Crowdfunding is a way to raise capital from an audience of people. By leveraging Regulation Crowdfunding (Reg CF), organizations can use platforms like Wefunder, to raise equity, debt, or other types of capital backed by multiple non-accredited investors.
I connected with Adam Roberts, Founder In Residence and Head of Scout Program as Wefunder, to dive deeper into crowdfunding, when startups should consider crowdfunding, and what startups should think about when looking at crowdfunding.
When should startups consider crowdfunding?Startups can and should be thinking about crowdfunding from day one. The idea behind crowdfunding is to raise capital from a community of followers. Crowdfunding essentially enables potential customers to become investors, which means they also care about the success of the company. This also means that startups can lean on supporters for anything, whether advice or hiring.
Who is eligible?For crowdfunding platforms based in the US, startups must be incorporated in the US (as an LLC or C Corporation). The one exception is that Wefunder will not do initial coin offerings (ICOs). Because Wefunder does not take equity, anyone can access crowdfunding through their platform.
What should a startup pay attention to when talking to crowdfunding platforms?A big overall misconception is that crowdfunding platforms bring in 90% of your round, but the truth is that the startup will bring in a lot of the investment. That said, average participation from investors on the platform is 40% of the raise, so it’s essential to look at audience size, average check size, and overall platform activity.
Some other pieces to consider include:
– Setup fees
– Transaction fees
– Form C filing fees
– Commission
– Equity
Wefunder only takes a 7.5% commission (there are no other fees).
What are the pros and cons of crowdfunding?
Setting expectations is essential when pursuing crowdfunding, as some types of business models will work better than others (B2C vs.B2B).
Pros:
– Your own family and friends can invest
– Clean cap table
– Investor and customer acquisition
– Public solicitation (no disclosing terms)Cons:
– Need to convince retail investors
– Time-consuming
– Form C is publicly available through the SEC website (includes business details and financial information), but this is top-level info for the previous two years
What is the key to success when using crowdfunding?
It is all about building and maintaining momentum. This means collecting investments before a startup’s page is live so that when the page goes live, others see that there is already a significant enough investment. Ideally, a startup raises $50K or 25% of its target investment before going live, which triggers Wefunder’s marketing promotions and algorithms.
About Wefunder
Wefunder is a crowdfunding platform built by former founders. Wefunder’s goal as a Public Benefit Corporation is to revive capitalism and preserve the American ideal. By providing funding to more eligible companies across the entire country, not just Silicon Valley tech startups, Wefunder is reversing these trends.
Other Resources:
– A Food Entrepreneur’s Advice For Equity Crowdfunding
