By Aaron Kellner, Director at SeedInvest
It’s no secret that raising capital can be an arduous process. Not long ago, if you were a founder looking to build a new business, there was a fairly standard path to follow:
- Raise money by trying to convince investors one-by-one that your idea is worth funding
- Build and launch your product
- Establish customer demand and product-market fit
- Raise more money
- Prove there’s even greater customer demand
- Repeat until success, exit, or failure
Raising capital and building your customer base used to be completely separate, but then something interesting happened.
About a decade ago, Kickstarter and Indiegogo gained popularity, both compressing and inverting the traditional founder experience. Funded by customers excited about their product, founders could go from ideation straight to development funding and customer validation.
The rise of equity crowdfunding: a catalyst in the wake of the Great Recession
The internet had begun to disrupt early-stage company formation and fundraising, but offering early-bird discounts, company swag, and the like can only take you so far.
That began to change with the Jumpstart Our Business Startups (JOBS) Act in 2012, which enabled companies to legally raise capital and issue securities online. This once-in-a-generation modernization of securities laws – inspired by the success of rewards-based crowdfunding platforms – was designed to be an economic catalyst and job creator. This gave rise to the equity crowdfunding industry, with platforms like SeedInvest leading the way in democratizing access to capital and opportunity in venture capital for the first time in nearly a century.
Entrenched players in the ecosystem were rightfully skeptical at first – not just venture capitalists and angel investors, but founders, their lawyers, and other advisors. Why would good companies seek funding from online investment platforms and retail investors instead of traditional venture financing?
Isn’t it obvious that VCs would snatch up every good investment opportunity, naturally leading to a negative selection bias for this democratized deal flow?
We’re still on the bleeding edge of what equity crowdfunding is capable of for founders, investors, and the venture ecosystem as a whole, but eight years of investment data at SeedInvest demonstrate extremely compelling results.
We’re proving it can be a new, powerful alternative or supplement to traditional forms of venture capital, and it can bring its own unique advantages.
Raising a $20 million Series B online: The NowRx story
So far, SeedInvest and our investors have directly funded $350M into a portfolio of 250 companies across a range of industries, business models, and geographic locations.
We’ve done so directly alongside VCs as well as by leading and filling rounds, too. We’ve been one of the first investors to recognize a company’s potential and support them financially and, for me personally, one of the most exciting developments has been our ability to help our portfolio companies scale by supporting them through multiple funding rounds across a broader range of their life cycles.
NowRx is a great example of how equity crowdfunding isn’t just helping companies launch, it’s enabling them to scale. A Silicon Valley-based healthtech company that’s grown into one of the nation’s leading on-demand pharmacies, SeedInvest contributed to the company’s $750K Seed round in 2017 and led their $7M Series A in 2018 as well as their $20M Series B at the height of the COVID pandemic.
Along the way, NowRx leveraged press and brand awareness generated from their fundraise to help scale their business:
- From ~1,000 customers to 30,000+
- From ~$1M in revenue to $12M+
- From 5 employees to 50+
Stories like this show that the next era of equity crowdfunding is here, and it’s doing more than simply helping companies get off the ground.
Capitalization as means of business development: Five things we’ve learned so far
So what exactly have we proven with NowRx and hundreds of other companies?
1. Equity crowdfunding is a legitimate business catalyst.
Time and again, we have seen our portfolio companies experience measurable lifts in sales, sign ups, and overall engagement from the moment they launch their online fundraise. This tracks with studies that show shareholders of publicly traded companies are more likely to purchase from that company, visit their website, and refer that company to their networks. Even more interesting, though, are the business development opportunities that present themselves when there are more investors with a vested stake in the success of your business. SeedInvest portfolio company Heliogen, which announced it will be going public at a $2B valuation later this year, secured one of its first major seven-figure contracts from an introduction made by one of the four-figure retail investors that participated in its offering on SeedInvest.
2. Equity crowdfunding and traditional venture capital aren’t mutually exclusive.
We’ve invested alongside a large number of traditional venture investors, and our portfolio companies have received follow-on funding from funds and strategic investors that include BlackRock, DCG, Great Oaks, Greycroft, John Hancock, Lerer Hippeau, Menlo Ventures, Revolution Ventures, RRE, Sound Ventures, Tiger Global, Vulcan Capital, and countless others. In fact, to date our portfolio companies have raised over $1.5B in aggregate. We are not here to replace traditional venture capital, we’re simply seeking the best companies and founders to back.
3. You can raise meaningful amounts of venture capital through equity crowdfunding.
Historically, online platforms could be optimistically counted on for a half million dollars or so. Maybe $1 to $2 million on occasion. But that threshold has completely changed, solidified further by recent changes to the JOBS Act regulations. Last year, the average crowdfunding raise on SeedInvest was in excess of $3M. Take portfolio company Virtuix, for whom SeedInvest led and filled an oversubscribed $15M Series A earlier this year. No stranger to crowdfunding, Virtuix received over $5M in commitments from existing investors before they even started their raise. The investor feedback was so strong that company management upped their raise beyond their original $10M goal.
4. Equity crowdfunding supports multiple follow-on funding rounds.
One of the many benefits of traditional venture capital funds is their ability to support portfolio companies over multiple funding rounds. Deep pocketed investors are important because – for most high-growth companies – it isn’t just about bringing money in today, but putting yourself in an easier position to do so in the future. We’ve found that expanding a company’s investor base can be similarly effective, as evidenced by Virtuix, NowRX raising almost $30M across three raises, Gatsby oversubscribing their $5M Series A early in 2021 after conducting two smaller offerings the preceding year, and numerous others.
5. Equity crowdfunding does not hamstring you operationally…if done correctly.
One of the most consistent — and understandable — questions we hear from founders is “How am I going to manage all those investors?”. While we can’t speak for other platforms, our answer is easy: “You don’t have to do anything. We’ll do the work for you.” We were the first to develop a solution for consolidating smaller investors so they don’t clutter your cap table, and most importantly, assist with ongoing shareholder management. We’ve put mechanisms in place to ensure companies can maintain nimbleness and flexibility in exploring and executing future corporate events. As a case in point, nearly 1,000 investors participated in Heliogen’s offering on SeedInvest. The company received the requisite approvals for its upcoming public listing within 36 hours.
SeedInvest was founded on the belief that democratized access to capital and opportunity in venture capital — when done responsibly — can be fundamentally transformational for founders and investors both within and outside of the traditional VC sphere. While we’re proud of what we have accomplished so far, we know there’s more work ahead of us than behind us.
With the backing and support of our parent company, Circle, which recently raised one of the largest fintech venture rounds in history and announced plans to list publicly later this year, to say we’re just getting started is quite the understatement.
If you’re a founder interested in learning more about whether we can be the right partner for you, we’d love to hear from you. Visit techcrunch.seedinvest.com to get in touch.
All securities-related activity is conducted by SI Securities, LLC dba SeedInvest, an affiliate of Circle Internet Financial Limited, and a registered broker-dealer, and member FINRA/SIPC, located at 61 Broadway, Suite 1705, New York, NY 10006. This communication is for information purposes only and should not be regarded as a recommendation of, or an offer to sell or as a solicitation of an offer to buy, any financial product. Startup investments involve a high degree of risk, to learn more about investing in startups and its risks visit www.seedinvest.com/academy.