The Unicorns Of Equity Crowdfunding - KingsCrowd

October 4, 2018

The Unicorns Of Equity Crowdfunding

I am often asked why companies would raise from the crowd instead of raising from more traditional institutional investors. The underlying negative connotation I often sense from the individuals I am speaking with is that they could not imagine that legitimate company would ever consider raising a portion of their capital from the crowd.


Today, I am here to shed some light on just how wrong that notion is. In fact we have seen some of the most successful startups of the past 5 years raise part of their early funds from equity crowdfunding portals. 2 unicorns ($1B+ valuation) in fact!


Raising from the crowd is not a the VC sideshow, it is a legitimized way to raise meaningful capital in a similar way to that of a public company. The results below from three high flying startups are a testament to the equity crowdfunding market being a source of strong deal flow for investors like you and me.


Checkr


Checkr is a San-Francisco based company that provides quick and easy ways to do background checks. With the rapid growth of the freelance market driven by platforms like Uber and Instacart, the need for quick, automated background checks has skyrocketed from a nearly non-existent market 5 years ago into a multi-billion dollar industry.


Checkr has been the leader since the start. In 2014, it was founded by Daniel Yanisse and Jonathan Perichon. The company raised its seed funding through equity crowdfunding on the WeFunder platform. The company raised $120,000 through crowdfunding in July 2014 and has been on a roll ever since.


Soon after, Checkr raised $9 million through the Series A round of financing in October 2014. By then, the company had already reached a valuation of $250 million. The company was processing about 1,500 background checks per month, and the number kept growing by 25% each week. Checkr signed on 40 new clients including Shyp, Instacart, and Doordash.


Checkr, then, raised $40 million in the Series B round of funding in October 2015. The proceeds were used for business development and to hire more talent. After this round of funding, the company was valued at about $400 million. The Series C round of funding came in April 2018 and raised $100 million.


Presently, Checkr is one of the best players in the industry of background checks. It has been able to scale up to 1 million background checks each month, with more than 10,000 customers.


The customers pay the company per background check, and the revenue is said to have reached $100 million. The valuation of this simple background checking company has reached as high as $1 billion in a little over four years. $1,000 invested would net you $34K today.


Zenefits


Zenefits is also a San-Francisco based company that offers a cloud-based software for the human resources functions like onboarding, payroll, benefits, and vacation tracking and was one of the first pioneers in the streamlining of payroll and HR functions that ushered in other innovators like Gusto.


If we take a step back to 2013, when Zenefits was officially launched you would see that the team obtained $372K in funding from Wefunder investors.


Since then, Zenefits has skyrocketed. In 2014, it was ranked as the fastest growing startup by valuation and raised $17 million in its Series A round of funding in January 2014, immediately followed by the $61 million Series B round of financing.  


Starting with 15 employees at the time of launch, the company grew to 470 employees and 2,000 customers in 47 states within one year of the crowdfunding round.


Within a year of receiving the seed funding through WeFunder platform, the valuation of Zenefits increased by 40 times and the company gained 4,000% unrealized returns within a year.


In 2015, the customer base and the revenues of Zenefits ramped up dramatically, and the user base of Zenefits grew by a whopping 1,600%! That is not to say that Zenefits has not had its challenges along the way. In late 2015 the team faced several stumbles that it has since worked to recover from by implementing more senior management to handle the hyper growth of the organization.


Since its stumbles the team has recovered and is currently valued at north of $2B, a 206X increase on the Wefunder round valuation. The billion dollar unicorn status is something that is coveted by every VC and here is Wefunder, which was just getting on its own feet in 2013, bringing to the crowd one of the best startup investments of 2013.


Presently, Zenefits is one of the leading human resource software providers, and has partnerships with major corporations such as Microsoft Teams, Google Hangouts, and the like. A $1,000 investment would net you a $206K return today.


Patch of Land


Patch of Land is a Los Angeles-based real estate crowdfunding site that brings the borrowers and investors together. It is done through a simple and sophisticated online interface. It uses technology and data to offer lending solutions to its clients. It sources and underwrites loans to large real estate developers.


Patch of Land was founded in February 2013. It raised its seed investment of $1.2 million through equity crowdfunding on SeedInvest. The valuation of the company remained undisclosed, but it has been able to generate strong investor returns and a bright growth track record since 2013.


Later, in September 2014, Patch of Land obtained debt financing of $125,000. By October 2014, the company had completed 45 loans worth $9 million to its customers. This was followed by a $23.6 million in Series A round of funding in April 2015, when the company was only planning to raise $1 million! After the Series A funding, the company grew to 100 loans in 15 states.


Patch of Land has performed exceptionally well since its inception. The company is now one of the top five real estate crowdfunding platforms, an incredibly hot market for investment and has a bright and promising future in store.


In Conclusion


As you can see this notion that equity crowdfunding doesn’t attract top tier startups or that companies that could get VC funding wouldn’t use equity crowdfunding is bogus. The reality is, this is a legitimized market with really powerful opportunities for investments.


If you still don’t buy it, check out these founders who recently raised from equity crowdfunding discussing why they raised from the crowd. The answers might surprise you!


Happy investing…


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About: Chris Lustrino

A Boston College Eagle for life, on a mission to democratize startup investing for all people at KingsCrowd, with a passion for Fintech, investing, social impact, doing well and doing good, and an avid runner, cyclist and writer.

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