By: Chris Lustrino, Founder of KingsCrowd
Original article here.
Wefunder has been one of the leaders in creating the new private capital markets. Be it helping to shape the JOBS Act legislation, to providing some of the first RegCF investment opportunities ever, to driving genuinely positive early results amongst their RegD portfolio.
I remember writing about Wefunder on my Fintech blog on the day the JOBS Act was enacted back on May 16, 2016, the day I made my first private market investment. For many this might not be an incredibly memorable day, but for someone like me that had waited patiently for 4 years after the regulation was written, it was a huge moment.
At the center of making all this possible is Nick Tommarello, Founder & CEO of Wefunder. With a couple years under their belt in the RegCF market, Nick and the entire Wefunder team are proving that they can help fund the best entrepreneurs and create better access for all Americans to the core of the US economy. As one of the leaders in the online private markets, I was excited to sit down with Nick to discuss the state of Wefunder and the market at large.
Check out our discussion below...
Nick, how did you and the team decide to found Wefunder?
Nick: Mostly we just wanted to invest in our friends who are also founders. We couldn’t invest in people we cared about because we weren’t wealthy. Having seen one of my mentors doing angel funding and giving founders money I knew I wanted to do that.
The reality is, most people do want to give in small ways but don’t know how. So we launched a petition out of civic duty to help create the JOBS Act.
Some argue that equity crowdfunding hasn’t taken off as hoped. What is your thoughts on this?
Nick: Everybody has tried to grow it and most have failed including us. We need regulatory reform. Right now if you have more than 500 hundred non-accredited investors and $25M in assets there are high burden requirements, which no one will ever do. This issue would be fixed in the bill.
The SEC has been directed in commission for reforms in Regulation Crowdfunding. One thing they can do is enable founders to legally test the waters (see if there is investment interest from the crowd) for their business. Right now founders need to go through getting CPA reviewed GAAP financial statements, file all this legal work and then find out if people want to invest after having spent all that time and money.
If we can improve these issues, I think we will see more high quality companies willing to use equity crowdfunding. Right now there are some very good companies that use RegCF but they have ideological reason for wanting customers to be investors to go along for the ride. We need to make it more accessible and mainstream.
What is Wefunder’s company flavor / focus and how do you source startups?
Nick: It comes in varied ways. We mostly source from referrals and other founders / investors in our network. We also see one third of our companies come in organically. We don’t want to be gatekeeper and pass judgements on ideas.
Most good ideas seem stupid at first. I do believe the wisdom of the crowd works for vetting ideas. People should invest in things they know and understand and have insight on why this should be a good thing.
You have sourced many startups from Y Combinator. How have you made that happen?
Nick: Though we have no official partnership with YC, we are YC alum ourselves and we talk to them in our own language and that has been a really strong sourcing channel for us.
What does your core investor base look like today and how do you acquire these individuals?
Nick: Generally every single time we have a new company raise on the platform about half of the overall invested capital comes from the companies own users and customers. So our investor base is really varied.
For instance, we launched a company called Meow Wolf. If you go to this place your mind is blown. They’ve had over $9M in ticket sales and strong funding, but they wanted to allow the artist community to partake so they went on Wefunder.
Within 48 hours they had sold out their $1M round. Now we have a bunch of artist on our platform that didn’t even realize it was legal to invest in private companies. Now they are sucked into this new world. We see about a third of investors that come on the platform will make repeat investment.
How do you prevent the “adverse selection” problem that VCs say is in this market?
Nick: Honestly it is challenging, but we focus on finding really good outliers to bring on the platform. Also one thing I have learned is that just because you can’t raise money from traditional channels doesn’t mean your not a good company. We have definitely met great founders who don’t have good angel communities to call on. That’s where we provide value.
Can you talk about the XX fund and how you are supporting underfunded founder groups (e.g., females and minority founders)?
Nick: I think crowdfunding is good for later stage companies with lots of users and customers. If you don’t have that it doesn’t work as well.
With the XX fund and accelerator we can help early stage female founders find that early traction. We provide $20K in early funds, and strong mentorship, which can make or break a company in the early days. In our first experiment with this program we took 6 companies in the XX cohort and got 1 into YC and hopefully we will have another in the next batch, and then we will do it again for immigrants.
We are also rolling out funds for accredited investors (it’s not legal for non-accredited yet) so that we can deliver more money in smaller chunks.
Where do you see Wefunder in 5 years and what should we be looking forward to in 2019?
Nick: The prediction depends a lot on reforms. I am confident we will get action from the Senate and the SEC in 2019. I think we can immediately 3X the market if the regulation changes. Our 5 year plan is to fund a whole lot of companies.
Letting everyone take a shot at owning their own company is just good for the country.
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