Macro

Episode 2: Startup Investing with Jonny from WeFunder

Ben Lakoff, CFA
August 11, 2020
62
 MIN
Listen to this episode on your favorite platform!

Jonny Price is the Director of Fundraising at WeFunder. WeFunder allows you to “invest in startups you believe in,” allowing you to be an Angel investor with as little as $100. WeFunder has recently processed over $300M in investments, with the vast majority coming from Retail investors like you and I.

Anyone listening to this could be an angel investor, even if they’re not accredited for a hundred bucks, it’s such a low barrier to entry, and if you’re really interested in startups and angel investing, It enables anyone to dip their toe in the water and get started on that, and learn lessons, for a much, much kind of lower risk and lower costs.Jonny Price

This conversation goes deep into Startup Investing, and more specifically about the different types of investing in Startups via WeFunder’s great platform. Enjoy!

Show Notes

Time   Topic
0:02:06   Background – Jonny
0:04:10   Benefits to Founders/Companies – Why equity crowdfund?
0:09:13   Investors in Equity Crowdfunding Projects – Risks, etc.
0:17:27   Secondary Market Liquidity for Angel Investments
0:20:14   Type of Investment Structures on WeFunder
0:23:57   Unique investment structures on WeFunder – Education for investors on the platform
0:33:29   Investment structure – Impact on fees for investor
0:34:59   Fees on the Platform for Investor
0:41:29   Startups on the Platform – Quality Control?
0:46:44   WeFunder: Invests in Startups?
0:47:59   WeFunder: international Investors
0:48:47   Startup Valuations on WeFunder & Investment Options
0:50:59   Institutional Investors on WeFunder
0:51:29   Deal Flow for Startups on WeFunder
0:53:14   Type of Investors on WeFunder
0:56:44   WeFunder startup track record – wefunder.com/results
0:58:47   Startup Investment Interest – Result of cheap money? Fantasticized High returns?
1:02:43   WeFunder: Upcoming Roadmap
1:05:06   Find out more

Show Links

Chattanooga Football Club Crowdfunding Results

UBER Pre-Seed Investors

Long Term Stock Exchange with Eric Ries

WeFunder Results

Jonny Price Twitter

Episode Transcript

Ben: [00:00:59] Good morning. I’m here with Johnny Price. Who’s the director of fundraising with wefunder, which is an investment crowdfunding platform for startups. Welcome Johnny.

Jonny: [00:01:08] Thanks for having me.

Ben: [00:01:09] Absolutely. Thanks for making time. Where are you right now?

Jonny: [00:01:13] I’m in Nashville, Tennessee. Just moved there a couple of months ago from San Francisco where I was the last 10 years originally from the UK.

As you may be able to tell by my accent. Well, that’s been diluted now after living in America for a few years. Calling in from Nashville today. Music city.

Ben: [00:01:31] I wanted to start off today, just a little bit about your background, what you’re doing with Wefunder and a little bit more about wefunder itself.

Jonny: [00:01:39] I’m from the UK. Originally my career in strategy consulting and film could offer one. And then after six years, they’re both a married in American girl, which is what brought me out to San Fransisco.  in 2010. I joined a nonprofit called kiva.org. That was crowdfunded, micro loans for entrepreneurs around the world.

And I was leading our us team that was supporting basically mom and pop shops with 0% interest crowdfunded, micro loans. And so ran that team for seven years through 2018 and then two and a half years ago left Kiva to join Wefunder.

it’s still in the space of crowdfunding capital for entrepreneurs in America, but now much more fixed on kind of fast growth startups and average Kiva loan was 5k average. Wefunder campaign is 350 K. So it was obviously a bit of a transition in terms of the types of entrepreneurs we were working with. Kiva’s motto was kind of 0% interest is more kind of philanthropic based.

Whereas on wefunder,  investors are seeking to earn a rate of return and the startups are investing in. So yeah, lead our business development team here. Particularly responsible for finding great companies that want to raise money on Wefunder. I’m kind of telling them about the pros and cons of raising equity, crowdfunding versus raising from angel investors or more conventional rates.

And then hopefully I’m working with them to launch a campaign and get them the money they need to be great in the businesses.

Ben: [00:03:07] So, I’m interested and you’re talking to these founders about the benefits of crowdfunding versus angels. The thing that comes to mind for me is instantly you have this group of people that have a little stake in your business that now advocate for your business, as opposed to just one or two angels tapping their network.

If you could kind of walk me through that key benefits of equity crowdfunding, as opposed to a few strategic angels, that’d be great.

Jonny: [00:03:36] Yeah. So I think just kind of for a founder, this kind of team members, The first is we helped startups raise more capital. and then the second is, is your point around kind of social capital and then supporters and champions on the first point, if you’re running a reg D and raising from angel investors, like you’re limited to accredited investors, you’re privately soliciting investors.

and so it’s just quite a Weirdly inefficient process, right? For like, Silicon Valley, like, the, the epicenter of kind of global like capitalism and startups, like everything’s being disrupted, right? It’s Airbnb, it’s Uber, everything is being kind of democratized.  Twitter, everyone’s a generalist, et cetera, et cetera.

But with startup investing, it’s like, Smoke filled rooms. And like, it’s pretty antiquated actually. And say our model in a sense is, is kind of like Airbnb for, for investing or I’d say we are putting a startup founder, not just in front of like 200 rich people in. Rooms and coffee shops, but in front of like, 700,000, we fund them or invest as all of him can invest.

You don’t need to be an accredited investor to invest anymore. You can invest in startups for as little as a hundred dollars. And so, and then we’re also allowing that that’s a promoter. So if you’re a consumer facing business and you’ve got an army of customers that love your product, Now you can get them to invest in you.

as well as just being able to raise from accredited investors in institution. So that’s the first big value prop for a founder as we help you raise more money. And then the second one, one is you are alluding to it’s like, like what. When you have an angel investor invest in you, hopefully they’re adding value for your business.

They’re opening up the Rolodex and connecting you to folks that can help you follow the financing, like helping you connect with talent. I’m giving you product feedback, strategy, advice, et cetera, et cetera, and say, to a lesser extent, less depth, probably if someone’s investing 500 bucks in your company, then if they’re investing 50 grand, but more grit in the sense that now, if you have an, if again, if you’re a consumer facing business, yet you have a new product coming out, you can get those thousand investors to promote that product on social media or to.

You don’t buy that product. Or even if you’re a B to B company you’re hiring for a software engineer, you can now have a thousand people, promote that J D on that LinkedIn page. So. And I wrote a blog post actually on, on the, on the kind of revenue and customer engagement aspect of that. Recently we had a company good neuro haka that have now done four campaigns.

We found the, they sold X or they still do so exclusively. Through their own website. And so they had very rich sales data. And so they basically anonymized that and shared it with me. So I could map that customer data to that investment feature. We found that, and what I found was two things. Firstly, they had a number of people that would not previously that customers who invested in the, we fund the campaign and then became their customers and now spending thousands of dollars every month.

And then secondly, the customers that they had previously that invested in the, we fund the campaign on that now chatting at a lower rate and spending more money going through so that this, like it’s a customer engagement plate of existing customers. So I’ve talked about those two effects for a number of years, more on trust than the data.

This was the first case study. I sort of thought in action, but say that’s on in terms of the kind of social capital, like creating an army of brand ambassadors and champions and supporters who can help you to grow your business, is, is the second big, value proposition for a founder. Yeah, absolutely.

And I mean, this, this goes back to, I mean, when I first started investing in the stock market, right. It was like buy brands, and love, but like these gigantic, publicly traded companies. So when it’s a small startup, that you’re, you feel a lot more intimately with and that that aspect, can move the needle.

For a startup, probably more than it can, for, for a huge company. Right? If you just, if you’re fragile and nacient and just trying to try to come out the gate, that’s what I, yeah. Having a bunch of champions who believe in you and are looking to support you because they’re financially incentivized for you to grow and can really move the needle.

Ben: [00:08:03] Right? Yeah. I mean, it’s all about getting that initial traction and, and. Having those people, right, right away. Be your ambassadors. It’s invaluable. That’s for sure. I want to get into, wefunder and the  type of a businesses that go on it, but I’m curious more from the investor side. So you have a number of startups.

Number of deals on your platform. If you could talk about.  the type of investor that would be interested for these, the key risks, what is kind of the pitch to an investor? Interested in looking at the investments presented on wefunder.

Jonny: [00:08:37] Yeah. So I’ll maybe start at a high level. So until, until 2016, it was basically a legal for ordinary people to invest in private companies.

So anyone could. Log on to Robin head or ear trade and buy stocks in Starbucks. But if you wanted to invest in like the cool local coffee shop, that was like, just open a third location and was looking at expanding in your neighborhood. you can invest in that company, which kind of sucks for you as the investor, but it also sucks for the founder of that company because, What’s the guys, how it shelter is it that the CF cell vaccine, he can go to ordinary Americans that, so, but like the guy like with the coffee shop in your neighborhood can save both the founders and investors.

it was working for the large companies. You could also in 2015, go to Vegas, drop a thousand dollars on the spinning wheel. Right. Obviously investing in startups is highly risky. It says very illiquid asset. Like a lot of startups will go to zero, yes, much riskier than investments.

Don’t like it, even if there is a return, it might not cover it. Okay. So it’s, it’s risky. We shouldn’t lose sight of the fact that, you can go to Vegas and gamble, with very little, regulations. So, but for 80 years, since then the securities act of the 1930s, Up until 2016 ordinary people. I couldn’t invest in private companies that was limited to accredited investors.

The definition of which is basically you’re a millionaire, literally you’re a millionaire apart from your, your house in terms of wealth, where you can get there on the income criteria too. But so, So, and then in 2012, the job tax plus Congress, and it took the sec four years to roll out total three of the backs and which then enabled what’s called regulation crowdfunding, which is how startups are raising capital.

And we fund that. But still most startups in America, most early stage startups are using the function called regulation B, where they can raise some occurrence in investors. But now since May, 2016, you can also raise through regulation, crowd funding, where they can raise up to $1.7 million per year from unaccredited investors.

So now anyone listening to this and international people, by the way, as well as, Americans. you can invest up to 2000, $200 per year. That’s that’s. Anyone can invest that. And then if your income and wealth goes up and certain scales, then you can invest more. And so if, if you’re a millionaire, you can invest $107,000 per year in regulation, crowd funding.

It’s a pretty new thing. It’s only like four years old. That anyone in America has been able to invest in these private companies. And so then to your question, what type of people are looking at investing in these startups at what, what kind of investment opportunities are these? Again, I would highlight.

it’s very high risk, right? It’s much lower risk to put it in a public company that’s been established and probably not going anywhere versus like, very, very early stage startup and there’s liquidity in public markets. So you can buy shares and sell them again the next week, if you want to.

whereas, with investing in private companies, that liquidity is, is usually a lot more difficult, so it’s much more of a long hold. so those are two important criteria. The tagline, if you get to the, we found the website, the tagline that we have, what kind of pitching ambassadors I guess, is invest in startups.

You’d love. So not to say that all investors and we fund it are only investing in startups that they love. they might be doing financial analysis or looking at. A whole host of factors, like, that the buyers of the team, or like the market or the product attraction, that the financials that they have, et cetera, but above all, I think what we would love our brands to stand for is what, what we do is we enable people to invest in startups that I love, which might be, the brewery.

in that town that like, they know the founder they’ve been going to that brewery since it opened. Now, the brewery is like expanding and they get to be an owner and like be along for the ride. so it might be a brand because in Brown they love, or it might be like, they’re passionate about space. And they they’ve like no, a ton about space, like an 18 year old, like college kid.

They’re obsessed with space and there’s like three space companies and we fund it and they can like give valid information on the profile. There’s a ton of information. And then like try to reach out to the founder, get connected to them. And then if that founders like Joe Jovan with them, then maybe they invest in, in that company.

One of my favorite examples and we funded it was. well, I live in Nashville now, Tennessee, just down the road in Chattanooga. There’s a soccer club. Couldn’t shut new graph. See that, that raised with us. And so they raised 850 grand for three and a half thousands, local Chattanoogans. And that, that was just like the town coming together to now become owners in the soccer club.

And they’re getting discounts on,  tickets, they’re getting their name on a shirt that like features every investor, they, they go into the home games and they feel this sense of ownership and pride. And that’s maybe the last thing I’ll say is that like, what, what do you get out of being an angel investor?

Obviously, you’re looking to make your financial return. And Jason Calacanis invested 25K in Uber and made 125 million in the IPO 5,000 extra time in a few years. Right. So that the upside is highly high risk, but there can be some like crazy upside witness here. But the biggest, big piece for me is like, when did the investment?

So I make them, wefunder, it’s like, It’s really cool to be connected to this, this founder, that’s like just a brilliant person, an expert in his field, like super driven person. You get, you get to be involved with that. I get it almost like a seat on, on, on the elevator, if that’s all right. I don’t know if that’s a good metaphor, but, but, yeah.

that’s, that’s kind of, for me, what it’s all about.

Ben: [00:14:47] Hey Al I’ll take a seat on the elevator with the founder any day. There should be seats on the elevator anyway. So long, it goes for so long that you actually need to sit down. Well, I don’t even know how elevators work right now with COVID anyways.

Like, are they one person on the elevator? You’ve just gigantic. I realized a seat into your bubble. Yeah. Experience. All right. that’s awesome. I mean, I really, I liked the, Chattanooga football club. That’s a great example of like really rallying behind, your local community, your local businesses.

these things always really resonate well with me and I love that ownership. That sense of, support, but ultimately, like you said, , these are investors. This is, there’s an opportunity cost. If I’m putting 500 bucks into this startup and that’s 500 bucks that I could have put somewhere else and gotten a return.

And although, like you said, the, the returns are pretty asymmetric, like crazy risk return, super high risk with super, super high return potentials as well. I’m curious, Something, something else that you had mentioned is the lack of liquidity. So the idea with a traditional startup investing,  you put it in and then 10 years later, maybe there’s an IPO or liquidity event and that’s how you can like then have liquidity.

Do you have any secondary market liquidity on wefunder? Is this something in the works or are you pretty much locked into some major liquidity event as an investor?

Jonny: [00:16:16] Mostly the latter. We have had some secondary sales, which we can kind of facilitate on a, on an ad hoc basis. You’re you’re, securities with regulation crowdfunding.

This exemption are locked up for at least a year after you invest illegally. in the long term, we imagine there being a vibrant secondary market here. given this is such a nascent sector. Yeah, that we’ve done. a hundred million, we just passed a hundred million in regulation, crowdfunding volume.

We’re the first platform to do that. Probably the market overall is like three or 400 million. So it’s still very, very nascent and say, right now, this has not really enough liquidity for it. Justified building secondary market. But, over time, the number of companies and investments and graves, we will build a secondary market.

And we’ve already had some interesting discussions on as a team in terms of like how we’re going to structure that and how we can kind of get away from the kind of quarter to quarter, like short term ism of the public stock markets, which is obviously you want, if you’re building a private company. So we’re kind of intrigued to like, try to try to build that in the right way.

But in terms of prioritization on our engineering roadmap, we haven’t really seen that they’re kind of Monde or liquidity to, to build that in 2020.

Ben: [00:17:32] I’m totally spacing who it was, but there’s a prominent guy within the startup world that wanted to do that. Longterm stock exchange is Eric Reese. Okay. I knew it was one of the big ones.

Right? I couldn’t remember who it was.

I mean the issues that come the short term, thinking of optimizing for this quarterly report as at the detriment of the longterm, and especially with somebody like a local brewery or something. I mean, come on. Like, if they’re, if they’re worried about quarterly earnings reports, like it’s going to completely torpedo the model, but that’s, that’s the other thing I think that secondary market is, is.

They’re vital for this, this equity crowdfunding of SMBs, because they’re not gonna IPO. I mean, very, very unlikely that the mom and pop a coffee shop that I bought an equity stake in is kind of going to IPO. You never know.

Jonny: [00:18:25] Yeah. And on that note, because this is a great point. there are other investment structures on, we fund that as opposed to, kind of.

It’s hockey, sticking startup, like convertible notes slash price round. Like, everything’s gearing towards the exit and the acquisition or Ikea or right side. there are equity contracts where it’s like a longterm hold and, we’re in the local group, real or restaurant. It might be the investors are being paid out in profit distributions over the years.

Right? So hopes, this is a brewery that raised a million dollars on. We funded open a second location. Their investors were getting 80% of profits distributions. They got their money back then it flipped it’s 20% thereafter. So that was kind of the payout as opposed to an exit. And then we have that offerings as well, either, fixed interest rate loan or a revenue share deal where, startups or companies are paying X percent, call it 5% of their revenues back to investors until they earn a multiple on the principle.

So maybe it’s like, hops and grain is a, is a bar in Austin, a brewery in Austin that did a million dollar revenue shallow. And I think their investors are getting paid back to X. So 2 million thing was 5% of their revenues over the years. so certainly don’t need that exit, for the, for the investor payout until your point, like in the majority of cases.

And we funded that is at, is what I’m looking for and what we’re gearing towards. Awesome. Yeah, no, it’s good to have that optionality. I mean, because you want to, he put in $5, you want to pull out more than $5 or, or at least have the opportunity to pull out something at some point. And just on that, I guess this is, this is more on the, on the founder side.

I think any of us decide, but I think. I think that’s like a little bit too much launch in AOT of investment structure for, and startups in American. So it’s really like, Oh, well it’s the equity path, right? And that’s, that’s like the narrative, that’s what everyone talks about. And that’s kind of what everyone is always kind of shoe on and their journeys into.

And I think there’s an increasing kind of. Movement towards, exploring alternative, investments, the revenue share financing. One is a good one, like a yeah. Shadow with someone from a fund called earnest. So they’re out of Seattle maybe. and they have the shared earnings agreement where, if it becomes more of a lifestyle business than investors can, can essentially like get paid back out of profit distributions of the business and say, I do think there’s kind of.

The movement towards like alternative investment structures that might be a better fit for some companies. and the cool thing about wefunder as a platform, as a platform is that, whatever, whatever structure is going to work for that founder and investors in that company. We can have on the platform.

So yeah, the majority of campaigns are probably getting saves, compatible notes, price, rounds, revenue, share financing. Those are probably accounted for about 90% of the races, but there’s another long tail of 10% there, which is kind of like a weird and wonderful array of investment structures, trying to try to kind of tailor, tailor the investment structure to the needs of the founder.

And what’s going to work for investors. Yeah, I really liked that. Although I think it would be difficult for you guys as a platform to help educate, I mean, people understand equity, right? They understand this sort of thing. They understand life share, like these things make sense. So I’m curious, it sounds like, 90% of it goes into these more, more.

Normal . Yeah, exactly. what is, what is like the most unique investment Smith structure that you’ve seen unique? Meaning it has a lot of benefits for both the investor and the founders, it’s, it’s not unique in the sec in the fact that it’s just crazy and doesn’t make any sense, Yeah. I mean, I can’t think of you have a super unique one.

off the top of my head. I mean, the hops, this example I gave is, in the world of like startups and like, angel investing, I mean, that structure of an equity swap is a little more common with, with main street businesses like breweries, but the world of startups. That, that model of 80% of profit distributions till you get your money back then it flips to 20% is I guess, a little more well unusual.

And that’s certainly not one of the standard template contracts that we offer. The other piece that’s like interesting to, to consider here in terms of like investor at tens is right. So a lot of companies that we fund they’re offering perks similar to Kickstarter style perks. For people that are, investing.

So, if you’re like fancy as a company that’s live right now, we found that our confession fancy and, if you invest a thousand bucks and then you get a 15% lifetime discount, on their website, if you invest 2000, I think it’s 20% lifetime discount. So that. Could always be seen as an investor written in itself is another thing that could be factored into the calculation on a returns.

Ben: [00:23:32] Yeah, absolutely. I mean, it’s, it is a return, right? It’s a monetary benefit for you. It’s just coming in a different, different way. . So it sounds like you have all sorts of different companies on your platform. So you have the high growth, you have the local, breweries, you have the local sports clubs, from an investor perspective, what sort of companies have seemed to do the best and what sort of returns are you looking at for those sorts of things and time horizon?

Yeah. So, I mean, there’s a question on like, what, what companies have had the most success in raising money on wefunder, which is easier to answer. Cause we have that data. And there’s another question which companies have the most, like, returns for Bestos, which is harder because we don’t really have that data yet.

Jonny: [00:24:19] in terms of the companies that have done the festival, we found the, yeah. Consumer facing businesses tends to do better. Just. For a couple of reasons. I think one, if they have a big audience of customers that love them, when they say, Hey, we want to be, we want you guys, our customers and community to be on.

And us, like we draw there that you guys have kind of participating in our success. Then, these institutions and banks, then that can help them to raise money quickly. so that’s one aspect. And then second is those consumer facing businesses. I probably see more value in recruiting an army of investors who are going to be loyal customers and brand ambassadors.

and so for those two reasons, I think BDC tends to be the sweet spot. We’ve funded a lot of BDB companies as well, but a B to C I would say it’s slightly one sweet spot. and then, I would, I’d say the best, determinant of success and we fund, raising mine quickly is. Having a great company.

Right? So it’s, it’s quite interesting to me that, we’ve done a number of, Y Combinator alumni have raised capital and we fund there and they tend to do very, very well. So if they have that YC, stamp of approval, if they, all the reasons why Y Combinator selected that founder and that team, that company, and to then translate into success.

And we fund to say, if you have a product that’s growing. Rapidly a team. That’s incredible a market that’s huge. That’s probably the number one determinant of success. And wefunder. And then we’ll say like audience size, like ability of the founder to hustle is also going to go into their success. And in terms of raising capital and then in terms of investor tents, I mean kind of a nice thing.

This is a little bit more kind of hypothetical at this stage. And then kind of in the rear view mirror, But the cool thing for me is if you have a consumer facing business where the customers love the product so much that if given a chance to invest in that company, I mean, this is like what you were saying with the stock market before, right?

Like you invest in companies, his products, he love it. That’s happening. And we found that like, if you are a company with a product that has a ton of people that love it, That’s probably a good thing in terms of like them investor returns. I mean, obviously there’s a long journey and the founder, and whether they can like make that journey, obviously like having a product in itself, isn’t a guarantee of long term investor returns, but hopefully there’s a pretty decent correlation.

We before, the STC rolled out regulation, crowd funding in 2016, we funded, it was fixed on regulation theory investments, like essentially like crowd funding for rich people and say we invested in a number of companies in those days. And so we have a little bit more. You have now kind of four years worth of historical data on this.

So we have a little bit more data on returns and therefore these returns are very good. I will not refund the.com/results page now. And, as of July, 2020, but I’m realized. Net IRR was 31%, which is pretty awesome. We have four companies that are now, valued at over a billion dollars being Zenefits check.

I can coat Bioworks and ropy and say, that there’s obviously as with all kinds of venture investing, like there’s somewhat of a power law at play here and say those, those companies and others that have done well have, terrific, pretty, pretty impressive results on our Rick D read the portfolio.

It wrecks the cause it’s kind of interesting. Like when the movie came out in 2016, there was one element which is that we couldn’t roll individual investors up to one line on the cap table and. Great for the very best like startup founders, that was a problem. And so it was like know harder for us to say, retreat, great companies in those early days of regulation, crowd funding.

we certainly had some, some great successes, beta Bionics as one, minds who raised a million dollars to make an artificial pancreas. They just closed a 50 million series B from. From Novo, Nordisk and other strategic investors, but the, the, the thousand people on your cap table thing was just made my life difficult.

So, so, so each individual investor through wefunder gets a spot on the cap table. They’re not grouped into one, obviously. Yeah. Say for you three up until 2019. That was the case. and yeah, that, that was then a deal breaker for a lot of founders. And so then, this year, we rolled out a new, structure using a custodian whereby we can roll individual investors up to one line on the cap table.

So, and, we have a lead investor component that goes along with that where, the startup founder is designating a lead investor, hopefully a really, really awesome angel to, play the. Lead investor role. And we fund that and that lead investor is then earning 5% carrot interest on the whole round.

So there’s some financial compensation for them if the company does well and those throw off invest the profits long term. and so. This is now meaning that all of a sudden now that a lot of founders that previously, might’ve gone, the rugby route are now all of a sudden considering, we fund. and so I think that’s going to bode very well for a longterm returns.

The other piece is in 2020 is. COVID so I think like in March, April, a lot of, Angel investment capital dried up. and so then founders, who, again, even with the one line in the cap table thing might’ve gone, the angel route were now coming to us and saying, Oh, I’m actually, need a bit of help closing my round here.

And so I’d say that for both of those reasons, the one nine on the cap table slash lead investor structure, and also COVID has meant that, the quality of startups we’ve been talking to and launching recently, I’ve noticed that a significant improvement, which is awesome. and our investment volume as well has been growing very significantly.

obviously, yeah, at a time when a lot of, a lot of businesses have been, struggling.

Ben: [00:30:29] Yeah, that’s, that’s great to hear. Well, it’s another Avenue, right? And so I’m curious with this new structure, the, the all one line on the cap table, the 5% carry for the lead investor. Did this represent an increase in cost for investors on the platform?

What kind of are your costs? did this impact it at all?

Jonny: [00:30:48] It does. Yeah, it’s essentially, it is a dent to the profits at, exit, if there are profits, right. and for us, this is a trade off that it makes a ton of sense to make because,  This whole structure, the one line on the cap table piece bring the lead investors in here is going to mean, firstly, we get high quality companies on the platform.

And then secondly, the lead investor, having this 5% of carrier, the interest is now incentivized even more to, to help that company, to, to grow and succeed. and say the combination of those two things. should we very, very passionately believe leads him more than a 5% improvement in returns. I mean, it’s probably like, hundreds of percent improvement.

and so it’s a trade off that we think is worth making. And if you look at like how angel list is structured, for example, in the world, I think typical current interest is 20%. So it’s certainly a lot, a lot less then, then, in, in, in that, pulling out platform.

Ben: [00:31:51] Okay. And what are the overall fees on the platform? How does it work?

Jonny: [00:31:56] So for an investor? for a foundertypically you’re paying seven and a half percent of the amount raised, for an investor. you pay a 2% of the investment amount with a minimum of $8 and a maximum of. A hundred dollars. I think off the top of my head, I’d say if you’re investing, 10 grand, then it works out at a hundred bucks.

So 1%, if you’re investing, 250 bucks, then it’s $8. So it works out a little more than 3%. I think the weight average fee on the platform works out at one and a half percent.

Ben: [00:32:33] Okay. That’s reasonable for access to these early stage companies that you wouldn’t have access to. Anyways, you guys manage the cap table, all of this stuff, right?

So I’m curious, it sounds like, this change for the cap table, A couple of days, things that have upped the quality of the businesses that are crowdfunding on your platform, but I’m curious what sort of filters you have to actually weed out some of the really terrible ones. I mean, do you have very plain, Jane has had this track record this revenue, this many years of experience, or?

Yeah. If you could just expand on that a little bit more.

Jonny: [00:33:12] Yeah, it’s interesting. We’ve actually, made a movement away from screening for quality in the last few months or so. and I think we’re trying to strike a delicate balance here. I think we’re doing a pretty decent job of it. but on one hands, We pride ourselves on being, and we aspire to be a platform where the best company is going to raise because the product is best.

Our team is best structure that we have with this custodian one line and the cap table, the lead ambassador piece,  the, the XX team that we’re building, mostly Y Combinator alumni founders that can provide mentorship and support for the founders who are investing in. bringing all these things together, we want to make it such a noble that if you’re, well, cost found that looking at bringing on an army of champions for your business, you’re going to go, we fucked her up over our competitors.

but at the same time, we also don’t want to be the gatekeeper. We don’t want to be the VC, like a big part of our model is like, we want to kind of. be, a platform I would say, and, and kind of a democratized platform. and right now, 77% of venture capital goes to three States, California, New York and Massachusetts.

And we’re a BCorp or PVC, like a big part of why I found is built. wefunder and why I work here is to get more capital funds to Tennessee where I am, and so. We kind of want to get out of the way a little bit while I’m one hands we’re gearing our whole products and our whole kind of strategy towards working and being the best place for a world class founder to raise a million dollars or the SEC are now looking at lifting the limit to 5 million, which will be very, very cool again for like the caliber of companies that we’re launching on the platform.

But at the same time, even if you’re know a guy in your garage with an idea, just starting out, if you can get people that trust you to invest 10K, then we’ll go ahead and do the legal paperwork and launch you on wefunder. And, at least give you a shot at running a successful campaign with us, in a sense like the other day, I came up with a alliterative phrase, which I kind of liked around. friends and family round  we can streamline it, systematize it and supercharge yet the streamline is basically, Rather than having to have a ton of meetings and a ton of like sending stuff by email, to the same people over and over again, it’s just like, there’s a website.

People can get their credit card out and invest on the site is very, it saves you as the founder time, the systematized pieces, friends and family rounds go like uncle Joe, like he would, did he agree? Like, did you set a valuation, a share price for his investment? Like how’s that treated on the cap table?

Whereas for us, it’s like one line, it’s all the, it’s a contract as an electronic contracts. It’s very systematized. And then supercharged is like, we’ll put you in front of, we fund as investors. And maybe you can make connections with people on the other side of the world who are really interested and what you’re doing, and you can go there by raise more money.

and so I think, our vision, our founders patient, my vision too, is like, We’re about helping the little guy, and giving her a shot as opposed to, just working with like the kind of Y Combinator alumni that are kind of already on that, on that path. So it’s a delicate balance that we’re trying to strike.

but, I think, the last few months we’ve been making good progress on both ends of that spectrum. We’ve been launching a ton more companies and basically getting out of the way ourselves as the bottleneck. But also, as I said, like the camera, or if the companies we’ve been launching has been outstanding, we we’ve partnered with, we have kind of a,  shit with this XX, program, that has an accelerator that’s focused on 13 companies tackling Kobe.

And those 13 companies that just graduated from this three month accelerator program, we had a demo day and launched them on wefunder earlier this week. And the caliber of those companies is it’s very, very exciting. So yeah, on both ends of the spectrum, I think we’re making great progress right now.

Ben: [00:37:37] Oh, I’m a, I’m a big fan of this democratized access, easy raising for everybody, but there is a point there is a bit of you as a platform, you’re putting.

Yes, you are an open platform, but is there a minimum raise or, or anything like that because ultimately, you’re putting it on your platform. Me as an investor jumping on there, I just kind of assume that it’s not just this fly by night sort of company. So, is, is there any, any way for an investor to tell, is this a lower quality, company, or am I just kind of eliminate?

Jonny: [00:38:17] Yeah. And like following the crowd and a bunch of people have already funded this because there’s a bit of that, right. The herd mentality, this one’s really filling up quickly. So I, FOMO, emotion, all of these things. so as an investor, how do I. Do my own kind of high level filtration of what are the higher quality offerings here.

Yeah. So we’ve made a number of product changes recently to really try to, to bring that out. so the lead investor piece is this one of them, right? So every company that, that publicly launches on wefunder needs a lead investor to invest at least a thousand dollars. Average is probably coming up with like 20 to 25 K and the lead investors role.

Probably most of them we’ve had previously that, that lead investor is looking at it, negotiate on the terms of the offering. like at the outset of the process, and say who that lead investor is, how much they invested. They kind of, that their rationale for investing I think is, One like product change that we’ve made recently to try and, and bring that out from Bestos.

Another piece would be that, have every company that we publicly launched do an expert interview panel. we’ve had some really great experts, deep sector experts, but founders in that sector through their pieces and that, and that video we highlight on the campaign pages. so in those two ways, we’re really trying to.

enable anyone who’s looking at that. A page to really get a good sense of, where the founder is on the journey that the caliber of the team, there’s a Q and a section that you can get into. We’ve tried, I think, versus our competitors. We’ve tried to make the financial information on the company, for example, very, very transparent and prominent on the campaign page.

So any we’ve invested just knows where to look for that and can easily compare it for us companies. So. I say, that’s how we’re looking to answer that. Very good question that you asked, which is like in the design of the, of the products. And so I guess going back to the point on like, the kind of open platform to like present ourselves as being the gatekeeper and give people that shot, but also really doubling down on quality, part of, part of the balance, the strike barriers.

Yeah. How do we, how do we kind of. Highlights the, best competencies to investors. And as you say, kind of, kind of communicate that now this is where from a regulatory perspective as a platform, we can’t, we can’t say that this company is a good, good, right. Invest the nest don’t invest in this one.

We are that, that we’re not allowed to do that from a compliance perspective, say that’s what, with the lead investor product feature with the investor expert interview panels, product feature, we’re trying to kind of. Enable investors to kind of figure this out. And I know obviously there’s like investors do that diligence and then to your point, yeah.

Like, they’re, they’re kind of the wisdom of the crowd. and our hope is yeah. The best, the best founders that are really shining, our products. Yeah. Kind of enabling them to shine and enabling them to raise the money that they’re looking to raise. yeah, I mean, that makes sense.

Ben: [00:41:38] Right? It’s always balancing this.

You want to be this open platform, but you also allowing anybody to raise, but you also want quality things because ultimately you’re taking care of your investors as well.

Jonny: [00:41:51] And of course there’s a ton of like, restrictions and, and, there’s a lot of policies that we have where we would, and there’s a lot of, kind of, black and white due diligence where it’s like fraud checks and bad actor checks and all that stuff.

I mean, that, that goes without saying, but then it’s more like in terms of like assessing whether this is a quality investment or not, That’s where I think, on the spectrum versus like in a VC, that’s making the decisions on like paper and platform in the last couple of months, we have shifted a little bit more towards saying, yes, Yeah.

We’re not necessarily the right people to judge, whether this, coffee shop in, rural Ohio, is, is a good, a good investment opportunity for people in that, in that community to, to consider it.

Ben: [00:42:38] No, I mean, that makes sense. I’m curious, you as a company, wefunder, do you invest in the companies in your platform?

Jonny: [00:42:46] We did not. Okay. Our pricing structure previously was that we took a percentage of equity in the company. as well as cash fees, we want to get back to that, in the future, we wanted to get to cashflow breakeven, in the short term. and we did, last year, we basically became in a black month to month and we’re still there, right now, which is very, very nice.

just kind of gives us, gives us a lot of flexibility, and some strategy and growth say, but in the long term, we are looking hoping to lower our cash fees and come back to introducing an, an equity thing.

Ben: [00:43:24] Yeah, absolutely. If you can cover your costs and congrats by the way, being, being profitable and surpassing that a hundred million dollar milestone, that’s a gigantic, so, big things for we funded coming up.

That’s for sure.  another thing that, yeah, another thing you had mentioned was the ability to take on international investors. So I’m sure it says it on your website, but, Most other countries, obviously there’s certain ones that are excluded from like everything, but yeah,

Jonny: [00:43:54] yeah, exactly. Pretty much, pretty much, very few restrictions.

Weirdly said some provinces in Canada. we’ve heard, they didn’t allow their citizens to invest. So if you live in Quebec, sorry, you’re out. But a vast majority of,

Ben: [00:44:08] All right. And I’m curious, the like range of valuations of most companies going on your platform. Like what’s kind of the low bar, what’s kind of the high bar and kind of the median.

Jonny: [00:44:21] So low bar, I would say, was like 7 million, There was one company modern times that raised on a 250 million valuation.

they had tens of millions of dollars in revenue, established brewery. but usually the upper bound you’ll see is kind of 30 million or something like that. That really wasn’t exception to the rule. I would say the immediate is, probably around five or 6 million, something like that. And then, the average raise is three 50 K.

Well, they, a lot of companies are targeting a million, say, call it five or 6 million for 15, 20% of the company.

Ben: [00:44:59] And then for investors on the platform, they always need to choose specific companies to invest in. Or do you have this like auto investing, jump into a, a, a basket, these startups, a sort of option for people.

Jonny: [00:45:16] Yeah, you’re choosing individual companies, which is both kind of legally a constraint right now that you have, the sec wanted investors to be making individual decisions. What also, I think like a little more in line with a brand and vision, it is an interesting idea to consider like a index fund type approach over time.

But I think like that, that, that tagline that we have on our homepage of investing startups, you live. It is kind of more conducive to that to say, yeah, we want people to really be, yeah. Just like, ideally saying, wow. Yeah, I love this founder. I love this startup. I love this idea and say how making that kind of individualized, personalized choice each time.

Ben: [00:46:01] The, the mix of investment that you’re seeing through wefunder platform. Do you see some institutional interest or are they most individual investors?

Jonny: [00:46:11] Like you said, interested in this individual company. Occasionally we have institutional investors and I think with the lead investor structure, we’ve started to see a few more kind of institutions come in and play that lead investor role.

But the vast, vast majority, even of dollars. Yeah, certainly a number of investors. It’s individual, individual people.

Ben: [00:46:32] then your source of deal flow for these small businesses. Obviously you guys are a lot bigger now people have heard from you, they’re going to you to, as the source for this.

But, you mentioned that you were working with an accelerator. Is this kind of like a key deal flow? Like how does the deal flow work for you guys?

Jonny: [00:46:53] Yeah, absolutely. So, we have a number of different, strategy. So I’d say we’re going a lot of inbounds. we have a lot of, partnerships with, bankers and lawyers and, the ecosystem of people that work with startups who are, referring, referring companies, in their community over to, so we found it.

and then, we have a lot of outbound as well say. I’m just trying to, and trying to figure out, what, what startups are raising capital and how can we reach out to them? And. just enable them to consider wefunder as an option, and some people are gonna want to go the traditional route for a bunch of reasons, but, I think startups, and especially again, consumer facing startups, like you gotta, you should be considering this, at least as an option, and weighing it up.

and, so, so yeah, those are the three kind of principles strategies we have on the PD side.

Ben: [00:47:47] when thinking about the type of investor that, that invest in the platform, obviously we’ve been talking about it a lot. I feel a lot of conviction for this local company or, or the prospects of this sector look really good, but.

In terms of what kind of investors do not want. So they need to come in with the mindset that this is a 10 year investment that I might be getting these like perks and little bit of ownership and these sorts of things, like how do you, how do you help an investor think through kind of their first, if you’re explaining it to a family member of like the benefits of, of investing in wefunder, what key.

Attributes or characteristics would you want them to have before doing that?

Jonny: [00:48:30] Yeah, I think like, I mean, certainly would want to highlight the risks. Right? We’ve talked about them mostly. It is, it is high risk it, and it’s also kind of relatively illiquid as a, as an investment. and then on the, on the plus side, I think again, it will be like, invest in startups.

You love being like the, the tagline. And I agree.  we have an investments, a Slack channel that we funded web. Yeah. Every single time someone makes an investment it’s as we got a Slack message in this, in this channel. And, I can remember when I first joined, it was relatively sporadic. But I like, I just can’t keep up with the channel anymore.

It’s awesome. Like I look back at an hour later and it’s like, hundreds of messages is really, really cool. but we also in that channel have a message that the investor, after they check out, then there’s a box that comes up, like tell, tell these fans why you’ve invested in them. And, so we see all these messages come through and so cool to read those messages.

Because the vast, vast majority of those messages are like, Oh, no bad. Yeah. We go, we go way back in this sky, like, has the drive and the determination to make this work, or it’s like, I live in Charlotte, neither. I’ve been going into Chattanooga. I see again, C is like, Hey, I’m so proud to be an owner of my team’s soccer club, Or like, I just love your beer, Or like, I, I, I’ve kind of. Seen, I’ve been kind of researching and I know the AI space, I worked for a company in the AI space and like, I really am excited about the direction that you’re taking this company and we can see these messages. And, and that for me is like what we’re about.

That’s the investors we want is like people that are writing those messages. That was one company that I really want. Of the 500 that we’ve funded. And we found that, I think it was about 500 and there’s only one company that I remember when all the messages are like, I want to make a ton of money. I think I’m going to make a ton of money.

I’m just investing in something money and it turned out that that company was, Basically falling. It fell foul of, sec, regulations. And we had to, deal us to them as soon as we were very, very strict on the stuff. So as soon as we heard a whiff of that, they were done. And it was so interesting that that was the one company where these messages is like why people are investing where, yeah, they’re all kind of motivated by, by making a quick buck.

So that’s kind of, I guess, the, the brand and the kind of, the best, the sweet spot, I would say for, motivation of investors. Yeah, that makes sense. I like that actually.

Ben: [00:51:16] I’m curious on, on your platform, do you track like failure rate, of these successful investments that have just gone out of business or something like that?

what kind of are the numbers there?

Jonny: [00:51:28] We do. We found that our com slash results has, all of the results that we have. Yeah, there’s a bunch of stats on that page. The 31% unrealized IRR who mentions the 4.3 X return, multiple 70, 72% startups still active 86 of one 20. if 38% went on to raise a series, they have 3 million.

So you can see, see the stats there.

Ben: [00:51:55] Yeah. And I’ll, I’ll link that in the show notes. It’s a, it’s a good, Good results page. None of these are publicly traded yet, though. Right? I see. Zenefits is the best. It did a 500 million series. You see? So they’re valued at $7 billion. So. I’m curious, what, what changes?

So assuming Zenefits, like does an IPO and, and is publicly traded all of these shares, then like, walk me through the process for these pre-seed or seed investors going public in, in their, unicorn startup. Yeah. So, I’m probably not the expert on that process. It will function very similarly to how it would with, if they’d done it.

If they’d done that, million dollar wefunder rounds, three accredited investors, in a regulation D round.

Well, hopefully we get to see that in real time. Yeah, that’d be nice. That’d be, that’d be a game changer that, yeah, the fast that the first we bought, we found the IPA will be a nice, nice movement.

I mean, it’s going to happen eventually. Right? You’ve got a hundred million and, and, and, I go back and forth with this. It’s like, well, it’s a new platform if they haven’t been on the ground for awhile. So of course interest is picking up. But I don’t know if like peeling back the onion a little bit.

Like, what is the interest in these startup investments is because over the last. 10 years, we’ve had this crazy onset of cheap money and it’s kind of just flowing to more and more high risk investments. Is it because of all of these super sexy 500 X returns that everybody’s hearing about with tech startups and, even though they say they want to support the business, there’s a bit of greed down there that you’re like, huh?

I want to put it in $500 and get a check for a, $50,000 at some point. That sounds great to me until the tax bill comes, but it still sounds great. I’d happily pay the taxes. It’d be fine. But, I’m, I’m curious what that bigger trend is. And I know nobody knows. So, yeah, I think that, the matric, if in some way, funder has been recruited by founders.

Bringing Ben that work to invest in them. Right. So I think that says for me, it’s a little more about like fantasy with that company or relationship with that founder. which obviously, like, I’ve probably been to kind of anchored on like, as you were saying, like community and like lost. Our say, right?

Like of course, like investors on, wefunder want to make them want to make money. Right. like I’m sure the vast, vast majority of investments that we fund believe that this is a good bet financially. Otherwise they’d probably wouldn’t make it.  but  yeah, like that. We haven’t seen a huge, maybe in the early days when the law changed.

there was, there was kind of a, a movement of people that were frustrated previously. They legally weren’t allowed to invest in cool private companies and now they can and yeah, say there’s that kind of movement piece. But I think for the most part, The investors are coming from the founders outreach and through relationships with the companies.

And so that says for me, in terms of your question on like motivation and like who are on breast is it’s maybe a little more like, driven by that, as opposed to, just kind of a like widespread desire to share shift their investment portfolio from kind of. Public stalks too, at least age private stocks, but maybe I’m well on that.

it’s, it’s definitely both. it’s just, if I look at the, where we’re finding investors and how that coming to we fund the, and I don’t know, maybe there’s just an opportunity for us to do more kind of brand marketing and marketing of like, investing in early stage private companies as like a thing in itself.

But one thing I’ll say is just like in the weeds a little bit, but if you look at a return on ad spend of our Facebook ads, if we’re advertising, like investing companies on, we fall under. Our return on aspect is a lot less than if we’re saying invest in this one company. And like, let me tell you about the sound, the growth trajectory, and, the, the, the row, as we see on ads fixed on specific companies, is, is significantly higher than on the, on the concept of investing in startups overall, which is interesting.

Well, it’s a much more targeted target audience, I would say. Yeah. So I’m curious with wefunder, what next features, upcoming roadmap, what excites you the most of these next couple, couple of months? A couple of years, whatever. Yeah, I think I’m at a high level. It’s, it’s basically continuing to, focus on, Quality and just basically attracting the best companies to raise on wefunder.

and there’s a number of ways in which we’re trying to do that. I mentioned the, the lead investors piece. I mentioned the expert interview panels. and so we, our product team is an endless source of, I think, pretty brilliant, ideas to try to, both, both, yeah, kind of enable investors to kind of.

Understands the investments and the companies that they’re investing in and thereby enabled rockstar, amazing founders to shine through the product. We’ll say then after the race, I mean, that idea that like, if you, yeah, I have a thousand investors on your cap table, that’s a thousand brand ambassadors and champions.

Like that’s, that’s really powerful. But like, there’s so much more we can do on the product side to like, bring that to life. Right. So imagine if you’re like walking, walking along or you like go, go into a restaurant and then, because you are an owner of that restaurant, you like get some like discount code pop up when you find like, or like some, some like jobs for, for we fund the portfolio companies or.

something along those lines where we can just kind of help found this to realize more benefit from the hundreds and thousands of investors that they have three of the three that we fund the campaign say pretty kind of, I guess, high level and abstract, but those would be the two, two main, directions of, product changes that, I’m excited about for the coming months a year.

Yeah, absolutely. I mean, those are, those are the gigantic benefits of doing this. good. So, where can my listeners find out more, follow you the company, find out more about wefunder.

Jonny: [00:58:43] Yeah,  wefunder.com. you can go from there if you, if you’re a founder looking at raising capital, founded, looking at raising capital, there’s a raise money.

The, you can, you can click to view the companies. If you click explore. I think we have over a hundred companies that are raising right now. You can still sort of see by location or sector, and, there’s various tax. so you can look for like Y Combinator, alumni, for example. and yeah, you can work on social media.

I’m [email protected] if you have any, any more detail questions to me, you can find me on LinkedIn, Twitter, I’m @JohnnyCprice.

Anyone listening to this could be an angel investor, even if they’re not accredited for a hundred bucks, it’s such a low barrier to entry, and if you’re really interested in startups and angel investing, It enables anyone to dip their toe in the water and get started on that, and learn lessons, for a much, much kind of lower risk and lower costs.

It’s really cool to be like, it’s been such a privilege for me the last two and a half years, I’ve worked with probably hundreds of founders and got to know some really brilliant people, pursuing their passions and. so it’s, it’s fun. And so be investing in these companies and along for the ride on that seat in the elevator, that’s see it in the elevator, man.

Ben: [01:00:07] I’m going to think about that every time. Well, whenever the next time I’m in that elevator, which is TBD, I suppose, Johnny really appreciate it. Thanks for sharing all your knowledge about wefunder. I’m excited to see you guys grow and thrive over the next years.

Jonny: [01:00:22] Thank you so much. This was a really fun conversation.

Ben: [01:00:25] Yeah, I appreciate it. Cheers. Bye.


Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.