As an active angel investor, every week I speak with founder/CEOs who are seeking funding for their companies. About 3-5% of these conversations lead to investment. These numbers are comparable to the “hit rate” of founders who are seeking funds from venture capital firms as well.
If it is so hard to land seed-level funding, then why even try? Because if you have a great vision, product, and maybe even a bit of market validation, then funding can be the fuel that accelerates your venture and allows you to achieve very big things.
Venture San Diego portfolio company Powur (www.powur.com) is an example of a venture that meets all of the above. Vision? Yup. You have never met a more focused, creative, inspiring guy than founder/CEO Jonathan Budd. Product? Of course. 3,400 distributors and 40+ solar companies are engaged in Powur. And market validation? Well just visit their website – 12 million pounds of sequestered CO2 can’t be wrong.
So when Jonathan decided he needed about a million bucks for growth capital, he didn’t want to be another statistic.
Enter the JOBS Act, which was passed by Congress in May of 2016. Contrary to the acronym, it is not only about jobs. It stands for “Jumpstart Our Business Startups” and includes a number of provisions. The most interesting is that for the first time, the JOBS Act made it legal for almost anyone to buy stock in an early stage company. Before the JOBS Act, to participate in a funding round of a non-public company, you needed to be an accredited investor, meaning that you needed to demonstrate over $200K in recurring annual income or over $1M in net worth, excluding your home. This created a “caste” system where if you were rich, you could get richer by buying a “startup lottery ticket”. But if you didn’t have the net worth, then you were shut out, regardless of your experience or risk tolerance. Basically, since many startups fail after funding, Uncle Sam was trying to protect those without significant discretionary income from investing in this high-risk asset class.
But with the success of rewards-based crowdfunding sites like KickStarter, where ANYONE could invest in an even riskier venture with almost no company disclosures and only the privilege of the “investor” getting to buy the company’s product if it didn’t fail, it would seem reasonable that if you can invest for a product, trinket or other reward, you should be able to invest for company stock as well.
Well, Congress apparently agreed. Now, platforms like WeFunder (www.wefunder.com) allow companies to initiate non-accredited crowdfunding rounds (AKA “Reg CF”) to raise up to $1M from non-accredited investors.
Which gets me back to Jonathan and Powur. Powur has created a movement to convert people from dirty energy to clean solar. As part of that movement, Jonathan and his team have built an army of clean energy evangelists (over 3,000) who believe in the Company and are making a difference. Still others inside and outside of the industry are watching Powur from the sidelines and have taken interest. So, Jonathan reasoned in a recent Board meeting, why not give these already committed individuals the ability to go one step further and actually own a piece of Powur? Or said a different way, “Bring Powur to the people!”
Well, Jonathan did indeed sell his board on the vision, and the rest is history. He launched the Powur crowdfunding campaign on WeFunder, and 26 days later had hit the $1M cap. Powur had broken the record for non-accredited crowdfunding. In fact, the round was over-subscribed, leading to last-minute scrambling to move accredited investors off of WeFunder to make more room for non-accredited investors who had been shut out. Total funding raised: $1.3M.
So at this point, you may be wondering if you should try Reg CF funding for your startup. Well, the reality is that very few companies achieve the fundraising success of Powur, and most who try crowdfunding (of any kind, including Kickstarter), FAIL. So what were the factors that led Powur to success? Here are a few…
— Establish friendly deal terms that will attract all types of investors including friends & family, angel investors, and the crowd (preferably, a crowd that has already been exposed to your story)
— Get those investors who are closest to you to invest EARLY. This shows early traction that will inspire confidence in others.
— Communicate obsessively with prospective shareholders. Reg CF requires that all deal-related communications be conducted through the web-platform (i.e. WeFunder). Monitor all inbound questions and be very thoughtful about your response, since it will be published for all to see.
— Have a company that will inspire the crowd. Traditionally, B2C companies tend to have more success than B2B, because there is often more emotional engagement in B2C.
Powur was a poster-child for Reg CF. They already had their own internal “crowd” of customers and partners who were close to the company and passionate about its mission. Jonathan and his team embarked on the funding round with obsessive, relentless execution. He ensured that those who were close to the Company were inspired to participate and communicated with all prospective investors throughout the process. Finally, the team at Powur has indeed built a company that would beat the odds and achieve fundraising success.
And that is what it takes to raise $1 million in 26 days.