Y Combinator-Backed WeFunder Launches To Bring Crowdfunding Startups To The Masses

Crowdfunding is catching on in a big way in the consumer space, as platforms like Kickstarter and Indiegogo have provided new ways for people to back promising projects. But in the startup world, funding is still largely done the same way it has been for decades. A company called WeFunder is aiming to change that, by providing a platform that could make investing even small sums of money into a startup a reality.

Last year, WeFunder dogfooded its product to raise its own funding round, collecting more than $500,000 from about 60 investors. Nihal Mehta, Jim Pallotta, Dharmesh Shah, and Bill Warner were among those who participated, but the company also received funds from a bunch of unaccredited investors. Now the company is looking to make its platform available for other startups hoping to raise funds — and not just from your usual roundup of Silicon Valley VCs.

The ultimate goal is to enable anyone to invest in startups that they find promising. To that end, founders Mike Norman, Nick Tomarrello, and Greg Belote lobbied hard last year to get the JOBS Act passed. That act should help overturn a few rules which, to date, have held back greater adoption of crowdfunding for startups. And with a new SEC Chairwoman in place, the whole thing could finally move forward.

Today, investing is limited to those with income above $200,000 a year, and raising funds is mainly kept a secret due to SEC regulations. But there are two big changes in the JOBS Act that should help crowdfunding move ahead: There’s Title 2, which will allow companies to publicly solicit funding, and let people know when they’re raising. And the there’s Title 3, which will allow people to invest regardless of their income level. Both those changes are expected to happen by the end of the year.

In the meantime, though, WeFunder must play by the rules already in place. That means that only accredited investors can view companies that are raising right now and invest in them. Two “mystery startups” are using the platform, both also from Y Combinator. Each has raised more than $350,000 toward a total $500,000 funding target.

Investors can make investments of as little as $1,000, since those investments are all grouped together under a single LLC. To do so, they simply click “Apply” on a company page, and enter in their contact information. Documents are instantly drawn up and can be digitally signed, and payments are done through ACH bank withdrawals powered by YC alum Balanced Payments. Founders can accept those investments, and a contract is executed once funds are debited. The whole process takes place on the platform, without anyone having to download, print, or exchange documents.

The company, which was founded last year, is now part of this Winter 2013 Y Combinator class. WeFunder plans to make money by actually taking small amounts of equity in startups which list on its platform. It’ll also take a small fee from investors who put money into the startups there, but that’s mainly to cover processing costs.