Even with increased attention and buzz around the sustainable impact economy, investors remain predominantly white and affluent, and investment dollars continue to go mainly to white, male-led companies. There has, however, been progress toward diversifying the investor pool and the allocation of investments, and many companies recently have tried to accelerate that transition.
“If you have a more democratic approach to who can be an investor, maybe we can level the playing field a little bit and get more capital to entrepreneurs of color and women in Tennessee or Ohio as well as San Francisco, New York City and Boston,” says Jonny Price, Director of Fundraising at Wefunder.
Wefunder is a crowdfunding platform that hosts small and startup companies and allows investors to contribute a minimum of $100 to campaigns, enabling more people to be involved in the investment process that traditionally is only available to accredited investors. Wefunder wants to make the economy more just, equitable and community-oriented through this democratized, pre-IPO investing.
Wefunder and its founders have been pioneers in establishing Regulation Crowdfunding campaign investments. They campaigned for its legal status and joined President Obama in the White House Rose Garden when he signed the JOBS Act, which included the initial Regulation Crowdfunding provisions (Reg CF). Through Reg CF, small investors could invest up to $1,070,000 in a private company, and as of March 15, this cap has been raised to $5,000,000.
Recently, I spoke with Price as part of my research on purpose-driven businesses to learn about how his company is working to make investing and receiving investments more accessible for a broader range of stakeholders. I also learned why he believes this model can help make the world a better, more equitable place.
Christopher Marquis: Can you say a little bit about why or sort of the theory behind Wefunder? Why do you see investments in small and startup businesses as essential to making the world a better place?
Jonny Price: I'll talk about both sides of the marketplace — the founder and the investor side. On the founder side you have a situation today where 3% of venture capital goes to female-only founding teams; 1% of venture capital goes to Black founders; and 77% of venture capital goes to just three states: California, New York and Massachusetts. Our hope and belief at Wefunder is that there should be a more democratic approach to investing and ordinary people should be allowed to be angel investors versus just millionaires and billionaires or white guys on Sand Hill Road. There's progress being made, but still a lot of work to do. If you have a more democratic approach to who can be an investor, maybe we can level the playing field a little bit and get more capital to entrepreneurs of color and women in Tennessee or Ohio as well as San Francisco, New York City and Boston.
Then on the investor side, I always come back to the story of Jason Calacanis who invested $25,000 in Uber and made $125 million. This is a guy who was already a millionaire, and now he has $125 million more. What we're excited about is, imagine if that initial $25,000 investment had been spread around 125 people making $200 investments each. That's 125 new millionaires, from Uber drivers to middle-class folks and customers, rather than just one existing millionaire making $125 million more.
Obviously there are a lot of risks that go along with startup investing. Certainly, though, so much more wealth today is being created by startups pre-IPO. And if ordinary people can only get into investing in companies post-IPO, then I think a lot of the most explosive avenues for wealth creation are foreclosed on for ordinary people. And that is another force contributing toward the wealth inequality that has clearly been worsening over the last few decades. So allowing ordinary people to participate in the wealth being created by fast-growing startups is our mission on the investor side of the Wefunder marketplace. Wefunder was founded as a Public Benefit Corporation, and is now also a B Corp, so our mission is very important to us.
Another aspect of that mission is addressing the lack of financing options for early stage companies. There's this crazy gap between bank loans and venture capital. Bank loans are usually only for established businesses. And then with venture capital, it's like, “Unless you can show me the $1 billion Total Addressable Market then you're not a good fit.” There is a striking homogeneity of investment structures, and so there are a lot of businesses in the middle that fall between these two stools. So my hope is that, again, with a more democratic approach to raising capital, when maybe the investors’ motivations are a hybrid of seeking a financial return and, for example, investing in my high school friend or in a brewery down the street from me, hopefully we can open up a more diverse array of investment structures, and enable more founders to get the capital they need to take that shot.
Marquis: With these small businesses and startups, there can be a lot of risks for investors. How do you explain those risks to people who want to invest using your platform?
Price: We try to be as transparent as we can be. There are a few things we do around the investor disclosure issue, and to be honest, this is the thing that keeps me up at night. This is the thing I'm most concerned about. You look at what happened with GameStop and Wall Street, and it's like, “How do we prevent people from being sucked into a bubble? How do we prevent this Regulation Crowdfunding industry from going that way?” We obviously have fraud checks and background checks. There are requirements from the SEC and FINRA around what is compliant for an issue. You have to make it clear that potential earnings are projections rather than guarantees, for example.
We have a Slack channel with investors’ notes. For one company, all the investor notes were saying, “We want to make a ton of money.” And then we looked into it, and they were doing something fraudulent. We immediately took the campaign down and returned all the investments. It is kind of cool for me to see that overwhelmingly the sentiment of investors, at least as expressed in these investor notes is, “I want to support this and be a part of this.” Very rarely do they say, “I want to make a ton of money.” And when we saw that it was a flag.
We try to do what we can in our branding and messaging and communication, so on the homepage of Wefunder very prominently it says, “Read about the risks.” And if you scroll through the homepage, we say invest for the right reasons. Invest in startups you love. We try to have that be our brand.
Marquis: Why would a founder want to raise funds using the Wefunder method?
Price: I always give two reasons. One is we make it easier for them to raise capital. And within that, there are three components as to how we make it easier. First is you cannot publicly promote the offering if you're pursuing a traditional investment path. With a Wefunder campaign, you can tell the whole world, you can post about it on Facebook, and you can share it with your email list. Secondly, you are not just restricted to accredited investors, you can raise from the general public. And then, thirdly, you can get in front of Wefunder’s growing network of investors. We're coming up on a million registered users. We'll put your company in front of these people and say you're going to raise significant money, most of the time from our investor base as well as other investors you bring in. So in those three ways we're going to make it easier for you to raise capital.
The second big value proposition for Wefunder is if you recruit an army of investors, that's an army of loyal customers and brand champions — people that are telling all their friends about your company or helping you hire an engineer or make a connection. We hope — just as angel investors and VCs add value — it's not just the money they bring but it's the connections and other helpful resources. And to prevent this from becoming a future management headache with so many investors, we use an SPV structure. We roll individual investors up to one line on the cap table, and then a lead investor votes for the shares of the individual investors.
Marquis: Can you share any inspiring examples of companies that have listed on your platform?
Price: Yes, Atom Limbs is one. They’ve made “the world’s first mind-controlled bionic arm” for people who have lost limbs. They just funded more than $1.7 million. If you read through the notes on what people say, then it's super inspiring. It's a lot of military veterans investing $1,000 bucks and saying, “I served in the military for 20 years. If you guys can provide a better quality of life and help my colleagues who lost limbs, I'm all about it.” That's what we're about.
There’s also Black Sands Entertainment, which is an independent, Black comic publisher that centers Black characters in its stories. They have raised more than $1.1 million since December 2020.
Another example is Chattanooga AFC, which offered thousands of supporters the opportunity to own equity in the football club. Investors have been given special perks and ownership rights, like voting privileges.
These are just a few of the many great companies that have listed on the Wefunder platform.