Are startup investments only for accredited investors? Not according to WeFunder.
By Anna Lardinois
Calling themselves the “Kickstarter for investing,” this company allows small investors to participate in the startup ecosystem. Where Kickstarter generally allows members of the public to back a specific project in return for early access to a product, equity crowdfunding sites allow the public to make a small investment in the company itself. Thanks to Regulation Crowdfunding legislation enacted in 2016, non-accredited investors can now experience the thrill of angel investing at an entry point of just $100.
An accredited investor is one who has a net worth exceeding $1 million, either individually or jointly with their spouse, excluding their primary residence. WeFunder is one of several entities to jump on this significant legislative change. And several Milwaukee Region companies are using the platform to raise funds.
WeFunder is short on promises, highlighting the risks of startup investments. It warns users that they should “expect to lose it all,” and that if any returns do come their way, it will likely take years to realize them. Instead of promising investors profits, WeFunder emphasizes the social impact of participating in this kind of investing by promoting the changes an individual can make in their community by backing companies in their own communities that reflect their values and interests.
Equity Crowdfunding allows investors to use credit cards to get in on the action, but the platform isn’t lawless. Regulated by both the SEC and FINRA, the platform also puts in annual caps on user investment amounts.
Startups are turning to crowdfunding because it allows them to raise money without giving up control to capital investors. WeFunder offers four classes of investments: debt, convertibles, stock with no dividends, and stock with dividends. Companies are limited to raising a maximum of $5 million in a 12-month period.
Among the Milwaukee Region companies using the platform to raise funds are MobCraft Beer Inc., Octane Coffee, and washbnb.
MobCraft Beer is no stranger interacting with their customers. The brewery creates crowdsourced beers, allowing customers to suggest flavors, and vote on what varieties will be brewed. The brewery’s close relationship with its customers made crowdfunding a natural fit for the growing business, founded in 2012 by Andrew Gierczak and Henry Schwartz. The company is raising $2.25 million to launch taprooms in Denver, Waterford, WI and Woodstock, IL, while keeping their primary brewery and popular taproom here in Milwaukee.
Schwartz shared his thoughts on his company’s experience with WeFunder:
Why did MobCraft Beer choose WeFunder?
“In the beginning we chose [WeFunder] because there are not a lot of easy ways to get capital. But since we’re a crowdsourced brewery, that’s the way we interact with our fans. We wanted our fans to be owners of the brewery, so being able to take advantage of you know the JOBS Act legislation (Jumpstart our Business Startups, 2017) that had made that legal. We knew that we wanted to have our fans be owners at the brewery and we vetted a bunch of different equity crowdfunding companies. I really like the success that a lot of other alcohol, either breweries or distilleries, had on WeFunder previously. So, looking at some of the previous raises that they had done, and both the velocity and success that those other breweries had had kind of shows that I felt like they had a very kind of strongest niche in that space.
“In doing a little bit more research of, total dollars raised and the amount of people that came from the WeFunder network into raises that companies did- those both were good, some of the stats [indicated] pretty large percentages of the potential investors could come from the WeFunder network just by being included in their mailing lists and all that. And they had a really cool on-boarding process [explaining] how to really strategize to make sure your campaign is successful.”
Schwartz attributes the current success of this ongoing fundraising efforts to the relationship they have with their fans. In addition to equity, MobCraft is offering their investors specialized perks at different levels of investment, ranging from membership in their Mug Club, up to creation of a customized beer. The brewery has devoted fans willing to invest in a company they love. According to Schwartz, the average Mobcraft investor has invested $2,600 in the campaign, significantly more than the $350 average individual investment, as reported by WeFunder.
Another Milwaukee based startup that found success using WeFunder is Octane Coffee. Founder and CEO of the startup, Adrian Deasy, is preparing to launch Wisconsin’s first automated drive-thru coffee shop sometime this winter. The mechanical engineer plans for his self-contained, robotic coffee shops to be opened nationwide, saving consumers time and owners the expenses related to hiring staff. For their seed round, Octane Coffee used a variety of funding methods, including WeFunder.
Deasy had the following thoughts about his company’s experience with equity crowdfunding:
Why did Octane Coffee choose WeFunder?
“We chose to fund part of our $400k Seed Round with WeFunder mainly due to investor feedback over our 100+ pitches. Angels, Funds, and ‘sophisticated’ investors kept being scared away by the vast complexity of a concept like ours that requires not only hardware & software expertise but also commercial real estate, branding, retail marketing, and knowledge of the massive coffee industry. If an investor wasn’t comfortable with any one of those arenas, they were typically out. We found a very different mindset from Friends, Family, and WeFunder Investors who typically chimed in with, ‘Coffee AND robots? I’m in.’ After launching the WeFunder campaign we did lock in a large investment from the Tundra Angels out of Green Bay and ended up closing our round at around $415K total with 94% of the money coming from Wisconsin.”
What terms did you offer your investors?
“We raised our Seed Round using Post-Money SAFE Notes with a $2.5M valuation and 10% Discount. These terms were set early on by our first large investor, Lancaster Investments out of Madison, and were followed through to all investors moving forward.”
Would you recommend WeFunder to other startups? Why or why not?
“I would recommend WeFunder to other startups, but it really does depend on the nature of the business. Kickstarter is much more relevant for pure hardware startups, while pure software plays might be a better fit for VC/Angel funding. Traditional bank funding, which we also utilized, is also another method of capital raising for existing businesses with proven revenue models.”
Raising capital is a hurdle nearly all startup companies face. Equity Crowdfunding has opened the door for the non-accredited investor to explore the world of startup investments. WeFunder, and crowdfunding platforms like them, could expand the available funds for new businesses by introducing novice investors to the world of angel investments. For businesses with an existing fanbase, equity crowdfunding offers a viable option for businesses to raise capital from their current customers, while maintaining control of their business operations. The ultimate impact of Equity Crowdfunding remains to be seen, but for now, there are Milwaukee businesses benefitting from connecting with the non-accredited investor.