Wefunder, an investment crowdfunding platform, has recently launched a results page that highlights the performance of securities sold on its platform. When reviewing the 2013-2014 vintage, Wefunder investments top Venture Capital funds – by quite a lot.
According to Wefunder, unrealized net gains for the 2013-2014 portfolio – investors earned an IRR of 53%. The top quartile of VC Funds during the same period only generated an IRR of 15%. That’s a big difference. Wefunder says that the $2.85 million invested during that period holds a current unrealized value of $15.9 million – a 5.57 cash on cash multiple. The issuers during this period utilized the Reg D 506c crowdfunding exemption and was thus only available to accredited investors. The biggest win of the group was Zenifits that saw a 206.1X cash on cash return.
“Results matter, not funding volume. So we’re making a commitment to update our platform-wide IRR at least once per year, and make it public,” said Tommarello. “We’re proud that in 2013-2014, investors on Wefunder funded 42 companies at the seed stage with almost $3 million – often the first money in – that went on to raise over $1.3 billion of follow-on financing from venture capitalists. However, this was before Regulation Crowdfunding [Reg CF] was legal, so this data is for accredited investors only, or, as I like to call it, “rich person crowdfunding”. Basically, we helped rich investors get richer.”
Tommarello said it is too early to calculate IRR for the 2016-2017 period but according to the site, 2015 data should be available by July.
“… we have a few early indications that retail investors in Regulation Crowdfunding may have some wins. To my knowledge, Everipedia has raised the most follow-on funding on any Reg CF offering, with a $30 million Series A. However, given the current regulatory burden on issuers, we also feel that Regulation Crowdfunding is displaying signs of adverse selection, and will not be able to compete with the IRR we’ve achieved in accredited-only crowdfunding. We feel the best way to improve returns for retail investors is to have the Senate pass the Fix Crowdfunding Act, so more high-quality companies with other funding options will be willing to use the exemption. Otherwise, accredited investors will continue to enjoy exclusive access to the most promising companies.”
Tommarello is echoing a common theme amongst the crowdfunding platforms. The rule makers have undermined Reg CF with excessive rules and compliance mandates thus pushing away some issuers from allowing a wider audience take part in scalable businesses. In the end, platforms, issuers AND investors must each be successful for Reg CF to become an effective path for capital formation. While not all companies will be successful that is how early stage investing works. Investors take a portfolio approach and the diversification drives overall gains.
“We believe it’s important to give more capital to businesses that are starved of it. It’s a huge part of our mission as a Public Benefit Corporation,” added Tommarello. “But we also believe that it’s immoral for the wealthy to have a government-protected monopoly on investing in the most promising, highest-growth companies.”