SeedInvest, an equity crowdfunding platform, just became the first U.S.-based crowdfunding site to publicly raise money for itself. The company raised $1 million from accredited investors through its own platform, after previously securing $2 million from venture capital firms such as Scout Ventures and Great Oaks Venture Capital.
Ryan Feit, founder and CEO of SeedInvest, said most firms raise a chunk of capital before using its platform. “At SeedInvest we have almost 3,000 individual investors, and you can imagine for a company to negotiate terms and valuation with all those people would be very challenging,” Feit says. “Once a company gets a kind of nod of approval from a lead investor, it makes it easier for it to open it up for individual investors to join the round at the same terms, versus negotiating with a lot of individuals [simultaneously].”
The SeedInvest platform, including Vengo’s page.
But will it be the same story when those investors are the “nonaccredited” kind — generally less sophisticated and having a lower net worth? Feit says SeedInvest will indeed use the platform to raise money from nonaccredited investors when the Securities and Exchange Commission crowdfunding rule goes into effect, possibly this year. (The rule will allow companies to raise up to $1 million from nonaccredited investors in exchange for equity.)
Other companies, however, are not so sure about tapping that investor base.
High-tech vending machine startup Vengo also recently completed its Series A round on SeedInvest. It raised $720,000 on the platform and about $1.3 million from venture capital investors, including Coinstar founder Jens Mulbak, Queensbridge Ventures (a firm run by the rapper Nas and his manager and fellow investor Anthony Selah) and institutional investor Scout Ventures.
Brian Shimmerlik, CEO of Vengo, says the platform allowed him to tap into a new group of investors. But he doubts the company will use SeedInvest to crowdfund from nonaccredited investors. “I think going forward, if we are post Series A, doing a million dollars in crowdfunding is probably not a good strategy,” he says. Such fundraising could be a bridge for mature companies, but it could also be a red flag to the market, he says.
“I think as you continue to grow through the funding lifecycle, it would signal something to the marketplace that you’re not following the traditional route and it might take the market a little while to become comfortable with that,” he says.
For more on the JOBS Act and equity-based crowdfunding, including how later-stage companies could possibly incorporate crowdfunding into the capial structure, see CFO’s explainer.