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Wefunder Review

Summary

Wefunder is by far the largest Reg CF platform to date, and offers a very wide selection of investment choices (with low minimums), though unlike some other investment platforms does not approve or curate companies on offer. Wefunder also has excellent investor education resources and a novel investor club model

Investor OverviewCompany Information

Pros

  • Largest Reg CF investment platform
  • Wide selection of available investments, many open to non-accredited investors
  • Low investment minimums
  • Friendly cancellation policy (48 hours for all investments)
  • Offers Reg D, Reg CF, and Reg A+ investments

Cons

  • Startup investments are inherently risky and illiquid
  • No curation or due diligence of offerings (beyond minimum background checks and anti-fraud)
  • High carried interest on Reg D investments (up to 20%)
  • Complex overall entity structure of various affiliates and partners
Wefunder logo

Wefunder Overview

Wefunder is among the few platforms offering the trifecta of crowdfunding investment offerings, Reg D, Reg A+, and Reg CF. They began as a Reg D platform open only to accredited investors, but were among the very first platforms to offer Reg CF investments starting in 2016, and remain the largest. More than 60 companies have raised more than $20M in Reg CF financing through Wefunder, and overall they have helped to fund more than 150 startups (totaling almost $40M in funding raised from almost 100,000 investors), including some well-known brands like Zenefits (recently valued at $4.5B).

Wefunder is a graduate of the vaunted Y-Combinator startup incubator, and the founders personally helped lobby the SEC and Congress to pass the 2012 JOBS Act. A standout feature on Wefunder are their "investment clubs" which share similarities with syndicates on AngelList, including a mechanism for deal sponsors and club moderators to earn a share of carried interest on investments.

Wefunder appears to have invested heavily in automation, including offering a "Wefunder in a box" funding portal to create your own free SEC & FINRA registered Reg CF Funding Portal, including all the tech and legal setup.

Types of investments Wefunder offers

Investments on Wefunder are for startup companies at various stages, from very early ("seed rounds") through more standard venture financing rounds . Earlier-stage startups are generally riskier, though may offer the potential for a greater return in the long run (that is, if they return anything at all).

While the limit for raising funds using Reg CF is $1M per year, if a company raising exceeds that goal, Wefunder cleverly opens up a Reg D offering to allow additional investment (albeit limited to accredited investors). If a campaign exceeds the $1M threshold, Wefunder can also open up a Reg A+ campaign, which means the company can still bring in money from non-accredited investors. Investors should be sure to understand which type of investment they are actually buying, as there are differences in fees and reporting requirements (for example, Reg CF investors are generally entitled to receive an annual report; Reg D imposes no such obligation).

As with several other Reg CF platforms, many offerings also include investor perks at various levels of investment, such as product discounts.

What do you get when investing with Wefunder?

Companies raising money on Wefunder use a variety of security types, including common stock, revenue shares, convertible debt, and a variant of the SAFE (simple agreement for future equity), which has some characteristics of a convertible note, but is not actually a debt instrument. Note that the Wefunder SAFE rolls up voting rights into a lead investor as a proxy (this simplifies administration for the company, and theoretically makes the company more attractive to later investors who might be turned off if they needed to deal with gathering hundreds of shareholder signatures on key actions, but investors should be sure to understand the implications for their voting rights).

Some Reg D offerings utilize an LLC as a special purpose vehicle (which they refer to as SPV WeFund), similar to many other platforms.

Wefunder fee structure

For Reg CF investments, Wefunder charges investors up to 2% of their investment (the minimum is $7; the maximum $75). They also charge the company raising money up to 6% of their total funding volume (4% in cash, 2% in some flavor of equity or warrant to purchase equity).

For Regulation D offerings, Wefunder charges up to 20% carried interest.

Potential returns and cashflow

Investments on Wefunder are high-risk investments in startups, and as noted below, beyond minimal background checks and anti-fraud reviews, Wefunder does not perform any other review of companies before listing them. Besides a few revenue share offerings, most investments on Wefunder have no explicit expectation of payments, dividends, or other cash flow. Except under very limited circumstances, Reg CF investments must be held for at least 12 months, with minimal expectation of any secondary market for the investment after that. Most startup investments lose some or all of their value. While some investors achieve excellent returns from startup investing, that is a rare outcome and requires substantial diversification over time combined with very careful investment selection.

Breadth of offerings on Wefunder

Wefunder is by far the largest Reg CF platform, facilitating more than $20M of investment across more than 60 companies. While that means they have a very wide selection of investments available (38 at the time of this writing), as covered below Wefunder does not curate their offerings at all. So while some other platforms advertise that only a small percentage of companies applying ever make it in front of investors, Wefunder takes the opposite approach. Offerings span a range of industries and types of companies, including some like breweries, theaters, and restaurants that rarely come to mind when thinking about "startups", but may be able to rally enthusiastic customer bases to participate in their offerings.

Regulatory framework and due diligence expectations

Wefunder is among the very few platforms offering investments through SEC Reg CF, Reg A+, and Reg D. A consequence of the specifics of those regulations means that parent Wefunder, Inc. includes a number of affiliates and partners, which can be a bit confusing to wrap one's head around:

  • Wefunder, Inc. is the parent company, and runs the website
  • Wefunder Advisors LLC is an exempt reporting adviser that advises SPVs used in Reg D offerings
  • Wefunder Portal is a Title III Funding Portal

(Wefunder Inc is not itself a broker-dealer, nor do they have any contractual relationship with any broker-dealers.)

While some other platforms emphasize their curatorial approach to reviewing companies looking to raise money (like SeedInvest, which advertises that fewer than 1% of companies that apply are approved for listing), Wefunder clearly takes a different approach. Here's their perspective on reviewing companies interested in raising money:

It's not our role to choose what is worthy of investment. We screen companies for signs of fraud, but we do not otherwise pass judgement.

That approach does mean there's a lot of investment choices available on Wefunder, but it's an important difference in approach that prospective investors should be aware of in considering investments and performing their own due diligence.

Overall thoughts

Wefunder is an exciting company to watch. I first got to know them after investing in a Reg D offering some years back, and it's been interesting (and impressive) to see how they've evolved and adapted along with the rollout of JOBS Act crowdfunding regulations, and their Investment Club feature shows a lot of promise in bringing the syndicate model popularized by AngelList to the Reg CF and Reg A+ world (and with a much lower cost of entry).

While some investors may take issue with their hands-off approach to reviewing companies (and at the very least all investors should be aware of that philosophy), it's no doubt help them take the lead in demonstrating the potential for Reg CF.

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  • Editor Rating
  • Rated 4.5 stars
  • 90%

  • Wefunder
  • Reviewed by:
  • Published on:
  • Last modified: September 15, 2017

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