Inclusive Economy | March 16, 2021

Retail investors demonstrate the power of the crowd

Amy Cortese
ImpactAlpha Editor

Amy Cortese

ImpactAlpha, March 16 – Small investors rushed in on the first day that new rules increased to $5 million the amount startups can raise via “regulation crowdfunding.”

Wefunder’s Jonny Price said the platform had its biggest day ever.

Gumroad, an e-commerce platform for writers, animators and other online creators, was poised to become the first company to hit the new limit, quickly raising more than $4 million from nearly 6,000 investors, including the VC firm First Round Capital, on the crowdfunding portal Republic. Gumroad last year turned a profit last year on $5 million in revenues and $144 million in sales.

Backstage Capital, which last month reached the old limit of $1.07 million in ten hours, relaunched its campaign and more than doubled its raise. Backstage’s Arlan Hamilton has heard from other fund managers since her first fundraise sold out in a day. “When these trailblazing fund managers have the resources they need, the whole startup ecosystem benefits,” she told ImpactAlpha.

Waiting in the wings

Companies seeking to raise $5 million must conduct a full financial audit, which can take a few weeks. Crowdfunding site StartEngine has a number of companies with investor waitlists “that will have a dramatic increase similar to Backstage Capital once they launch,” says the site’s Max Crawford. 

Fuzzy math

By reopening its fundraising and quintupling the amount it can take in, Backstage appeared to effectively dilute investors in its first round last month.

The Republic investors receive special non-voting shares that entitle them to a 10% interest in a Backstage holding company, including carried interest and management fees. Some investors grumbled the valuation of the holding company looks very different with a $5 million raise than it did at $1.07 million.

Hamilton says the S.E.C. prohibited her from talking about the larger forthcoming raise before it went live – and noted that investors have five days to withdraw their commitment. “We are also confident that Backstage has a fighting chance at being successful over the next decade and we’re thrilled we can share some of that upside with the crowd,” she said.