To build a startup, you’ve got to believe in your mission. Big time. That’s why the co-founder of apartment-rental site Airbnb never stays in hotels. And that’s why the SeedInvest team raised its first round of funding through equity crowdfunding.
Proving it can “walk the walk,” the equity crowdfunding startup announced today that it raised $4.2 million from investors through its own platform.
“We decided there was no better way to illustrate our conviction in our platform than by utilizing it ourselves,” Ryan Feit, co-founder of SeedInvest, said in a statement. “This was the perfect occasion to tap our rapidly growing investor base and provide them with the opportunity to join our journey.”
Of the total sum raised, $2 million came from venture capital firms including Scout Ventures, Great Oaks Venture Capital, Avenue A Ventures, Archer Gray and Krillion Ventures. The remaining $2.15 million came from 42 angel investors who were able to be approached thanks to new changes in the rules for reaching out to investors. The company’s initial goal of $3 million was met in one week.
The JOBS Act (or Jumpstart Our Business Startups Act) removed an 80-year ban on what’s called “general solicitation” -- the act of publicly advertising that you are seeking funding. Now that the ban has been lifted, it is legal for entrepreneurs to advertise their funding efforts.
In the time that SeedInvest advertised its fundraise, more than 3,000 investors checked out the investment opportunity. And that kind of exposure is exactly one of the selling points SeedInvest uses to explain to entrepreneurs why they would be benefited of raising money on their platform: access to investors. And so while SeedInvest raised money for its own growth, it also bolstered the authenticity of its marketing strategy.
Equity crowdfunding is a method of fundraising that involves trading many small pieces of your company for cash. Currently, the rules in the U.S. only allow entrepreneurs to raise money from accredited investors via equity crowdfunding. Accredited investors have to meet certain levels of wealth, established by the Securities and Exchange Commission. However, the SEC is in the process of creating rules that would make it legal for entrepreneurs to raise money from nonprofessional investors, too.