The pundits call Wefunder an “equity crowdfunding” platform. I’ve always hated that phrase. Since we created this industry, we have the right to rename it.
As of today, Wefunder is the home of the Community Round.
Founders are not as excited to raise funding from a crowd of strangers. Instead, they are motivated to extend an opportunity to their community – thousands of their most passionate customers, users, and fans - to invest as little as $100, often alongside VCs and top angels.
Venture-backed startups like Mercury, Replit, Doorvest, & Levels, have taken advantage of new laws to open a Community Round. Thousands of their fans have invested alongside a16z, Coatue, Elad Gil, and other tier 1 investors.
A Community Round doesn’t replace venture capital (though, it can). If Sequoia offers a term sheet, you’ll likely sign. However, you can reserve a portion of the round for your best customers to co-invest. They offer a different kind of value.
Top 5 Reasons to Open a Community Round
Here are the top 5 reasons why founders should open a Community Round.
- Grow faster. When your customers are owners, they want to help your startup succeed. They can refer new customers, help with recruiting, evangelize on twitter, and be more engaged.
- Prestige. It’s hard to build a business that your customers love so much, they want to invest in it. That sends a good signal.
- More leverage. When you can raise $10M+ by sending one email to your customers, it provides leverage when you are raising a Series A from VCs.
- Raise faster. A well-executed Community Round can create scarcity and help professional investors make a decision faster.
- Fairness & the right thing to do. We believe your community has the right to invest alongside VCs. Capitalism rewards owners. If you believe your startup is going to succeed, why not let your early supporters also get rich?
Timing & Examples
You can open a Community Round anytime, pre-seed or post Series B.
The timing is more based on your preference. I personally recommend that special time when you yourself know your startup is working, but the rest of the world doesn’t yet realize it. Your customers will be in on the secret.
Some examples:
- Mercury Bank, $120M Series B. Mercury allowed their customers to invest on the same terms as a16z and Coatue at their $1.6 billion valuation Series B.
- Replit, discount to Series B. Replit raised after their $800M valuation led by a16z, offering a SAFE with a discount to their B.
- Immersed, $10M Series A. Immersed allocated 100% of their Series A to their community.
- Roam Research, $9M seed. Roam allowed their superusers to invest alongside the likes of Elad Gil, the Stripe founders, and other A-list angels.
- Leah Labs & Atom Limbs, pre-seed. Community Rounds funded these startups working on hard-tech problems that their fans cared about (curing cancer in dogs and artificial limbs).
- Wefunder, rolling raises. Wefunder has always eaten our own dog food. We’ve raised over $20M from our own users since 2012, at valuations from $3M to $400M over the past decade.
Community Round Vs. Syndicates
With a Community Round, thousands of investors are one line on your cap table, all inside an SPV. It works like a Syndicate, except there is no limit to the number of investors, they can invest as little as $100, and they can be unaccredited.
However, unlike a Syndicate, a Community Round requires you to release your financials for your last fiscal year. While the P&L can be collapsed to top-line revenues, expenses, and profit/loss, the law requires these numbers be public.
For some founders, this is an issue. Startups often try to appear bigger than they are, and some may be embarrassed if their revenue was public. This concern is overblown in most cases. Based on the timing of your Community Round, it’s possible to release financials that are over a year out of date. Given the growth rates of top-tier startups, this is obsolete information.
Pledge to Open a Community Round
We’re asking founders to pledge to open a Community Round someday in the future, when the time is right for their startup. See founders who have pledged at communityround.com.
Why is this important? We aim to create a groundswell of “social proof” to help the inevitable future happen faster.
We’re changing the conventional wisdom. We're making it a new normal that every startup, as a matter of fairness and economic self-interest, should allow their earliest supporters to invest. The days when founders limited their cap table to a small select circle of wealthy angels and VCs is over.
If this is something you care about and believe in, you can join the pledge by emailing me at [email protected].