Wefunder is best for startups with an existing fanbase
Wefunder doesn’t cater to brand-new businesses or explosive startups on their third round of venture capital (VC) funding. Instead, it aims at the sweet spot somewhere in between: startups that have some fans and the potential for large growth.
That’s because Wefunder mostly does equity crowdfunding, which means that backers get some ownership in your business. (It also, less commonly, does debt crowdfunding, in which backers give you a loan that you repay with interest.)
And to succeed with equity crowdfunding, you need to be established enough that people are willing to invest, but with plenty of room to grow so they can get a good return on their investments.
If you happen to fall in that sweet spot, you’ll likely find a good partner in Wefunder. It has a delightfully high success rate of 75%, and the average successful campaign raises $320,0001―a larger amount than on other crowdfunding platforms like Kickstarter or GoFundMe. Plus, Wefunder offers help with everything from mentorship to legal documents to investor relations.
All that sound good? Then let’s dig a little deeper to see if Wefunder is right for your startup. (And if Wefunder doesn’t sound like your cup of tea, you can find alternative crowdfunding platforms on our list of the best crowdfunding sites for startups.)
As we said, Wefunder mostly works with equity crowdfunding. So investors give you money, and then they get a little piece of your business in return. That small piece of ownership means they can expect future returns on their investment, usually in the form of dividends or money from a company acquisition.
All this means that some kinds of businesses will do better on Wefunder than others. Technically, Wefunder allows businesses in all industries to use its platform (with a few exceptions like gambling and marijuana).
Product vs. business
Some crowdfunding platforms, like Kickstarter, raise money for a product rather than a company. Wefunder (and other equity crowdfunding platforms) strictly raise capital for businesses themselves.
But realistically speaking, most investors won’t crowdfund an attorney’s office or a marketing agency. They’re looking for more exciting, newsworthy ideas―the next Warby Parker, Snapchat, or Netflix. Because again, they’re hoping your business moves on to bigger and better things so they can see a nice return.
That doesn’t mean, though, that all businesses on Wefunder are tech startups or focused on selling an innovative product. Breweries, race horse stables, and uh, interactive art installations have all raised capital with Wefunder.
Your industry and ideas are only part of what you should consider, though.
You’ll also want to think about whether you’ve got any potential investors lined up. These don’t have to be formal accredited investors (investors with a certain net worth)―your family, friends, and current customers are totally fine.
Regardless of where they come from, you need people willing to invest in your small business if you want to succeed on Wefunder.
In fact, Wefunder estimates that the average successful Wefunder campaign only gets half of its investors from Wefunder’s platform.2 The other half? Investors the company already knew and invited to invest.
Think of it this way: someone who simply finds your equity crowdfunding campaign on the internet has no idea whether you have what it takes to succeed. But when they see that other people believe in you (especially people who know you and your company), they’re more likely to make an investment.
Your startup also needs to be in a good financial position.
As we keep saying, investors want a company that can grow. So when they’re considering making an investment in your small business, they’re going to want to see that your startup has a good track record and that it’s financially stable.
Because remember, they’re investing in the company itself―not the product it offers.
Also, you’ll have to disclose your finances to potential investors. It’s not enough to say that things are “good.” As part of the rules for equity crowdfunding, you’ll have to provide full financial disclosures to investors.
Finally, if you want to get funding on Wefunder, you should have a working knowledge of how startup investing works.
That doesn’t mean you need to have successfully raised money for a Silicon Valley startup, but you should understand what the SEC requires from businesses seeking investment funding, how angel investors and venture capitalists work, and know the risks of giving up company equity.
See, as an equity crowdfunding site, Wefunder (and your startup, by extension) has to comply with a whole bunch of legal rules and regulations. Big ones. Important ones.
Wefunder will do some basic due diligence to make sure your business follows all its rules. That still means, though, that most of the responsibility falls on you to make sure your contracts are in order and that you’re fulfilling your legal duties as a company.
So if you don’t already know what regulation D, valuation cap, and accredited investors all refer to, you probably aren’t ready for Wefunder just yet.