This week, Marcus talks to Jonny Price, VP of Fundraising at Wefunder, a regulation crowdfunding platform built to allow non-accredited and accredited investors alike to easily and seamlessly invest in startups and their founders. Marcus and Jonny get into what regulation crowdfunding actually is, why Wefunder is attempting to transition away from that terminology, what makes your startup a good (or poor) fit for this kind of capital raising, and why they believe this is the future of the industry.
Jonny, glad to have you on the podcast. Thanks for coming on. Can you tell us, I guess your name, your position, a bit about what you do with Wefunder?
Yeah. So Johnny Price I’m the VP of fundraising at Wefunder. Um, so my role is to run the team that helps try to, uh, connect with founders who are raising capital. And might be interested in doing that on Wefunder, and hopefully, um, you know, explaining the pros and cons to them and then getting them set up to succeed on the platform.
Johnny and I connected a while back at, you know, one of those many pitch competitions that us startup people go to. And it was really cool getting to see a little bit about, um, what they’re doing back then and how they’ve grown. Where is we funder in the mix right now, as far as, equity crowdfunding?
Yeah, so Wefunder was founded in 2012. So we’ve been around now for a decade. And the first thing our founder’s were kind of working on, was changing the law, to allow ordinary people to invest in startups they love. And so the jobs act passed Congress in 2012. But it took the FCC four years to roll out the regulation crowdfunding component of that.
Um, so May, 2016, it was kind of four years when we were doing what we jokingly refer to as like ‘rich people crowdfunding,’ where it was limited to accredited investors but, uh, May, 2016, was when the law, for regulation, crowdfunding went live, uh, which allowed startups then to raise from unaccredited investors as well as accredited investors. And since then Wefunder has been the biggest platform. The laws were updated and improved by the FCC about a year ago, so March 2021. And, uh, some of those things where that, the cap was increased from a million to 5 million, we can now use a special purpose vehicle to roll investors to one line on the cap table, you can now launch a campaign in a matter of minutes. Previously, it usually took a few weeks to, to get going. Um, so a lot of really awesome improvements. And since then we’ve been growing very quickly.
So grown about four x over the last year or so. In terms of the number of campaigns and their dollars of investment volume raised, we’re coming up on half a billion dollars over the lifetime of Wefunder that we’ve raised for startups. A lot of that has come in the last 12 months. And yeah, we’re, we’re the largest platform by market share of regulation crowdfunding. So we have about a 40% market share.
Uh, and so basically it means that approximately the top 8% of the population, according to a Google search I did the other day, about 8% of the population are accredited, the richest 8%. And so when a startup founder is raising capital normally in regulation D, they are limited to raising from 8% of the population.
And what we do at, Wefunder this exemption called regulation crowdfund, allows founders to raise from the other 92% of the population. You can still raise from accredited investors. Accredited investors account for about 50% of investment volume on Wefuner typically. But now you can also tap into your customers, your community members, friends, and family, LinkedIn connections, as well as 1.4 million users on Wefunder. And you can also publicly promote the rounds. Whereas normally if you’re running regulation D, you’re kind of privately soliciting investors. Now you can say you can go out and tell the story of your company and raise money by posting on social media or sending an email blast to your customers or coming on a podcast like this one and telling your story.
So a combination of being able to publicly promote and raise from a 100% of the population not 8% of the population. And get in front of Wefunder’s investor base, put those things together, um, hopefully, we’re making it a little bit easier for startup founders to raise the capital they’re looking for.
Yeah, that was a, that was a really interesting thing when I got into the startup space, realizing that as a founder, you can’t just go blab to the world ‘ hey, I’m raising money, if you want to invest in me, just throw some money at me,’ like it doesn’t work that way. I don’t think most people see it that way until you get into the space. But I think for most people who have been around the internet, my imagination is it’s going to be thinking about like Kickstarter and whatnot. So, um, can you demystify or clarify the difference between what you get out of something with like a Kickstarter and what you get out of investing or regulation crowdfunding?
Yeah, absolutely. So Kickstarter is, is perks-based crowdfunding, right? So, you’re almost like donating $50 to this project or this company and you might get a, a t-shirt or a cap or something, Um, or you might get a discount on the product. So the regular retail price of this product is a hundred bucks, but you know, if you, if you back our Kickstarter for 80 bucks, then you get it at a 20% discount. Um, and Kickstarter is awesome. And that’s kind of what most people think of when they think about crowdfunding, where its perks.
And what we’re doing on Wefunder is investment crowdfunding. So when you invest in a startup on Wefunder, you are investing in a security, and you’re hoping to make a financial return. We actually allow for perks as well, so if you want to, as a founder, you can say ‘and you also get a discount on our product,’ or you also get a free glass of wine every time you come into the restaurant. Cause we’re doing main street businesses here as well as tech startups.
The thing that most people are looking to do when they invest on Wefunder, is make a return on that investment. Most of what we do is equity. So you’re investing in equity in a startup as any angel investor would. And you’re hoping that that startup becomes the next Uber an IPO’s and makes you a 5,000 X return. And probably it will go to zero because most startups are super risky. Um, and certainly either way, it’s going to be locked up for a long period of time. This is pretty risky and pretty illiquid investing. But because it’s an investment and we do debt investments as well, by the way, um, although the vast, majority of what we do is equity, but because it’s an investment, then you know that you can raise capital more easily than you can on like a Kickstarter. Um, so for an average Kickstarter campaign, I think is, $25,000 according to their website, on Wefunder the average round is about $400,000. Um, I think the average pledge on Kickstarter is 80 bucks. Average investment on Wefunder is a thousand bucks. So it’s quite different. And the main difference is like Kickstarter is kind of pecs. Wefunder is investment. You’re raising investment capital, investors are hoping to make a financial return.
Well, just to kind of speak to the people that are like, ‘oh, well then why do Kickstarter, why do this, why do that?’ There are so many different ways to make money or shift what would be your cashflow that makes your business grow. Kickstarter is one of them for certain types of business. Wefunder and regulation crowdfunding is another. Traditional VC investment is another. This is just one of many tools. Don’t assume that like, oh, this is going to be the best tool for you. And that’s actually my next question, which is, what is an example of a company that’s done that or a type of business and what are good fits for the regulation crowdfunding space?
If you can raise a $100,000 on Kickstarter and you need $100,000, then you should do that. You know? Cause that’s basically, it’s not free, but it’s, it’s very cheap capital. Right? Whereas on Wefunder, if you raise a $100,000, you’re usually giving up a $100,000 of equity. Um, so that’s less equity that you have in your company now. So the equivalent is if you’re raising a $100,000 from VCs or angels, you’re giving up equity. If it’s on Kickstarter, and you’re not giving up any equity, um, or that’s not a loan that you have to repay with interest, then the capital on Kickstarter is, is a lot cheaper.
To your question on success stories. I mean, what’s kind of cool, one of the things I love about Wefunder is we really are pretty eclectic in terms of the startups that we work with. Um, so in terms of industry sector, you know, we’ve done restaurants, we’ve done breweries and distilleries and coffee shops, and CPG companies, consumer packaged goods companies, and we’ve done biotech startups. Leah labs, as a company that came out of Y Combinator that was curing cancer in dogs. The comments that the investors, uh, kind of write after they invest, we say, okay, do you have a message for the founders of Leah labs?
See all these comments from investors. Like my dog died of cancer. If I can be a small part of building a company that helps to make that a thing of the past, I’m all about it. And hopefully, I mean, if they succeed in curing cancer, they are gonna make a ton of money. Um, but also, that there’s kind of a mission and a cause, um, element to at there.
So biotech companies and then probably the most common thing would be kind of tech software, either consumer tech or you know, Mercury Bank is one of the biggest companies we’ve done on Wefunder, they raised 5 million dollars in five hours from two and a half thousand customers. They’re building a bank for startups.
You mentioned VC dollars earlier, sometimes it’s framed as it’s kind of Wefunder or venture capital. For me, it’s, it’s not an either or thing you should do both. The best practice I would say is to do both, or depending on your goals. Like not every company should take venture capital or will kind of qualify for venture capital, but, if you are on that venture tract, It’s not like either VC or Wefunder, do both.
Right? Um, get an institutional lead. That’s a great signal. They’re going to take a board seat, provide great advice and guidance and connections, et cetera. But then also we haven’t even talked about this yet, but the idea is for them, if you can have two and a half thousand customers invest in you, that’s going to be two and a half thousand, super loyal customers who will never churn and have a super high net promoter score and tell all their friends about it. And they were already enthusiastic customers, but now you’re just super charging them as brand ambassadors and they can help you hire your next software engineer or promote this press release that just came out on the social media. And so for me you can stack conventional capital with dollars that you’re raising from your community. So kind of industry sector wise, we’re pretty agnostic.
And then also stage-wise, the range that we do on Wefunder is 50k to 5 million. And in terms of stages, I think this is the best possible way to do a friends and family round. It’s kind of super streamlined. It’s all in one place. You can get in front of Wefunder users. It’s legally compliant. It’s very, kind of nice and easy. But also pre-seed, seed, Series A. Mercury was 5 million at the end of a 120 million series B. We’re talking to companies that are raising a Series C now and want to allocate a part of that to their customers. So stage-wise as well, we’re pretty agnostic.
And you ended up becoming a piece of the toolset. And so if, like you said that series C, they want to have an allocation, you just make it really easy to get those customers.
And if you’re at that level, series C, then it probably is push button, get money, right? It’s like push button, get $5 million. For Mercury, it was like send one, email, get $5 million. Most companies on Wefunder, it’s not going to be that easy. I always say like, fundraising is hard if you’re kind of early stage startup trying to raise a million dollars, how will you do that? Probably going to be hard, right? And we’re not going to make it easy for you. If it would have been hard if Wefunder didn’t exist, it’s probably still going to be hard, but hopefully we can make it a little bit easier.
Yeah. Yeah. And that’s a good segue into it, I’ve got a lot of pros and stuff that I’d love to talk about, but let’s talk about the hard stuff, the cons, the cost of doing equity crowdfunding and what that looks like, because we don’t want to just say, oh yeah, this is the magic pill, it’s not.
So there’s kind of two downsides, I would say. The first one is the cost. So, we charge 7.5% of the amount you raise. And so that’s not the cheapest way to raise money. I would say we make it easier, but we charge you for that. We do waive fees if you bring checks of $25k or more from like angel investors. Um, but 7.5%. So that’s the cost of it is one consideration, and then the other downside you need to publicly share financials. There’s an FCC filing that we help you do. Um, but you need to publicly share like your revenue last year. And so if, for whatever reason you don’t want that information getting out there into the public domain, then Wefunder, and this way of raising money, unfortunately, isn’t a fit. There’s no way around that. That’s kind of a legal FCC requirement. But obviously we would say, who cares? Like we, we did this ourselves. A year ago, Wefunder, raised a $5 million regulation crowd funding round from our users, our customers.
You use Wefunder to raise your own money.
Meta! Meta! Totally meta! Yeah, it was, it was awesome. This is a way to engage your customers, delight your customers, engage your community. If there’s one platform that that should really work for, it’s us. So we did it um, and yeah, we put our financials publicly, so our competitors can see that, but who cares? Who cares if they’re kind of seeing what revenue we did last year, it’s not gonna not going to affect what we’re working on.
Yeah, there are two things I like to say in the first is, if you’re not going to use your own product, you probably shouldn’t be making that product. And the second one is, if you’re concerned that your competitive edge is your numbers, then you probably don’t have a competitive edge.
That is a great way to talk about the pros, and one of those pros is that engagement with users. What are some other pros or, why does it make sense for certain founders to like go do the equity crowdfunding route versus VC or otherwise?
Yup. Yeah, So there’s kind of two primary benefits, I think, and maybe a more kind of touchy feely one. The coolest benefit I think is this is the best possible way for a startup to delight their customers. Is it the best possible way for a startup to build stronger ties among its community members right?
Every startup founder wants to delight their customers. Every startup founder wants to build stronger community among their user base. I can’t think of a better way to allow customers and community members to become owners of the startup.
You know, companies like Mercury or Levels or Roam Research, they’re not even using Wefunder for the money. They don’t need money, they have VCs throwing money at them. It’s entirely a customer engagement and community building play. And it can be customer acquisition as well. A lot of startups I think are using Wefunder to build their brand and acquire new customers as well as build stronger relationships with existing customers.
That’s kind of the primary or the coolest, I think, use case. I would say the more common use case that I think the reason why a lot of companies are using Wefunder, is like I mentioned before, it’s an easier way to raise capital.
So if you’re trying to put together the surrounds, having conversations like investors are kind of almost there, but like maybe they want to see more traction and they’re kind of waiting for someone to. Um, this can be a way to just kind of get momentum going. And now you can raise a thousand dollar checks from a hundred people and boom, you’ve got the hundred grand that you were kind of have been waiting for and having endless meetings with investors. And this can just accelerate that process.
Typically a third of the round comes from our existing, Wefunder investors. So it’s not like put it up on we funder and watch our community flood in and get you the whole way there. So typically you’re grinding, you’re pitching investors, you’re putting it out there, marketing it, and then we’ll you give you a 50% boost to whatever you can raise.
And then the third, the kind of touchy feely piece is a little bit more about the mission of what we’re trying to do at Wefunder. So we’re a public benefit corporation and a B Corp. On the founder side, we’re trying to make it easier for founders to raise capital, get more capital flow into startup founders throughout America, and actually the world we’re expanding in the EU soon but also level the playing field. So right now, very, very small percentage of capital goes to female founders, founders of color, founders in Tennessee, where I live outside Silicon valley, New York, and Boston. So we’re saying, okay, if we can democratize who is an angel investor and let anyone throughout the country, not just white dudes in San Francisco, like decide, which started founders getting funding. Hopefully we can get more capital flowing to founders throughout the country that might’ve been historically underrepresented.
So that’s on the founder side, but then on the investor side, why should only millionaires get to benefit from the next Airbnb’s IPO? Like why can’t ordinary middle-class Americans get to participate in investing in cool startups? It’s crazy that like someone 10 years ago, someone could invest in Starbucks on the stock market, but they couldn’t invest in this coffee shop down the street from them that was opening up. They could go to Las Vegas and drop a thousand dollars on the spin of a roulette wheel, but they couldn’t invest a thousand dollars in their friend’s SAS startup.
This idea is like allow ordinary people to benefit from the wealth that’s being created by startups. And so then to tie it back to the benefits for founders, and again, this is kind of touchy feely. If you slave away on building a startup for 10 years, that has a really nice exit in 10 years time, wouldn’t it be cool if as well as making a nice return for the VCs and rich people that, that funded you in your seed round, you also make a nice return for your community members and customers that were there kind of as supporting you from day one? And they get to benefit from the wealth that you create over the next decade.
I think that’s probably pretty secondary for most founders, but for us, at Wefunder, that’s a pretty important part of why we do what we do.
Yeah, I don’t know, man. Like that’s what gets me excited the like, oh, it’s easier to raise, you can engage your users, that type of stuff, it’s great. And one of the things I like, to say is like, with crowdfunding, the type of people you’re in, you’re, you’re having the conversation with is different. And so the people you’re having conversations with in crowdfunding is more likely your customers, your consumers. And so all that material that you’re putting into marketing and whatever else you’re doing, is probably going to be equivalent collateral to what you’re gonna be doing there. So well, what does that mean? If my customer, if the conversation is different, that means I’m working with different people. And that’s the cool part to me about equity crowdfunding is we have finally gotten to a point where we’ve been empowered to create a system that I think does take care of the concern of how do we protect the people. Right. Um, along with the give them the opportunity.
Give them the opportunity. Exactly. I love that. I really, really love that.
One thing as well just to throw this out there It’s kind of something where we’re working on right now. We’re trying to get away from equity crowdfunding actually as a term. And part of the reason for that is the question you asked earlier is like, how is this different from Kickstarter? When people say crowdfunding is like, firstly it makes you think of Kickstarter. And then secondly, I dont think founders, really want to raise from the crowd, it’s certainly less kind of cool and sexy to rise from a crowd. So we’re using the term community round.
So you might do, a friends and family round, you might do an angel round, and you do a community round where you raise from your community. And again, it’s going back to like what startup founder doesn’t want to build stronger relationships with their community? It’s a really powerful example I think of how the shift in positioning of a couple of words can just like elevate the whole thing that we’re doing.
And I love that because the first thing you learn about when you learn about venture capital and funding is the prerequisites, right? What are the prerequisites for venture capital? And you think, oh, they, they want to see a successful business, they’re not going to have prerequisites, yeah, they do. One of those often is, Hey, have you raised a friends and family? Well who can’t raise a friend and family round, right?
And that’s where you start saying, oh, well, this is why entrepreneurship has systemic racism or underrepresented individuals. It’s because there are certain prerequisites that we just don’t even think about. And so if we can change that positioning right? That need for a friends and family round to a, oh, well maybe I don’t have really rich friends and family who are accredited investors, but I do have an awesome community or friends and family who just aren’t accredited investors, who want to pour some money in. That makes a huge difference.
I know a lot of founders who have said, yeah, friends and family round, I don’t know what that is. All my friends and family are broke. Like, how am I supposed to like raise money? Right?
Yeah, exactly. And the other thing is as well that normally if you’re raising a friends and family around friends, and family are writing quite large checks, right? Whereas on Wefunder, you can be an investor and we fund for a hundred dollars. Suddenly people that wouldn’t have been able to write a $10,000 check, now in a very kind of logistically easy and kind of, streamlined way, you can actually allow them to invest and you can raise some money from them by lowering the minimum check size.
Yeah. Well, um, It’s also saying that at the beginning of your startup journey, you need to understand the intricacies of how to do fundraising correctly before you can even get into this space where people are going to tell you how to do it right. You’re more likely to like mess up a friends and family round, which people do because you you’re uneducated to that versus, Hey, now we have a tool set that you can use. It takes care of all the mess for you.
Exactly one line on the cap table with an SPV standard template contract, et cetera.
Venture capitalist firms, they have analysts that go through, they look at stuff, they say, oh yeah, this fits our portfolio. Yes or no, this doesn’t, are there any things that analysts are doing or is it like, Hey, if you can come and you can raise, we’re happy to have you?
Yeah. Um, there’s very little, we do kind of rigorous fraud and compliance check, but in terms of like, is this a good investment or not? Very, very little. We’re not putting money into the deals where the platform that the founder’s raising on.
So we kind of want to be kind of not really picking winners and losers or claiming to know whether this coffee shop in rural Wyoming like deserves to be able to raise money from their customers and community. So we’re trying to kind of be more of an open platform. And so, yeah, it’s very, very easy to, to launch on Wefunder. There’s a lot of founders that are going to try and won’t be able to do it, but in terms of Wefunder kind of, you know, having those criteria and kind of picking winners and losers, it’s pretty minimal.
Well so, real quick. You talked about evolving the terminology you use, do you see any other evolutions within the crowdfunding space or the, uh, community funding space that might be interesting?
Thank you. Thank you. You’re already picking up on the evolution of language there. I think like we’re going to see a lot of growth in the sector. I saw Alexis Ohanian tweeted the other day. I think it was in response to the founder of Mercury. And he said, you know, this is the future.
And it’s been very interesting. I’m having more and more conversations with VCs that are getting it. Where a couple of years ago, it was capped at a million dollars. Like we might mess up your cap table by putting a lot of people on it. And so VCs were very, very skeptical. And not just like, oh yeah, actually I’m not opposed to this anymore, but even more like oh yeah, I can see how this would benefit my portfolio companies, let me connect you to a couple of folks in my portfolio.
So it’s going to grow significantly. I think this is going to be a bigger and bigger share of how every company you know, looks to raise capital in the early rounds, especially. So that’s one piece the growth in terms of dollars, investment volume, number of companies, number of investors on the platform.
And then, I think kind of related but in terms of quality as well, prestige, we’ve already seen a change here. Now more and more, I think there are going to be more and more, very prestigious companies that can easily raise from the best VCs in the world. They do this, not because they need the money, but because they see the value in engaging their customers and community members. Two or three years ago, it was like, it’s a negative signal to raise from the crowd on Wefunder, it means that real investors won’t invest in you. But actually, I tweeted the other day, sometimes I hear, oh, it’s a negative signal to race from the crowd, I think we’re going to come into a world where it’s going to be a negative signal, not to.
Yeah. Yeah, man. That’s awesome. So people are looking for good resources to learn more about crowdfunding, where should they go?
Wefunder.com. You can browse through, we have hundreds of startups on there right now. If you want to learn about angel investing, we have a resource, Wefunder.com/school, which is a pretty cool resource for education for investors. Uh, for founders, Wefunder.com/raise we have kind of a landing page on the website that gives you all the high-level info. Um, although we covered a lot of it in this conversation, which is great, some great questions. You can obviously connect with us on social. My email is email@example.com if you want to reach out or you can find me on Twitter or LinkedIn as well.
Yeah, hopefully, we can help some of the founders in your audience to, uh, raise the capital they’re looking for here. Yeah! Hope to hear from you and, uh, and work together.
I love it. This is great. Thank you so much for coming on Johnny.
Thanks for having me.
This was really fun!
Get in touch with Jonny:
Jonny Price: https://www.linkedin.com/in/jonnyprice/
Find out more about Wefunder:
Learn more about angel investing:
Learn more about raising a community round:
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Marcus Smith: https://www.linkedin.com/in/marcusthesmith/
Axon Collective: https://axon.consulting
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