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New $5 Million Limit Enables Attractive Crowdfunding Deals

New $5 Million Limit Enables Attractive Crowdfunding Deals
By Adam Sharp
Date March 23, 2021
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Last week, the SEC’s new rules around equity crowdfunding went into effect. Now companies can raise up to $5 million per year from the crowd.

On the first day, we got a good idea of the potential of this new medium. Gumroad — an online platform that allows anyone to sell goods — raised the full $5 million in less than 12 hours.

It was a quality deal — definitely one of the best equity crowdfunding deals to date. Merchants who use Gumroad sold more than $140 million on its platform last year, which translated to revenue of around $9 million for Gumroad. The deal valued Gumroad at $100 million. With the kind of growth numbers the company is putting up, I think that’s fairly reasonable. 

This is the beginning of the democratization of startup investing. Don’t get me wrong — there’s a long way to go before it’s a “level playing field.” And I think accredited investors will continue to have access to superior deals for a long time to come. The average deal on AngelList will continue to be far more “investable” than many equity crowdfunding deals for the time being.

But it’s an important development nonetheless. These public deals are attractive partially because I can talk about them openly without violating any confidentiality clauses. And from time to time, I may highlight an equity crowdfunding deal that’s worthy of investment.

Today, that deal is Wefunder. I just recommended this deal to members of First Stage Investor, and I think it’s a good one. Wefunder is the leading equity crowdfunding platform in the U.S. They’re raising $5 million from the crowd at a $160 million pre-money valuation. Wefunder has the potential to become a multi-billion dollar company in time. The current crowdfunding campaign is a solid offering in my opinion.

If you’re investing with high-quality syndicates on AngelList, I strongly believe that 95% of the deals will be higher quality than even the best equity crowdfunding deals. But occasionally, a very promising deal will come along that anyone can invest in. And allowing non-accredited investors to back high quality deals is an important step in startup investing. I’m excited about that because at one point I was a non-accredited investor — and I missed out on what would have been a 100x investment (in Chess.com when it was just founded). 

So if you have friends or family who are interested in startup investing, I encourage you to tell them about the new changes. You can point them to my recent free article on Early Investing if they want to learn more.

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