In this post he breaks down his experience with various online startup investing platforms and what you should expect as both a Founder and an investor.
Below is our experience with various online startup investing platforms and what the process looks like from a Founders perspective
AngelList was the first to the game. They’ve raised tons of money, invested in many startups, and have had some serious exits (e.g. Ring and Cruise). There are even VC funds created just to invest on AngelList. It’s for accredited investors only. Back in the day on AngelList a company could create a listing and get money.
Nowadays it’s all about the Syndicate Lead. The Syndicate is the actual entity that makes the investment; this keeps all the investors in one line item on your cap table. Today the Syndicate Lead is the person who decides the investment is good and gets other investors on AngelList to follow them into the deal. Without a good lead, you don’t raise money.
How we did: Raised $177k. Most from our Syndicate Lead. The money we raised from people we sourced just said “next time can I give the money to you directly?” They didn’t find the AngelList process particularly interesting since they already knew us.
Fundable: Another Reg D. They don’t have Syndicate Leads so you need to bring your own investors, and although they got us a few warm leads none panned out. So why bother? We raised $0 on the platform and it cost us 4 months of our time and a few grand out of pocket.
Republic: On Republic, anybody can invest. $10min investment size. They take 6% of the total funds raised in cash and 2% as a Crowd Safe. It’s a Reg CF (the “CF” stands for Crowd Funding).
The Form D that we filed for AngelList above was easy, just one page. Form C is a lot more work at 100+ pages. Be prepared for some hassle. We thought we were in good shape as we have a high-end law firm (WSGR) and a professional CPA firm as our accountant (Countsy). So, when they say you need professional services we figured we were covered. We were wrong. Here are some of the highlights:
Form C: iDisclose is a company that prepares your filing for you. It asks questions like “do you manufacture pharmaceuticals” and if you click “yes” then scads of legalese is automatically generated for you. iDisclose is a huge time saver which I highly recommend.
Legal: Since iDisclose creates the filing then we should be good, right? Nope, Republic insists you have a lawyer review your filing. They’re not just rubber-stamping you; this is a lot of work because it turns out that the Form C isn’t finished when it comes out of iDisclose. We use WSGR (Wilson Sonsini Goodrich and Rosati), a well known and respected Silicon Valley law firm deeply rooted in the startup space.
Turns out that they haven’t done much in the way of Reg CF filings. It was easier and cheaper to pay a specialist Republic referred to us for a few grand. Except they didn’t have our information, so we had to dig it up and hand it off. A big spreadsheet upfront and tons of last minute back and forth just before the deadline.
Financial: if you raise $107k or less you can “self-report” your financials. Yet our platform required us to have another CPA look at them. That CPA refused to talk to our CPA’s directly, even though we all know it’s always best to have domain experts talk directly. This made things unnecessarily complex and slowed the process down.
We had to file by 7 pm Pacific Time to be live for when our Meet the Drapers episode aired. Around 5 pm, after being engaged for a week, is when they decided to declare that our GAAP compliant financials were not GAAP compliant. Turns out they were wrong but they nearly killed our timeline. The lesson here is that understanding the requirements of the platform you’re on is even more important than understanding the SEC’s requirements.
If you want to raise more than $107k on Reg CF (up to $1.07M), you have to have an independent CPA “review” your financials. This is less than an audit but still takes them a couple of weeks after you submit to them all your info. We’re working on getting that going now.
Bad Actor Check: Any officer, board member, or person who has more than 10% of your company can’t be what the SEC calls a “bad actor.” Like some of the more costly issues above, this 3rd party check isn’t an SEC requirement but a platform requirement (SEC just says you can’t have any, and that you exercised reasonable care to make sure you don’t). Republic has a third party they use for a check, and that party requires name, date of birth, address and SSN — it’s the identity thief’s dream. A fun conversation is to get this information from everyone on your team. At the last minute.
Timing: The final cautions about Reg CF, at least on the platform we used, is that even though $50k of investment unlocks everything (gets you their marketing attention, lets you take money out, etc.) you can’t get to the money for 21 days into the 90-day campaign at the earliest. Even then, you can only get to half of it before your campaign is over.
Whatever platform you’re on, understand very clearly from the start when funds raised can be withdrawn.
Short story, you have to go into a Reg CF with some dry powder. You’re looking at $10k of outside expenses and any money you raise is locked up for 21-90 days. Despite the above hassles, the Republic team and the service providers they line up are generally very helpful.
We had people up at 10 pm in their time zone getting our filing done. They even hooked us up with a Meet the Drapers episode. We certainly couldn’t have gotten it done without them and it all looks great now. We’re live and have raised $147k so far. Time to start promoting our deal! We’re looking at running Facebook ads, e-mail campaigns, and more. I’ll write further installments on the crowdfunding experience when we’re done and have seen what raised the most $ and had the best ROI.So what is the investor experience like? Great news, you can participate in a REG CF offering to see the investor experience first hand.
Get your feet wet with a hundred bucks on your debit or credit card. If you’re a baller make it $1,000. If you’re an investor make it $25K or more and you get some of the investor terms you’d expect (see site for details, another lesson is that the SEC doesn’t let you mix marketing with deal terms). Seriously, what are you waiting for? You can’t be in the startup ecosystem and not take the time to experience crowdfunding first hand. Investing on Republic is a great investor education and a great investment opportunity.
To check out part 3 of this series, click HERE.
Wall Street has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has KingsCrowd.
About: Rick Bentley
Founded Televoke Inc, in 1998, raised several rounds of venture capital, including an oversubscribed up-round the summer after the .com crash. Merged Jan 2003 with Telcontar Inc., merged entity renamed deCarta Inc. Bought by Uber March 2015.