If you are a founder considering raising capital via equity crowdfunding, here are some things you should know.
Recently, I leveraged Wefunder to raise capital for our startup, and one of my biggest takeaways was that focusing on the capital alone misses the main opportunity of a community raise.
Why Equity Crowdfunding?
Let's start by acknowledging that traditionally, SEC investment regulations have mostly been racist and classist.
It makes no sense that the average citizen can lose $100k at a casino with zero oversight, but when we want to invest that same amount in our friend's company, we need $1M in liquid assets and an attorney or CPA’s attestation of our competence as investors.
The deeply problematic accredited investor rules are well documented here https://www.aspentechpolicyhub.org/project/closing-the-tech-funding-gap/ and here https://www.nyulawreview.org/issues/volume-96-number-6/racial-exclusion-in-private-markets-how-the-new-accredited-investor-standard-is-arbitrary-and-capricious/. If you want to learn more about this issue, here are some great articles on why the current regulation needs to change. https://www.techfundingequity.com/accredited-investor-rule
Fortunately, the JOBS act was passed in 2012. https://www.sec.gov/spotlight/jobs-act.shtml Now, founders have a compelling tool to open investment to anyone, instead of just accredited investors. Founders have always had the responsibility to create value for investors.
However, I personally believe we have another responsibility—to build companies that are inclusive and responsible corporate citizens.
We now have the tools to allow almost anyone to invest in our ventures, and to potentially offer them the same massive value we’re generating for our traditional investors.
It’s well understood that investment is the only way to create real generational wealth, and high growth startups and small businesses are part of a diversified and successful portfolio.
Equity crowdfunding is not only a tool for social justice, but a powerful opportunity to align incentives with your customers that founders have never had before.
I firmly believe that the next unicorns will leverage equity crowdfunding and community to raise capital and catalyze change.
Lessons from A Community Round
Recently, I leveraged Wefunder to raise capital for our startup, and one of my biggest takeaways was that the capital itself isn’t really the point. There are many ways to raise capital for your startup (personally, I am very bullish on grant funding).
As a founder, you should be aware that capital is a tool. The more tactical you get with it, the more successful you will be. But community capital serves a unique purpose, and it's not about money as much as you might think.
These are my lessons from the past few months working on our community round.
Lesson One: Framing Matters
If you’re a venture backed startup like us, you should know that a community round can come off as a bad signal. OpenGrants had already doubled down on a community strategy by doing a continuous raise https://invest.opengrants.io/public, but be clear on your tactics and approach.
Your investors should celebrate your decision. If you make it look foolish or desperate, perhaps you should not be doing it.
One of the concerns I hear all the time is the amount of time and effort it takes to raise capital with a community round. To which I say, the capital is not really the point.
In general, it's easier to raise $1M-$2M with a few checks from traditional investors than $160k from 93 investors. In fact, that sounds like a pretty bad deal (I am aware of the privilege embedded in that sentence—this is about access as well).
But a community round is literally about the community! It's about engaging a group of highly motivated and incentivized individuals to help you accomplish your goal and mission. It is about sparking conversation and inspiring a movement.
Framing the reason—both publicly and internally—will make all the difference in the world. A community round is worth the work, as long as you have a plan. Which leads me to my next lesson…
Lesson Two: Have A Plan
My team includes some of the best in the world at what they do. Our head of growth is part of the inaugural cohort of the OnDeck Business Development Cohort (it’s impressive https://www.beondeck.com/bd) and previously curated community for One Valley.
Our COO came from an illustrious career at Singularity University. They bring order, realistic goals, and milestones to my audacious visions. Our Wefunder campaign was no different.
Before we launched we had a content plan, engagement plan, and a clear set of objectives and goals. We set up funnels and processes for everything (when I say we, I mean my team). Fundraising is never easy, so don’t believe anyone who says they’ve magically made it easy.
People have done a great job making fundraising more efficient and more equitable, but no one has made it easy. That’s why, as founders, you need to have a plan for your raise.
Once you identify your goals and reasons for raising a community round, create a plan to ensure you achieve those goals. Prepare to do the work, then do it!
Lesson Three: Work With The Wefunder Team
I looked at several options when considering our community round. These included the Dalmore Group, SeedInvest and Republic. I have nothing against any of these teams and I am sure they are all great.
However, I will say that Wefunder did a better job selling us on their services. At the end of the day, they brought it home with amazing customer service and no upfront fees to get things rolling.
We also loved the ethos of the company itself and the fact that they are a public benefit corporation.
Once again, capital is a tool and it’s highly tactical. So be sure to do your own diligence on the teams and tools you’ll be using. I can only speak on my experience running a campaign with Wefunder, and some comments and feedback I have heard from other founders.
One of the main criticisms I’ve heard from founders is that they didn’t get enough info from Wefunder about the different triggers and perks of working with them. I did not find that to be true at all, but I was privileged to work with a rockstar team over there.
I think what often happens is more of a communication issue, and less of a willful bias. The takeaway here is this…reach out and ask questions.
Engage your team at Wefunder, or wherever you are—Republic, SeedInvest, etc. Learn what incentives and tiggers you can leverage to optimize your campaign. Interested in getting in front of more of the community? Ask how to achieve that.
One of the problems with platforms is that we are conditioned to think that the options in front of us are all that exists.
Our infrastructure provider AWS is a great example of how this can be a stumbling block for founders. Every time we ask our account manager at AWS more questions, we get more resources and support that we didn't know existed.
This is not a critique of them, but simply an example of the benefits of real human experiences.
We experienced the same with Wefunder. While they do a great job of providing resources upfront, they also have a great team behind the scenes doing the work. My challenge to you as founders is to reach out and connect with the people behind the platform.
They do great work, so make the ask!
The Future of Funding
Fundraising and investment is experiencing a transformation. Capital now comes in many forms. People are starting to think about the future of capitalism and wealth creation.
Bitcoin and crypto currencies are contributing to some very compelling conversations around the financial ecosystem itself. OpenGrants is pleased to play a small part in this revolution by streamlining access to grant funding.
One thing is clear—there is a sea change coming that prioritizes financial self actualization and empowerment of the individual.
Any founders who are thinking long-term and want to future-proof their companies should consider a community round as a tool to empower individuals with access to equity in a company they love.
Finally, I can’t end this article without mentioning Fairmint and our continuous raise https://invest.opengrants.io/.
Fairmint was on my radar when I was starting OpenGrants, and I had the good fortune of participating in the Boost VC accelerator with Joris and Thibault, co-founders of Fairmint. They do what Wefunder does for retail investors, for accredited investors.
We are deeply grateful for the work they do, and the thought they have put into their product.
OpenGrants will continue to open up investment opportunities to as many people as possible under current SEC regulations. You can learn more about what's next at invest.opengrants.io/public.