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- Equity crowdfunding for non-accredited investors
- Good for startups with exponential growth potential
- It’s the biggest Regulation Crowdfunding platform
- Low investment minimums
- You get nothing if you don’t reach your funding goal
- Regulation Crowdfunding is legally complex
Wefunder is one of the few equity crowdfunding platforms that open up the world of investing to anybody seeking to invest in a startup company.
Equity crowdfunding is a young phenomenon and few companies are poised to fully take advantage of it. Ever since the JOBS Act was passed into law in 2012, thereby legalizing equity crowdfunding (I wrote an article explaining equity crowdfunding and how it compares to other forms of crowdfunding), several companies have tried to get in on the equity crowdfunding action. However, most of them are limited in one key respect: they host equity crowdfunding campaigns that are limited to accredited investors only. That’s a term, by the way, that refers simply to people with a sizable income and/or a significant amount of wealth — it does not denote any particular skill in investing.
However, on May 16, 2016, the portion of the JOBS Act that legalized equity crowdfunding for non-accredited investors (i.e. just about everyone in the US) finally went into effect. Sometimes referred to as Regulation Crowdfunding, the field has yet to take off in the manner envisioned when the practice was legalized.
However, Wefunder has risen to the challenge, becoming the largest company by far offering equity crowdfunding for non-accredited investors. In fact, by their count, Wefunder currently comprises 50% of the market share in Regulation Crowdfunding.
With a commanding lead in the Regulation Crowdfunding race, Wefunder has grand, transformative ambitions:
We aim to revitalize capitalism and keep the American dream alive. GDP growth is slowing. Wealth inequality is increasing. Entrepreneurship is dying across America; falling from 10.6% to 3.6% among those under 30 since 1989. We aim to reverse these trends by funding more deserving businesses. Our goal is to build a new type of stock market (“a NASDAQ for riskier ventures”) that lets us fund tens of thousands more startups and small businesses.
Read on to learn how Wefunder works and whether they live up to their lofty goals.
Table of Contents
Wefunder gives US corporations and LLCs an equity crowdfunding platform that connects them to the 232,693 registered investors (as of April 2019) on their site. A company can create a profile with Wefunder for free. Fees are only assessed after a successful raise.
Along with the aforementioned Regulation Crowdfunding campaigns, companies can also launch Regulation D, Rule 506b and Regulation A+ campaigns through Wefunder. These types of campaigns hold less mass appeal than Regulation Crowdfunding, however — Regulation D, Rule 506b campaigns can only be funded by accredited investors and are forbidden from advertising, while Regulation A+ campaigns are described by Wefunder as “best for later-stage companies with serious traction, seeking to raise up to $50 million publicly.”
Wefunder takes a fairly hands-off approach when it comes to the companies that can use their service. However, in their FAQ, Wefunder states:
We do not fund marijuana, porn, gambling, investment companies, or banks.
Terms & Fees
These are the terms and fees for Wefunder Regulation Crowdfunding campaigns:
|Funding Amount:||$50,000 to $1,070,000|
|Fee To Begin Crowdfunding:||$0|
|Wefunder Platform Fee:||Up to 7% of what is raised|
With a Wefunder Regulation Crowdfunding campaign, you can set a funding goal of as little as $50K or as much as $1,070,000 (though if you exceed $1,070,000 in funds raised, Wefunder will “spin up a free Regulation D campaign for you,” so you can continue fundraising from accredited investors). Individual investors will be able to invest as little as $100 in your company. The maximum amount an investor can invest is legally determined by the investor’s income and net worth.
Wefunder doesn’t charge you to set up a company profile, nor do they charge a fee to begin crowdfunding (previously, they charged a $195 fee to begin crowdfunding, but this has been eliminated).
Wefunder collects “up to a 7% fee” based on your online funding total if your campaign is successful. Assuming that Wefunder charges you the full 7%, this is still comparable with other major crowdfunders. Though Kickstarter (see our review) keeps just 5% of what you raise for themselves, an additional ~3% of funds raised via Kickstarter will go to the payment processor. With Wefunder, beyond the 7% platform fee, “[a]ny additional payment processing fees are paid by investors.”
Also, note that Wefunder crowdfunding campaigns are all-or-nothing — you only receive funds if you meet or exceed your fundraising goal.
Bear in mind that equity crowdfunding is much more heavily regulated than rewards crowdfunding. When you’re soliciting investments, there are strict limits as to when and how you can promote your raise, including limits on what you can say to anybody — even people on the street — regarding your investment opportunity.
If you know a thing or two about rewards crowdfunding but are new to equity crowdfunding, this probably sounds outlandish. Imagine being restricted as to what you could tell people about your Indiegogo (see our review) campaign. Quelle horreur!
Unfortunately, history demonstrates the unique potential of unwise and/or fraudulently-represented investments to ruin the lives of ordinary people and create generational immiseration — therefore, equity crowdfunding is treated differently under the law.
Be sure to read Wefunder’s Legal Primer For Founders if you’re looking to raise money on the platform, and consult an attorney if you have any questions regarding the process, SEC regulations, etc.
Wefunder screens companies for signs of fraud and/or dealings in the things forbidden on their platform, but they generally take a light hand when determining who can and can’t raise funds. Though they recommend having at least one experienced investor endorse your campaign and set the terms of your crowdfunding campaign, this is not a requirement.
Sales & Advertising Transparency
Wefunder puts all the relevant information relating to their crowdfunding campaigns in their FAQs, though it would be nice if they included basic information, such as the fee rate, more prominently on their home page.
Customer Service & Technical Support
Beyond the FAQs and the other informational literature on their website, Wefunder lists an email address for customer support -- but that's about it. Once you've launched a Regulation Crowdfunding campaign, however, Wefunder will stay in contact with you.
Negative Reviews & Complaints
One reviewer noted that Wefunder does not take the "curatorial approach" when determining who can use their platform and instead let virtually any company fundraise while screening only for signs of fraud. It's a departure from the practices of equity crowdfunders like SeedInvest (see our review), which boasts of only letting 1% of companies who apply fundraise on their site. While this approach may carry more risks for the investor, campaigners may welcome it.
I should note that in the comments section of this article, one startup founder, citing personal experience, disagrees with the assessment of the reviewer above and found Wefunder to be unreceptive to his request to use the platform.
Positive Reviews & Testimonials
The few reviews I've seen of Wefunder are generally quite positive. The low investment minimums (just $100!) are seen as a way to draw the largest possible pool of investors to your campaign. And the unparalleled success of Wefunder in the Regulation Crowdfunding sphere -- remember, they have half the market share! -- generally demonstrates that of all the companies operating in this still-in-its infancy industry, Wefunder is the one equity crowdfunder that has it figured out.
Wefunder states that of the over 263 companies they have funded thus far, "(m)ost are alumni of Y Combinator." This should tell you something about the sort of company poised to take advantage of Wefunder's Regulation Crowdfunding platform. It's not the mom-and-pop diner on the corner but rather the company with exponential growth potential -- the kind of company that excites investors.
Though Wefunder has helped companies raise over $88 million in investments, consider the fact that Kickstarter, the leading rewards crowdfunder, has seen the raising of over $4 billion thus far. Clearly, Regulation Crowdfunding, being only three years old at this point, is not a mature industry. The kinks are still being worked out, and the regulations governing the field are subject to change (this is the industry's fervent hope, at least).
However, Wefunder is the one platform that has thrived in this new realm. More than any other platform, they stand to take off in the event that Regulation Crowdfunding starts showing the potential that analysts had hoped it might. As of now, for a company with unique potential and a high-risk-high-reward ethos, Wefunder is a tantalizing funding option. There are definite perils, but there's also the unmistakable draw of feeling like a pioneer.
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