Equity crowdfunding gives entrepreneurs unprecedented access to an expanded pool of capital. By bringing the broken fundraising process online, founders can more efficiently raise from a network of investors they may have never found offline.
One of the key benefits of equity crowdfunding is the ability to raise from both traditional venture investors, such as angels, VCs, and family offices, along with investors from the crowd (i.e. regular people looking to diversify their portfolios with startup investments). The combined effect of having large check writers who can add strategic value and an army of brand evangelists with a vested interest in a startup’s continued success can prove a powerful advantage of an online raise.
At SeedInvest, early stage companies raising in this manner launch what are known as Side-by-Side rounds.
Application and Due Diligence
All raises on SeedInvest begin with our application. Potential issuers provide their pitch deck, past and current fundraising details, team, product, and business info, and an overview of their historical and projected financials (typically a P&L and/or balance sheet broken down on a monthly basis).
After an initial screen, select companies will continue to due diligence. A member of our DD team will lead a call with the founder and other relevant team members to take a deeper dive into the business and the company’s financials. Our DD team will leverage the application and DD call to draft an internal report and determine an escrow target for a company’s raise. The escrow target is the amount of capital a startup will need to raise in order for the round to be deemed successful and for a company to be able to close on funds committed by SeedInvest investors.
Following the due diligence call, a startup will be evaluated at a meeting with our Investment Committee where SeedInvest will review an internal report and make the final decision of whether a company will be allowed to raise from our network of investors.
Companies selected to raise capital on SeedInvest are onboarded following Investment Committee approval. Onboarding begins with obtaining reviewed financials from our external CPA partner.
During onboarding, we work with our startups to draft and file what is known as a Form C. This filing is a notification to the SEC that a company is allocating a portion of its raise to the investors on SeedInvest, includes an overview of the business fundamentals and raise, and serves as a reference document potential investors can use when evaluating an investment opportunity.
The cornerstone of the onboarding process is working closely with our Venture Growth and Ops Teams to prepare a campaign’s launch. They help startups populate their company profile and create a strong marketing plan for their campaign. SeedInvest provides startups with the tools and templates to target their own community during their raise. We also work collaboratively to develop a customized strategy to reach out to our own network of investors. We leverage key learnings from our past raises while taking a look at the unique aspects of each startup and custom tailor our strategy specifically to that startup’s business and community dynamics.
For the majority of companies raising capital, the live campaign runs for 45 days.
Once the raise begins, SeedInvest works with the company to execute on their marketing plan to help ensure a successful campaign. This often starts with SeedInvest actively reaching out to its entire network of investors via our weekly deal newsletters and through targeted outreach based on investors’ sectors of interest and investment history. Our Investment Principals will conduct strategic outreach to our accredited angels and institutional investors within our network. Founders will also have the opportunity to host webinars, attend demo days in NYC, and communicate with potential investors via a discussion board on their company profile.
Over the course of the campaign, our Venture Growth Team will distribute business updates to interested investors in the pipeline to keep them engaged. Our Venture Growth Team will also help organize more creative events for your specific raise. Past events have included product demo and investor receptions in major cities, more intimate in-person pitch events with angels and institutional investors, and webinars led by a company’s prominent and notable investors.
All investments are collected and processed by SeedInvest. SeedInvest investors invest via a set of standard docs tailored to raising capital online, which ensure they receive the same economic benefit as traditional investors but give founders added flexibility around factors such as information and inspection rights.
Companies which raise at least $250K via SeedInvest are eligible to be considered for a $200K investment from the SI Selections Fund, a discretionary fund which invests in a select number of SeedInvest deals. While most companies do not receive investment from the SI Selections Fund even if successfully raising $250K via SeedInvest, such fundraising success does guarantee that the GPs of the fund will take a look.
Once a raise has been successfully closed, the funds are transferred from an escrow account to the company. All ongoing investment related communication is handled via the SeedInvest platform.
SeedInvest portfolio companies also get access to a suite of benefits from our partners including perks from SendGrid, WeWork, and $10K in AWS credits.
Outside of any marketing costs a company may choose to incur (producing an explainer video for their profile, running digital ads, etc.), the only up-front costs a company will incur will be the fee for the CPA reviewed financials. However, SeedInvest will reimburse up to $3K of the CPA’s fees upon a campaign’s launch that is within 60 days of receiving Investment Committee approval. Most companies’ accounting costs will not exceed $3K. All other costs and fees are contingent upon a successful raise. If a company doesn’t raise capital on SeedInvest, they pay nothing.
Costs associated with a Side-by-Side raise come to $10,000 on average for legal and accounting costs.
SeedInvest fees are also success-based and taken at closing. They include a 7.5% cash fee and a 5% convertible note or equity fee, both taken on the amount of capital raised via SeedInvest. For an easy example, if a company raised $100K on SeedInvest on a $5M cap crowd note, the SeedInvest fees would be $7.5K cash and $5K of the crowd note at the $5M cap.
Equity crowdfunding has given entrepreneurs a new avenue to raise capital to grow their startups. For the first time, founders leveraging the Side-by-Side offering have the ability to benefit both from the crowd and traditional venture investors. At SeedInvest, we are excited to help more entrepreneurs take advantage of this, while raising capital in a more streamlined, efficient manner.
This post was written by Alexandra Tynion on October 16, 2018
Raising on SeedInvest: Side-by-Side Round