How Crowdfunding Has Democratized Investing
Last week World Tree shattered another milestone by becoming the first female-founded company to raise over $2M on Wefunder.
For those who are unfamiliar with Wefunder, it is the largest equity crowdfunding platform in the US, with nearly 42% of the current market according to Crowdfund Capital Advisors.
Wefunder’s platform provides a means for accredited (i.e. people with a net worth of at least $1 million or annual income of $200k) and non-accredited investors (i.e. anyone earning under $200k per year and a net worth less than $1 million) the opportunity to invest directly in companies and startups.
Before the rise of crowdfunding platforms, only venture capitalists and accredited investors could invest in new (at that time) companies like Uber or Facebook. It was only when those companies became public by listing on the stock exchange that regular investors could invest.
This all changed in 2012 when President Barack Obama passed the Jumpstart Our Business Startups (JOBS) Act, leading to the rise of regulation crowdfunding. For the first time, retail investors could invest directly in new businesses from the ground floor, without needing millions of dollars to do it.
This change spurred the growth of crowdfunding platforms eager to enable the deals between the new investors and companies with bold new ideas. In turn, this new way of raising capital encouraged more entrepreneurs to bring their ideas to the emerging market, leading to greater diversity in companies raising funds. This was intentional.
Wefunder’s stated mission is to increase economic growth and lower wealth disparity by sharing the rewards of capitalism more broadly. As Wefunder CEO Nick Tommarello points out, “I started Wefunder because I wanted to invest in my friends – to help them dream bigger, be the best versions of themselves, and reach their ambition. Seven years later, we do that for the rest of America.”
This democratization of investing, and the direct connection between a project creator and their funders, has also leveled the playing field for entrepreneurs historically excluded from raising capital.
Last year, according to PitchBook, venture capital in all-female founding teams represented a paltry 2.8% of all the capital invested in startups across the US. Even less went to African-American and Latinx founders combined.
On crowdfunding platforms, however, that dynamic is changing. Anna Guenther, founder of the crowdfunding platform Pledge Me Six, claims that half of the entrepreneurs seeking funding through her platform had female founders. She argues, that by reaching out to a crowd instead of a single institution, women had better chances of success.
In a Harvard Business Review report on Crowdfunding, research shows that, all else being equal, women are 13% more likely to raise money on Kickstarter (a rewards-based crowdfunding platform as opposed to an equity-based platform) than men. The study concludes that, “This success comes from the support of other women, and especially when the female project creators are operating in a male-dominated space, such as technology or video games.”
As Dr. Cathy Key, President and Chief Operating Officer at World Tree, points out, “The greatest barrier for female entrepreneurs is raising capital, particularly in agroforestry. This all changed when the JOBS Act lowered the bar to entry for non-accredited investors. Crowdfunding platforms then allowed entrepreneurs to connect with those new investors. We could now tell our story directly to our customers.”
It is this story that got World Tree investor Allison Gessner excited. “I needed to diversify my portfolio and World Tree offered a number of bullet points I was looking for: sustainability, eco-friendly, woman founded, majority women on the leadership team (and) I also really appreciate that World Tree partners with farmers to offer meaningful, long-term work.”
This direct connection between entrepreneurs and investors has propelled World Tree to become the fourth most funded company on Wefunder and the only female-founded company to raise over $2 million. World Tree’s founder, Wendy Burton, is thrilled. “While I am proud to cross this threshold, providing a nature-based solution to climate change and a harvestable timber that preserves old-growth forests is what’s paramount. I’m just thrilled so many people agree.“
“It’s regular people who now get to decide which companies succeed,” she smiled. “Now that’s the democratization of investing.”
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