Welcome to the Building Your Startup With PHP series, guiding readers through the launch of an actual startup, Meeting Planner. Each episode details different coding and business challenges, with detailed examples you can use to learn.
What's Crowdfunding?
At some point in the evolution of your startup, you may need funding. Certainly, there are successful startups that entirely self-funded or generate revenue and growth at an early stage, but that's not true for most of us.
I've been working on Meeting Planner for more than a year entirely by myself (with contributions and support from the amazing open-source community). The site's made tremendous progress in its ease of use and the productivity it provides new users. But I've spent almost nothing on marketing, so growth is slow.
Also, I've recently contracted with a developer to build a Swift-based iOS app, which ramps up my costs.
It would help to have funds to support this work and especially begin some broader marketing. But we don't have enough traction (in terms of tens of thousands of users) to attract common angel investors or VC funds.
Perhaps back in 2000 I could have done this based just on the concept of simplifying scheduling. That year, I left Microsoft to start GiftSpot.com with approximately $2 million in funds from Seattle-based angel investors with only the idea of a digital gift certificate consumer service. The company grew quickly and was later acquired by GitCertificates.com, but due to a 500:1 reverse split (dilution event), most of us did not earn any returns.
However, with the growth of the Internet has come crowd-based solutions to all kinds of fund-raising, political campaigns, creative Kickstarter projects, thoughtful collections for those with special needs or medical conditions, and the emergence of crowdfunded investing.
In today's tutorial, I'll introduce you to crowdfunding and how I've explored it with my own startup at a site called Wefunder, though there are others such as Indiegogo, StartEngine, Seedrs, etc. This is not a sponsored post, and Wefunder has no business or separate investment relationship with Meeting Planner or Envato Tuts+.
If you've been reading our startup series, you've probably already tried Meeting Planner and Simple Planner, but if not, please do. I participate in the comment threads below, so tell me what you think! You can also reach me on Twitter @lookahead_io. I'm especially interested if you want to suggest new features or topics for future tutorials.
I'm based in the U.S., so in this article I'll be dealing with U.S. laws and regulations. If you're based elsewhere in the world, the process of crowdfunding will probably work in a similar way, but the legal details may be different, so check what the requirements are in your jurisdiction.
As a reminder, all of the code for Meeting Planner is written in the Yii2 Framework for PHP. If you'd like to learn more about Yii2, check out our parallel series Programming With Yii2.
Getting Started With Wefunder
Wefunder is a platform for startups and investors to find each other online, and it allows entrepreneurs to raise money from people around the world.
Interestingly, as I began to write this I received an unsolicited email from the Cofounder and CEO of Wefunder ("eating our own dog food"), asking for its accredited users to invest in the company:
Hi Jeff, We’re opening up a new financing round, and reserved $500k for accredited investors on Wefunder. We’d be honored if you’d participate. We “eat our own dog food” and would like as many of our users as possible to also become our investors. You can learn more or invest here:
https://wefunder.com/wefunder.
It's great that they're asking their customers to use their service to fund them.
Accredited investors are those worth over a million dollars—this is the minimum limit in the U.S. for traditional startup investing. But the accessibility of crowdsourced opportunities for the average person is now in reach thanks to recent changes in federal law.
Beginning in September 2013, the SEC legalized General Solicitation, which made it possible for sites like Wefunder to connect entrepreneurial startups to global investors of a variety of levels of wealth.
And Wefunder makes it simple for founders by providing a platform as well as simplifying and managing the complex legal requirements and contracts between companies and investors. They describe the options for you with this handy chart:
For Meeting Planner and typical Internet startups, Regulation Crowdfunding is our focus because disclosure is more practical, and sites like Wefunder can now facilitate this.
Regulation Crowdfunding
The SEC legalized Regulation Crowdfunding in the U.S. on 16 May 2016. Now you can advertise investment opportunities in your business to anyone, even your customers. And people can invest with you for as little as $100.
But there are a lot of contracts involved, and that's where a capable investment platform makes this a very reasonable possibility for early-stage companies. Basically, they provide help with the following:
- They support the SEC Required Form C: "You’ll need to disclose up to two years of GAAP financials, along with other items, like number of employees, officers & directors, stakeholders with more than 20% voting power, past fundraising rounds, use of funds, all material risks."
- They provide free crowdfunding contracts
- They manage signing, payment transfer, and escrow.
And there are limits. You can only raise $1 million this way, but Wefunder will help you run concurrent funding via Regulation D if you get close to this. And investors can only contribute up to 10% of their income or wealth annually.
For Meeting Planner, I've strongly considered launching a Regulation Crowdfunding round from the beginning. However, at this time, I've started with a basic profile page at Wefunder and am holding off on an investment round.
Let me walk you through the basic setup and explain why I'm waiting.
Opening Your Account
As I walk you through the Wefunder registration, keep in mind that you can participate from two directions. You can launch a funding round for your entrepreneurial startup, or you can participate as an investor in other startups which you find by browsing. Today, I'm mostly covering the initial funding path.
Still, you'll need to tell Wefunder that you've read and understand the key risks:
Overall, Wefunder does a good job of keeping you informed. Here's their welcome email:
Every founder and investor has a profile:
Building the Meeting Planner Profile Page
As an entrepreneur, the first thing to do is create your company profile. Wefunder offers a simplified CMS for this:
I like that they ask you to document your startup's achievements with simple bullet points:
How Much Does It Cost?
Just advertising your company's vision with a profile is free. To start a Regulation Crowdfunding round is between $195 and $1,995 plus 3% of the funding proceeds; the overall cost depends on how much help you'd like Wefunder to provide:
The agreements make it clear that doing it yourself is a bit more difficult, but easier and less risky than reading the iTunes user agreements:
Here's the basic profile you create:
Wefunder also allows potential and committed investors to ask questions about your company:
Founders can also lead the conversation as I've done below:
Why I'm Waiting to Crowdfund
After all this setup, months of contemplation, and conversations with my primary advisor, I've decided not to crowdfund at this time.
Meeting Planner is still at such an early stage that there are too many risks here. If we launch a fundraising round and no one responds, then larger investors would also be turned off.
Wefunder recommends that you have a moderately influential anchor investor willing to kick off the round. I was in discussions with a colleague who was interested, but ultimately had to spend his funds on another project. I don't have anyone like this yet.
So my goal right now is to attract more users, gather more feedback, and make the product even better than it is today. Beginning an iOS app is another approach to extending our reach. And I have other ideas which will remain kind of secret for now, until I write about them in a future tutorial—and they're cool.
In Closing
Learning about crowdfunding is valuable to any startup founder or entrepreneur. It's great that the SEC under President Obama has introduced an expanded range of legal options.
If you have a startup you're going to try to fundraise with using any of these websites, please share in the comments. You can also always reach me on Twitter @lookahead_io directly. And, of course, watch for upcoming tutorials here in the Building Your Startup With PHP series.
If you didn't earlier, try scheduling a meeting at Meeting Planner and let me know what you think.
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