s email, reach out to the team and just say, okay this is what we’re doing.
Like, how does this plug in? And that’ll help you understand a bit more I’m gonna dive into the questions here. There’s some recurring themes. So I wanna sum some of these up. One of the ones I see a lot is about just who you support in the world. So do you have to be a company based here in the United States?
Can you support companies anywhere? What are your restrictions there?
So regulation, crowd funding, this S E C exemption can only be used to support companies that are legally registered in the us. So historically, we’ve been focused on companies with legal, legally registered in the us.
You can’t have operations internationally, but you need to have a DELLC court or whatever you don’t need to be a Dell OSC court, but you do need to be legally registered in the us. We are expanding in the EU soon. So to start with, that’s gonna open up companies that are legally registered in the EU or the European economic area.
I think it’s called EA. The UK is no longer part of either. Thanks for this little thing called Brexit, but . Yeah. So EU we can also do, maybe that might open up any kind of elsewhere in the world, but for now those are the two geographies that we can support. Definitely would encourage you if this wave of raising capital is interesting to you.
And so one question from someone I think was in Uganda then just Google, like investment crowd funding in Africa or in Uganda, and I’m sure there’ll be other more local platforms that are probably actually more suited to what you need than Wefunder. And certainly, yeah, at the moment we can’t support you unless you’re in the us and the EU.
Another theme that’s come up a bit. If you could address. Does this work for any kind of legal entity? If you’re a nonprofit or you are a religious like mission or, so what are there any things that are excluded from using kind of this platform to do reg CF or
Yeah SecOps some most common LLCs are quite common.
We can’t Docor so if we’ve had CORs convert to LLCs or C CORs and then raise ’em we fund, but as an Corp, you can’t raise legally investment companies are not allowed, so you can’t raise like LP capital for a VC funds. We’ve actually had VCs raised with us, but it’s slightly strange structure where the operating entity is raising capital.
We have. I think two nonprofits raise capital. There’s no equity in a nonprofit obviously, but I think we’ve had two. I know one, I think there was another one as well. That’s basically raised debt capital. And it’s probably a harder investment pitch, but you certainly can do that, but it’s like pretty, pretty rare.
But yeah, technically nonprofits is a possibility as well.
Awesome. And that’s a great segue. Can you touch just briefly on what the debt option is on the platform?
Yeah. So the same with debt as with equity is basically there’s no, again, like what you’re saying earlier, there’s no cookie cutter approach.
You can, it’s what you want to offer investors, right? So we have two standard loan templates on we fund. One is a that you would recognize, right? It’s a loan. Term of X years, and you can change the X from one year, three year, five years, 10 years, and an interest rate of Y percent, and you can offer a 2% interest rate or a 20% interest rate.
Obviously the going back to the framework at gave earlier of what determines success, if you are a restaurant and you’re offering a 2% interest rate loan to investors, that’s pretty risky. You may still be able to raise some money from close friends and family, or maybe you give them perks. We haven’t talked about perks, but maybe you say, if you invest, if you lend me a hundred bucks, not only am I gonna pay you back about 2% interest a year, but I’m also gonna give you, a free appetizer every time you come into the restaurant.
Yeah. So you can the return for investors can be kept perks as well as, financial return. But the point is you decide as the founder. Where, what kind of investment returns you’re gonna offer to investors, but if you don’t offer them, interesting enough investment opportunity, then it becomes more like a donation.
Go back to what I sell earlier. It becomes more like a Kickstarter. And so then you’re just gonna raise less money. And so there’s an elasticity between the generosity of the terms you offer to investors and how much money you’re gonna raise. And so we can certainly guide and help figure out the terms as a platform, as Wefunder in early conversations with you, but we’re not gonna put any money in.
And so our opinion actually shouldn’t carry that much weight. The opinion the people whose opinion matters is people that are gonna write a $5,000, $10,000, $50,000 check. What you wanna do as a founder is have conversations with investors that you want to come in and anchor the round and invest early in the round and figure out the valuation.
If it’s an equity raise or the interest rate, if it’s a loan raise with investors and once you find okay I’m having good conversations with investors. If I’m offering these terms, this investment. For these investor returns, then we can take that and put it up on the platform with confidence that there’s gonna be invested demand to invest on those terms.
The other type of loan offering that we have is what’s called a revenue share. So that’s what you say. I’m gonna take 5% of my revenues or 7% or 3% of my revenues every quarter, let’s say, and I’m gonna pay that back to investors until the investors have been repaid a multiple on their principle.
So if you raise a million dollars on we under maybe the multiple is two X or 1.5 X. And so if it’s 1.5 X, you need to keep paying 3% of your revenues every month, every quarter. Until investors have got 1.5 million back. And so that’s like a revenue share based contract. So those are the two standard line offerings that we do, but we also can accommodate bespoke offerings.
Like sometimes there’ll be movies that have like royalty contracts. Sometimes there’ll be, breweries and bars that have, or restaurants that have a preferred return for investors, say whatever unique and weird and wonderful investment contract you want to raise on. Obviously you need to be pitching it to investors and generating investments from investors.
But we can be pretty accommodating on that front.
Awesome. That’s great to hear. I didn’t know about the revenue share love just, and I think one, I wanna touch on this again because it comes up quite a lot. I think. There’s a lot of there’s a lot of possibilities and vehicles available for raising capital and a lot of it once again, has to do with what works for your company.
There’s some great questions in here that one of the other themes that’s come up is what does the cap table look like in reg CF? And I think that’s a great question. There’s concerns about oh, is it, am I gonna have now a hundred investors on my cap table? Can you speak a bit to what the cap table?
And I can not actually talk about what we did at OpenGrants, which is that we rolled everything up into an SPV. So it’s just a single line on our cap table. And then the lead investor on that SPV actually had, has the voting rights and votes on behalf of everyone else on that SPV. But we love to hear your thoughts on just how folks manage that.
If there’s other ways or what that cap table looks like for folks at the end of that reg CF.
The you nailed it. We use an SPV, a special purpose vehicle. It’s a very common instrument in early stage fundraising. And so lawyers, VCs are used to it, a lead investor votes for the individual investors in the SPV.
And yeah, we recommend using that there are other options as well, but that’s really what we recommend. Yeah. And that kind of does, there’s no kind of issue from a cap table management perspective. Great.
There’s quite a few questions about how much it costs to run one of these campaigns.
Yep. And I’ll just throw out my 2 cents and say that we spent no money on paid ads or anything like that. Leaned into our leaned into our customer base. And really, it was a really low cost experience for us, but would love to hear your thoughts on that. I think, once again, this is probably very company dependent.
Yeah, totally. So we charge a fee of seven and a half percent of the amount raised. So that’s the biggest cost. And then. If you are using one of our standard investment contracts. So we have a standard loan contract revenue share contract. We have a standard safe contract. Why Combinator post money, safe contract.
We have a coolly convertible note. If you’re raising on a price round, you would want a lawyer to draft a custom subscription agreement. And so there’s a legal cost there. If you’re raising on a straight equity price strand, if you’re raising us safe, you can avoid the legal fees. We need to take care of the sec form C filing for you.
So most startups are not paying a lawyer. Actually, I think myself for we fund are not paying a lawyer, anything for the whole thing. Again, if you wanna do a price round, there would be a fee to get a lawyer to draft a investment contract there. But that’s a minority. If we fund raise this there’s one other cost as well that you would incur, which is if you’re raising more than $107,000 previously two 50 K, but the SCC just recently lowered it to 107 K.
So if you’re raising more than 107 K and this is actually a good point of one of the few downsides of regulation, crowd funding that I think still exists. And I should point to you need to publicly share financials. That’s like the downside. So if you are really reluctant for your revenue P and L cashflow, statement to be out there in the world it’s not a great fit for you because you have to publicly share that with the S E C as part of your legal filing when you formally launch the campaign.
And yeah sharing those gap financials is a requirement for every company. If you’re raising more than 107 K, you need to have an independent CPA and accountant do a review of your financials. And if you’re raising more than 1.07 million, then you need to have a CPA, do an audit of your financials.
And depending on how complicated your financials are, there’ll be a bigger or smaller cost of that. So if you’re a very early stage startup, you don’t really have many financial transactions yet. Getting review done is probably one or two grand. If you’re a brewery or a bar with like thousands of transactions and your books are a total mess, then to get an audit done might be 20 grand.
And so it really varies. And so that’s a. That CPA cost is one that you would pay. Not, you can actually start fundraising on we funded before you have that, but certainly before we send you any money, you would need to pay that cost. If you’re raising more than 107 K. So those are costs that everyone pays.
And then Adel mentioned, some founders will pay money to marketing agency to help them on the heavy lifting of the campaign, marketing execution, writing all the copy of the emails. And our role is more on the strategy side. We’re not gonna write the emails for you or write the ad copy for you, or get super, spend dozens and dozens of hours on execution.
So if you want help with that, which some founders do, you would pay for a marketing agency to work with you on that. And then some founders also are paying ad spends to raise the money. We generally don’t love that as a model. It becomes a pretty expensive way to raise capital. And we say, if you need to spend a lot of money in ads to raise the capital, ah, this is we just get a little squeamish about that.
I think where that can work is if you’re a consumer facing company, let’s say, and you can generate revenue. If the ad spend serves a double purpose of one raising the capital, but two then basically acquiring customers that you can make lifetime value revenue from in the future. I think that can get quite interesting.
I would say the average company on Wefunder is spending 5 cents on the dollar on a marketing agency and ads, but obviously SED and a lot of companies they’re spending zero and, the Mercurys of this world and thes of this world that raise 5 million in a day. They, this is just like they send.
An email risk, the money. No, no worry about ad spend or marketing spend or anything like that. And again, as today I mentioned, it depends, if you have a huge audience and if you have an amazing company that everyone wants to invest in there’s no ad spend like the, the harder it is you to raise money.
Maybe you want to choose it with some odd dollars. It can make sense to do that. It’s a pretty, pretty small minority I would say of we funded companies.
Yeah. Great stuff. So I wanna go through maybe just like a rapid fire series here. We have seven minutes left. And so I’m just gonna fire these away at you.
And if you can keep the answers as short as possible And then as mentioned, please, if you have questions, I saw one question here about just reaching out to the Wefunder team. Jonny’s been good enough to leave his email there and chat. Please feel free to reach out. You can reach out to our team as well.
We will send contact information out after this. And I do wanna just say also, thank you all for being here. If we don’t get to your questions, we’ll send follow up some other resources as well. Let’s start with some of these there’s a question here. So it’s illegal to raise money saying it publicly and fair style and social media not necessarily, but if you’re selling equity, that part is definitely something to navigate.
And that’s what ranks CF really opens is the ability to publicly solicit for an equity. But she could go out and run a Kickstarter campaign all day long and that’s perks based crowd funding. So it’s different. So I, I just took that one. Sorry, but we just talked about marketing question here.
So it’s basically a fan friends and family round on steroids. Would you characterize it like that?
I think if you’re running a friends and family round, I think you can characterize it as on that, if you are doing this as part of a series B, I probably wouldn’t characterize it as that. Yeah, we use the phrase community round.
I would characterize it as an allocation of a series B a community round. That’s like part of a series B. So I would probably only use the phrase, friends and family around if your overall raise is at the friends and family stage.
Awesome. Do VCs view using equity crowd funding as a positive or negative stick?
I think it depends on the VC. I think like VCs will probably view other VCs as a positive or negative, right? If you have Andrews in Horowits or Sequoia in your series a, then that’s really gonna help you raise the series B if you have kind of family office, it doesn’t have the name recognition.
That’s gonna carry less weight in the next round. So there’s a spectrum within VCs. I think there’s probably some VCs that look down their nose at equity, crowd funding, by analogy as like the Hilton hotel owner, probably look down their nose at Airbnb in 2010. That’s the analogy for me, we, funder is Airbnb for the hotel industry.
So there probably is some sneakiness, but like I’m seeing more and more VCs who it’s not just okay, now that you guys fix the SPV. Table issue. Okay. That solves the kind of downside that we were looking at. Cause that’s a relatively new thing. The SCC allowed for SPVs a year ago before that the cap table situation was bad.
So that’s that now changed, which is really, I think solved the biggest problem with R CF, but now more and more VCs are actually buying into the positives that if I’m a consumer, if I’m investing in consumer facing C. Yeah I actually buy this week under pitch that if my portfolio companies can recruit thousands of those consumers and customers as investors, that’s gonna accelerate their growth, which is good for my portfolio performance.
Again, it depends on the VCs, but if you get to comu community round.com is a great website. We rolled this out in April, check it out. I just put it in the chat. And on there, there’s a number of VCs that are have quotes of that we have relationships with that are basically like, yeah, this is the future of fundraising.
Alexa. So Heian talks about this being the future of fundraising. We have a number of a 16 Z portfolio companies that have done we on there. And I think more and more VCs is seeing this, not just okay, like absence of a negative, but actually, yeah, this can really help my portfolio companies, but I, it depends on the V.
Awesome. Another good one here that I think is short and fits in our last three minutes. Does Wefunder help with the legal obligations of the startup and the investors?
We help with the form C filing, which is the legal requirements to launch for ref campaign and the closing. So yeah, we take care of that.
There’s one other legal requirement. You need to file an annual report the year after you raise. So for Al in April of 2023, you’ll need to file an annual report. So you would do that. We have a tool that you can use on Wefunder to do that. But you would take care of that using our tool usually.
So for the most part, yeah we are doing the form C filing with.
Awesome. I am going to go, let’s see. There’s a lot of questions about company stage in here. Like what stage needed to be. You can raise whenever you are ready. Your company just needs to be incorporated.
So now just to make clear, we fund us an open platform. So if you incorporated yesterday, actually you can raise pre incorporation technically, but you need to incorporate before you file the form C but you can start fundraising even pre incorporation. But if you’ve incorporated yesterday, you can file a form C and raise a Wefunder.
We don’t wanna be a gatekeeper. We wanna let anyone have the chance to invest. We want don’t wanna decide whether you are worthy or not to raise money. As with all fundraising. Imagine if a worldwide Wefunder doesn’t exist. If you don’t have any traction and investors don’t see anything, why they would invest, you will struggle to raise money in a reg D world from angel investors or friends and family.
And you will also struggle to raise money on Wefunder. So it, Wefunder technically open platform. No, no barriers, but it’s really on the question. Turn it back to you as a founder, can you raise money from investors? And if so, we’d love to have you do it on Wefunder.
Yeah. And I will just speak I kinda wanna close on this point, cause I think this is a great question in terms of your capital stack.
Maybe fundraising when you have no traction, no product is not great, but grant funding can be a really like grant funding is a great place that fits on that part of your journey. I just wanna thank everyone for being here. Thank you so much, Jonny, for sharing your insights into this space. I personally am very excited about where equity crowd funding and crowdfunding can take just people in general and businesses.
Very excited about this kind of evolution. So just wanna thank you all for being here. Please do check out the resources that are in the chat. Apologies. If we did not get to your questions we will do a variety of follow up both via emails, and then please do feel free to reach out to myself for the team.
I’m gonna go ahead and share my screen again. Just so y’all can check out this you can pop over to OpenGrants as well. And you can sign up and we have a ton of resources. There was some questions about getting grants tons of resources there as well. So thank you all for being here.
Thank you for joining us. This will be available post in a in a YouTube as well as via email. Definitely check in, be sure to check out Wefunder check out OpenGrants and Jonny, any like parting words of wisdom?
I’m looking forward to the riverboat guide ride soon.
Yeah, we’ve talked about the founder side. If you’re a founder looking at raising capital, check out, Wefunder learn more. I’m I put my email in the chat, feel free to email me and we can give you more info. And also on the investor side, check it out. We have hundreds of companies fundraising.
When Wefunder, maybe you’ve never angel invested in a company before now. You can be an angel investor for a hundred bucks. It’s very easy if there’s a cause or a company that, that kind of catches your eye. So we fund.com/explore. You can browse through different investment opportunities. So yeah, again, thanks for having me Sedale and yeah, I hope we can help some of the folks in the audience set.
Thank you all. Thanks everyone. We’ll see you at the next one. Take care and we will be in touch.