Will new SEC equity crowdfunding rules encourage more founders to pass the hat?

NelsonG · November 4, 2020

The flow of venture capital in 2020 has been surprisingly strong given the year’s general uncertainty, but while investors have showered plenty of dough on growth-stage companies, seed-stage startups are down 32% last quarter compared to the year before.

There have been plenty of recent conversations about alternative funding routes for founders, and one of those oft-overlooked paths has been equity crowdfunding. While crowdfunding platforms like Kickstarter push consumers to back unrealized projects in exchange for products or other services, equity crowdfunding allows consumers to actually invest cash and receive a piece of the company. It’s not a conventional path, but it can be a viable option for companies that have a close relationship with an engaged customer base.

The Security and Exchange Commission’s Regulation Crowdfunding guidelines were adopted under Title III of the JOBS Act back in 2016, but because many entrepreneurs were unfamiliar with how to participate, many of the startups that have taken advantage of it haven’t been the highest quality. The tide could be turning: This week, the SEC updated some of its guidance on crowdfunding, eliminating some ambiguities and increasing the amount of capital companies can raise from both accredited and nonaccredited investors. Additionally, companies can now raise $5 million per year using equity crowdfunding, compared to the previous limit of $1.07 million.

But life has gotten easier in other ways as well for founders pursuing this fundraising type and the platforms that seek to simplify it.

Wefunder is one of a handful of equity crowdfunding platforms that have popped up in the last few years. Before a company can raise on its platform, Wefunder vets them before allowing them to tap into their network of amateur investors who can invest as little as $100 with the median investment sitting at $250. Last month, 40 companies launched on Wefunder and collectively raised $12 million, according to Wefunder CEO Nicholas Tommarello.