How FlashFunders Streamlines the Investor Roadshow
In late 2014, Eric Wolfe scored $1.2 million in equity capital for Swapt, the apartment rental platform he debuted earlier in the year. Despite raising money from investors in the U.S., Europe and Australia, he didn’t have to fly to dozens of pitch meetings. Nor did he have to pay tens of thousands of dollars in legal overhead to close the round. Instead, the San Francisco-based entrepreneur used FlashFunders, a no-fee online equity investment platform that launched in October. “It streamlined the process,” Wolfe says.
That’s the idea, says Vincent Bradley, FlashFunders co-founder and CEO. He points out that raising seed capital can take six months and costs startups an average of $23,000 in legal fees alone. “That is a material amount of time and money that should be spent building your business,” Bradley explains. “FlashFunders is reinventing the investor roadshow.”
The Santa Monica-based platform provides ’treps with SEC-compliant investment documents and access to FDIC-insured escrow accounts, which it helps manage.
“If you’re a startup trying to raise capital, and one of your venture firms finds out that you’ve done it in a noncompliant manner, you’ve basically made yourself toxic for future financing rounds,” Bradley says.
So far, eight startups have run financing campaigns on the beta site, raising a total of $2.38 million to date, with investor checks ranging from $10,000 to $400,000 apiece. If you want in on the action, here’s what you need to know.
How it works
Startups that are listed on FlashFunders set their own valuation, determine how much money to raise and decide on the duration of the campaign (Bradley suggests capping it at 30 to 60 days). Campaigns are an all-or-nothing affair; startups must raise the entire amount or walk away with nothing.
The default minimum investment is $2,500 per party, though founders can increase this amount if they choose. (Swapt, for example, set a minimum of $10,000 per investor.) If a campaign exceeds its minimum funding goal, the startup can continue to accept investments up to a predetermined maximum amount. Once funded, startups work with a FlashFunders advisor to issue stock certificates to investors and file necessary federal and state securities paperwork.
To date, all FlashFunders campaigns have sought at least $500,000, Bradley says. But the site welcomes brick-and-mortar businesses looking for less capital (think a friendly neighborhood cafe in search of $50,000).
What it (really) costs
FlashFunders’ fee-free status for investors and entrepreneurs is here to stay. “We don’t want to nickel and dime people,” Bradley says. Instead, the platform reserves the right to buy an additional 25 percent of securities from startups that meet their fundraising goals for up to three years, at the same price and terms granted other investors. After FlashFunders’ initial investment in that startup, the platform may invest in any future offerings the company makes.
Who’s behind it
FlashFunders worked with the Financial Industry Regulatory Authority for eight months to become an authorized broker-dealer that could operate online, Bradley says. Founding partners Europlay Capital Advisors, a Sherman Oaks, Calif., investor in early-stage tech companies, and Stubbs Alderton & Markiles, the Los Angeles securities law firm that advised Skype’s $8.5 billion sale, also help ensure the platform’s SEC compliance.
How to use it
In order to raise money on FlashFunders, startups must fill out a questionnaire and submit to background checks. FlashFunders also reviews applicants’ business plans to help viable companies fine-tune what Bradley calls their “investment thesis.”
Including a video and clearly outlining how you’ll spend the money raised helps make your case. “You have to provide enough material so investors can make an informed decision,” Bradley advises. “Be prepared. Know what your idea is. And sell yourself. Angel investors are looking for great people to invest in.”