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Raising Money Online – Advice for Startups (themacro.com)
75 points by craigcannon on Aug 31, 2016 | hide | past | web | favorite | 19 comments

This is an interesting topic for companies looking for an investment. I would also be interested to see investor stories from this type of investing. I have looked at quite a few companies raising through these sites and never once saw a deal which remotely looked like a wise investment. I'm sure one will emerge, who's story will be replayed, and they will bring the next $1B of investment into this ecosystem but right now I'm struggling to see the investment benefit aside from cheap (out of pocket) investment options.

hm, I've interviewed at tech companies around the US that were "closing their series A or B funding round" and successfully did it

Without fanfare from Crunchbase or the rest of the peanut gallery I was able to find Regulation D documents and pitch decks for those companies on sites like Wefunder.com and other "data rooms", the finance sector term for "overpriced shared file repository so potential investors can look at private securities offerings".

Wefunder would be one of "those sites" you mentioned, and these are 8 figure deals.

These companies are indistinct from any other tech company, so its happening. You might just be missing good deals

According to Crunchbase several of these companies still only have a seed round completed. So much for their scraping.

I'm a founder at Wefunder, and I'm happy to answer any questions about Regulation Crowdfunding.

We recently closed $1m each for three different companies. Here are our stats: https://wefunder.com/stats

From a Wefunder post[1] about RC: "However, with these protections, in the very worst case scenario, a venture capitalist firm ideologically opposed to a “messy cap table” (even though there are no voting rights) can simply repurchase the crowdfunded securities during the deal."

What does that last bit mean, regarding "repurchase the crowdfunded securities"? Do smaller investors run the risk of losing their shares entirely during a later-stage deal with a VC that wants to clean up the cap table?

[1] https://blog.wefunder.com/founders-the-strengths-and-dangers...

Smaller investors run the risk of being repurchased for fair market value at the time of the re-purchase.

The Fix Congress Act being debated in Congress may solve this problem.

What relationship did the companies have with the investors

Typically, the investors are the startups own customers. For our most successful $1m raises, we estimate over 70% of the funds are their own community.

This makes sense. One good signal of whether you should invest is whether you love the product.

My biggest concern would be ending up with a crazy cap table. When a crowd SAFE converts does the entity stay consolidated?

We created a special SAFE that won't convert until IPO or acquisition.

Ahh... so it stays a single entity until the company is large enough that having a ton of shareholders doesn't matter.

That's clever.

thanks for the project. Ideally, how much time Wefunder review process will take?

Generally, within a couple of days.

Jared, I enjoyed your article and agree with most of the thoughtful analytic distinctions that you make and fully support your effort to sensitize the public to the evolving and varied business models of all JOBS Act related platforms. I am a partner in Ellenoff Grossman & Schole LLP, a securities law firm that worked closely with the platform community and the Federal and State regulators that established the rules around the JOBS Act statute. I also co-founded iDisclose, a legal technology company, that offers entrepreneurs an application to generate their own legal disclosure documents (required under Title III, a so-called Form C-- we also have a PPM application).

I would also highlight that both issuers (entrepreneurs) and investors ought to focus on the revenue models of the platform. Broker-dealer (and RIA) platforms typically take commissions on each dollar raised by an issuer, must perform regulatory required due diligence and their activities are monitored by the SEC or FINRA, as the case may be, and they are responsible for overseeing those platforms activities and compliance with the rules. Same holds true for Title III platforms which must by statute be approved by FINRA.

Certain Reg D platforms and Title II platforms generate revenue like a venture fund or real estate firm benefit only from the profits generated in excess of the original investment amount of the investors (a so-called profits participation). While I fully agree with your observation of the benefits to investors, along with the lead investors and syndication generally, it is important to also note that these platforms do not necessarily have to be licensed as broker-dealers consequently. Perfectly lawful in most cases.

These platforms consequently have different economic incentives and liability profiles.

We specifically developed iDisclose to drive down the cost of legal disclosure to be consistent with this new online ecosystem but maintain high quality disclosure through a TurboTax like process to reduce potential liability to the issuer and the platforms.

BTW, all of the platforms which you referenced should be acknowledged for their excellence and pioneering approach to this new online investment world.

Would love to answer any further questions you can find me here or @douglasellenoff

Interesting read! Seems like the regulatory landscape is shifting quickly (as mentioned in the article as well) and aries depending country.

Related to the topic, Wheely's (YC S15) recently raised €850 000 on Swedish local "crowd investment" site Funded by me [0].

[0] https://www.fundedbyme.com/en/campaign/7681/wheelys-cafe-wor...

What a useful info! Launching my own real estate project, I personally cooperated with the professional business planners from ogscapital company. They helped me prepare a great business plan for my real estate startup. To start with, I recommend you to read this article - https://www.ogscapital.com/article/real-estate-business-plan . ​

The most crucial fact about all of these sites is that they are essentially investment workflow platforms, NOT investment promotion services.

A company needs to do their own promotion among investors to raise money, there aren't waves of investors at these sites eager for new opportunities.

This is actually how Kickstarter works, and the reason that effective promoters are the ones who succeed at raising money, rather than the cleverest inventors.

> FundersClub, Wefunder, and other sites like SeedInvest, CircleUp, and EquityNet offer crowdfunded investments on their sites that are mechanically similar to KickStarter.

For the companies we have raised $1 million for, 60% to 70% come from their own users or customers. The rest from the Wefunder community.

Generally, it's a pretty good investment signal when you personally love using a product. So lots of customers invest for most high-quality companies.

I've heard from several VC's that they wouldn't touch a company that raised a previous round via Title III. It makes sense on one hand (cloudy legal ramifications, which I'm sure will be no fun for the first big exits that go this route...); and on the other hand, it's stupid and competitive to explicitly choke a system that could increase opportunities/deal flow for everyone.

Regardless, something to be aware of as a founder considering options.

Yeah, that's just silly.

We've already had a company that raised $1 million from Title III that then raised $5 million from professional investors.

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