Startups Should Consider Raising a Community Round

Las Vegas bachelor and bachelorettes put down hundreds of dollars on a poker table, cross their fingers, and hope to get lucky. College students take out thousands of dollars in loans in hopes of getting a well-paying job after they graduate. Retail investors buy stock in a public company and hope the value shoots up like Tesla, Amazon, and Apple. NFT collectors spend hundreds, if not thousands on digital artwork hoping the value goes up in the future.

There are much more people who place these types of bets than there are venture capitalists (VCs) who place bets on startups. These people are your startup’s future investors and they can be part of your next Community Round.

Before I was a VC, I had my own startup. I remember feeling lost and confused wondering where I could raise money from. I thought the only options were raising from friends and family, angel investors, and venture capital. I learned that startups are limited by who can invest in their company. Most people cannot make investments in startups because they’re not “accredited.” At least this is the case in the United States. 

Accredited? What does that even mean??!

According to the SEC (US Securities and Exchange Commission), you are an accredited investor if you:

• Earned income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and reasonably expects the same for the current year, OR

• Has a net worth over $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person’s primary residence), OR

• Holds in good standing a Series 7, 65, or 82 license. 

Basically, you’re either rich or you have a background in finance.

If you think about it, the majority of people who would want to invest in your startup can’t. It’s simply not allowed. With a Community Round, it’s possible and falls under the category of crowdfunding. On top of that, startups can also raise a VC round at the same time.

Here are a few examples of startups that let their customers invest alongside the best VCs and Angel investors in the world:

• Mercury Bank raised a $150 million Series B round. $5 million came from 2,453 investors through a Community Round. Other investors in the round include Coatue, Andreesen Horowitz, and other top VCs and angels. 

• Levels raised a $12 million Series A round. $5 million came from 1,442 investors through a Community Round. The rest from Andreesen Horowitz and other top VCs and angels. Its pre-money valuation is now at $300 million.

• Immersed raised a Seed round. $9.2 million were from 3,318 investors through a Community Round. The rest are from Techstars, Sovereign’s Capital, and other top VCs and angels.

There’s a difference between raising a Community Round versus raising on a donation basis through the likes of Kickstarter, GoFundMe, and Indiegogo. For donation-based crowdfunding, the startup does not need to pay back investors. Early backers are often given early access to the product once it’s completed. Community Rounds allow investors to have equity instead.

Platforms like WeFunder, Republic, and StartEngine are some examples of where startups can get started fundraising in a Community Round right now. One of the best parts is that even if there are thousands of investors, it only appears on one line of the cap table. Here’s an FAQ resource for startups to better understand what raising on one of these platforms entails.

It’s time for startups to let their customers invest in them through Community Rounds.

After all, it takes a community to raise a startup.

If you’re a startup and ready to raise $1 million in a Community Round, check out this article from Jonny Price, WeFunder’s VP of Fundraising.