Investment story: WeFunder
Today is a big day for WeFunder, which was one of my first startup investments, and other companies active in that “startup crowdfunding” space.
This is the first in a series of posts about investments I’ve made, explaining some of my thinking, as well as reflecting on things I’ve learned since. If you have thoughts on format, contents, etc on these posts, please let me know.
First thing first: I’m a tiny investor in WeFunder. I was part of an early angel round, and I’m happy with my investment. This post explains why.
Today is a big day for the company because “Title III” of the “JOBS Act” goes into effect this morning, having been approved by the Securities and Exchange Commission (SEC) last year.
If you don’t know what that means, the gist of it is that anyone can invest in startups now. You don’t need to be an “accredited investor,” which was previously a requirement one could meet via income, net wealth, or other criteria. More details by Chance Burnett at Forbes.
I think this is great. Beyond my personal thoughts, I have many friends and colleagues who want to participate, show support for a company or project, and get more than a token t-shirt or similar return. While I’m also a big fan of Kickstarter, IndieGogo, and the like, this opens up a meaningful alternative investment channel to everyone.
The act as passed is not perfect. It has significant hindrances to entrepreneurs and their companies. For examples, companies have to file detailed disclosures about their finances, which aids transparency, but at a high cost to those companies, perhaps high enough to discourage usage of this mechanism. Companies may only raise up to $1M, which is a deal-breaker to some. The same Chance Barnett at Forbes has a detailed breakdown of the good and bad in this act as passed.
How is this related to the title of the story, you might ask? I invested in WeFunder’s first seed round, years ago. It was one of my first investments overall, and this (obviously) one of the first where I didn’t have any kind of advisory relationship with the company. I was pure “money” on the sidelines, part of an early angel round.
I invested based on two factors I felt, and still feel, strongly about:
- The team. I fist met Mike, one of the co-founders, while we were at HubSpot together. He impressed me in a number of ways, including intelligence, vision, and tenacity. Then I met the other cofounders over time, and the entire team is impressive. They work well together, they complement each other, they get stuff done, they are humble but confident, and they are in it for the long haul because they believe in the vision.
- The vision / market. As noted above, this is something I think “should exist.” This product easily passes the “would I use this myself?” test, which is not a requirement but a nice bonus. (And, in fact, I have used it.) I’ve done customer validation for it without even trying, as the topic comes up often without prompting. People are interested, and they are a diverse population, not all the same folks. Similar companies, such as the ones mentioned above, are doing well. TV and other media are amping up the glory of entrepreneurship, probably too much, but most folks will never (co)found a company. This gives them a chance to participate. As an investor, I like having waves like this that a company can ride.
Back then, and now, regulatory risk is a big deal for this business. They depended on the government to pass some regulation with intricate details. It might take years, they knew, and it has.
The investment decision came down to the above two points vs the regulatory risk above, and the competitive landscape, which is a bit crowded. But I like their ability to execute, and so I made the bet. I don’t regret it, especially today :)
Of course, whenever making such investments, you should be ready to lose all your money, and I was. WeFunder reminds you of this as well, before every investment, as does AngelList.
I always try to work on my patience, and WeFunder has helped. Whenever we touch base, I’m always reminded of the above two points. My enthusiasm for the team has grown over time, as I see their dogged determination to not only make this work, but do it right, with support not only for “sexy” startups but also neighborhood businesses and other niche options.
Side note: I think this “support your local neighborhood shop” in exchange for some equity could be their biggest segment, more than (say…) software startups, if the act’s provisions are unchanged.
By the way, I’m a big fan and regular user of AngelList. They are sticking to accredited investors, at least for now. But the two companies might well compete a bit more in the future. I don’t see AngelList going after the “neighborhood shop” segment, though.
The business remains a tough challenge. We’ll see how today’s regulatory change impacts them, and how growth accelerates. But I have faith in the team, love for the vision, and lots of patience.
Congrats, WeFunder, and rock on!
