By Evan Schuman
For startups looking to raise capital, more and more founders are turning to online fundraising. These platforms are relatively new, launching as a direct result of the 2012 JOBS Act, which paved the way for startups to publicly advertise their capital raises and leverage equity crowdfunding to turn everyday customers into investors — whether or not those customers were “accredited investors”.
Online fundraising platforms also provide a way to diversify investment sources. By using equity crowdfunding to supplement traditional venture capital dollars, founders can retain more strategic and creative control over their companies than is typically possible when relying on just one or two investors writing big checks. Startups can raise millions of dollars without having to give investors a board seat.
Although there are several of these fundraising platforms today, their structures are very different and these differences can have a massive impact on a startup’s fundraise, as well as their ability to attract capital and pursue strategic options in the future.
Platforms work as a marketplace for investors to discover potential investments, startups ranging from robotics to SaaS, CPG, and more. From the startup founder’s perspective, the ideal is to have as many quality, engaged investors as possible considering their deal and a clear strategy for raising their full round once launched.
That is precisely why so many investors and startup founders are choosing SeedInvest. Compared with other platforms, SeedInvest is very selective about what startups are approved to fundraise on the platform. As a result, founders raised an average of $3.3 million in 2020, which historically has been higher than other platforms (Source: VentureBeat). A more successful raise is good for founders and investors.
“We are the most highly-vetted platform. We are very particular who we work with,” said SeedInvest CEO Ryan Feit. “We don’t fund ideas and we don’t fund projects. We have raised from a half-million dollars to over $20 million, supporting everything from Seed through Series C.”
One key differentiator for SeedInvest has been building extensive trust with active and influential investors, no matter their check size. Investors love to see spreadsheets, patents and impressive names on the executive team, but they also need to trust their gut instinct and operational experience to make decisions on which startups get money and how much. That’s where SeedInvest delivers — they have built deep trust with many investors.
It all means that SeedInvest companies can raise more money, during and after their online fundraise. Startup investing is risky and not every outcome is a win, but consider some of SeedInvest’s recent portfolio activity:
- Heliogen – the first retail investor unicorn in the U.S., going public at a $2 billion valuation
- Shelf.io – $50M+ Series B raised from Tiger Global and Insight Partners
- Winc – Bessemer-backed company going public
- CleanCapital – $300M commitment from John Hancock parent company
- Apptopia – recently closed $20M round
- Waycare – acquired by publicly traded company
SeedInvest, through its wholly owned FINRA/SEC registered broker-dealer, can help founders and investors navigate these relatively new waters so well because they literally helped write the new rules.
One of the startup founders that SeedInvest has helped is Jan Goetgeluk, the founder and CEO for Virtuix, a VR gaming business that also boasts Mark Cuban as an investor.
“Using equity crowdfunding, we can create a community of people that have ownership in what we do and we believe that’s very powerful,” Goetgeluk has said.
SeedInvest is strict about which companies make it on the platform and this helps generate the trust that in turn delivers successful fundraises and positive outcomes for both startups and investors.
One such confident investor is Sunmeet Jolly, who has been using the platform since 2016 and has already invested in 40 startups, mostly in virtual reality, B2B SaaS, robotics and fintech.
“How is Seedinvest different? SeedInvest doesn’t go for volume. They always always go for higher quality deals,” Jolly said. Speaking of startup candidates he has seen on other platforms, “99 percent of them, SeedInvest would not accept them.”
SeedInvest recommends that investors diversify—according to Jolly—encouraging them to set their own startup investment allocation, then spread the amount of money that investor is willing to spend amongst ten or so companies. For Jolly, that has translated into company investments as small as $1,000 (although the platform has minimums as low as $500 for some companies) and as much as $20,000. That gives smaller investors a lot of flexibility.
What does this vetting process look like? It starts with an online application, followed by multiple calls with a member of SeedInvest’s Venture team, who works with the company to structure the round and set terms.
Companies that are approved by their deal committee are subject to review of their historical financials, projections, cap tables, company-and sector-specific KPIs, teams, their track record, existing investors, use of funds, corporate structure and related documentation, and offering docs. SeedInvest makes sure to note that their due diligence process is no guarantee of success or future results and encourages all investors to do their own research.
SeedInvest—which has more than 600,000 investors and has raised more than $350 million for startups—is looking for companies with some traction in the market and a handful of full-time employees, at a minimum. Repeat founders tend to do well on the platform, having already gone through the process and cleared due diligence hurdles with other investors.
SeedInvest makes sure that all startups are fully compliant with the SEC, such as getting financial results audited or certified. SeedInvest works with startups closely on valuations and terms so they are successful on the platform.
SeedInvest has also said that it is especially worried about startups that have “assigned themselves sky-high valuations that will make it hard for investors to ever make their money back. In several cases, companies that [SeedInvest] rejected because of their high valuations have shown up on other sites with the same valuations,” noted a New York Times piece on platform investing.
SeedInvest stresses that the best investments can—depending on the founder’s circumstances—be a combination of VC dollars and crowdsourced dollars. They are not trying to run VCs out of town. Their execs argue that VCs have and will always play a pivotal role in the ecosystem and the goods ones are worth their weight in gold in terms of value add. Many companies would be lucky to have their advice, expertise, or even connections to their boards of directors.
The issue, though, is that many founders opt for a VC-only strategy, which can often undermine their potential. “There really are only a finite number of VCs relevant for a particular company at a particular point in time, which is why it isn’t terribly shocking to know how minimal VC funding is when it comes to the totality of startup and small business financing,” said Feit. “Also, there are a lot of VCs that don’t really add much value beyond their ability to write a check but still insist on having an opinion.”
Jolly applauds SeedInvest’s strict due diligence approach. “SeedInvest never brings us something at the idea stage. Startups on the platform have already spent years building something.”
When asked what other things he seeks in a startup, Jolly pointed to burn rate (“Will they run out of money? Will the founders then give up?”) along with having a solid barrier-to-entry approach.
Then there is the vision of the founders. “I am always looking for a great dream,” Jolly said. In other words, are the startup’s products and services (if successful) going to create meaningful change in the industry? Is it fixing a problem that companies have struggled with for years? Solving a problem that few businesses care about is a waste. Solving a problem that lots of companies or consumers really need to be fixed—that’s where a successful company begins.
Those concerns all point to why SeedInvest’s vetting process is such a hit with investors and startups. Before a company is allowed to fundraise on the platform, SeedInvest staff asks the same questions that traditional venture capitalists do. They share this information with individual investors so they can complete their own due diligence.
Startups today have to work with investors who may or may not have their company’s best interests at heart, all amidst a highly-competitive environment. And yet raising capital is the top priority for most founders. SeedInvest makes raising capital easier, helps to connect founders with interested investors at every level, raises more than other platforms, and is filled with repeat founders for a good reason.
Learn more about raising the money you need to grow on SeedInvest.