Wefunder, a leader in Reg CF securities offerings, distributed a Tweet yesterday that provided some insight into deal structure for issuers raising capital on its platform.
Wefunder is typically the most active funding portal in the Reg CF space as it garners the largest number of firms raising capital under this securities exemption.
Jonny Price, Vice President of Fundraising at Wefunder, sent out the below Tweet.
Wefunder investment volume by type of investment contract. pic.twitter.com/beYJfdvS0s
— Jonny Price (@JonnyCPrice) March 12, 2022
In brief, the breakdown in deal structure is as follows:
- 45% of securities raise capital as a priced round – typically equity in the company.
- 34% of issuers raising money via a SAFE or Simple Agreement for Future Equity. This is a founder friendly method to raise money. Usually a company is offering investors the opportunity to participate in a priced round at a future date but with a discount. Each SAFE may be slightly different.
- 11% of firms offer a convertible note. A convertible allows a company to not value the firm but is a debt offering that converts into equity at a later date, frequently when a priced round is pursued.
- 9% of companies use a “custom” structure. Not certain what this means.
- 1% offer a revenue share. This means an investor will earn a portion of the revenue generated by the platform. Again, each issuer can structure this security differently.
The average raise of a priced round is almost $640,000 – leading all of the other deal types. You can expect this average move up in the coming months/years because in early 2021 the funding cap for Reg CF was raised from $1.07 million to $5 million. Wefunder also offers securities under other exemptions but the platform has historically focused on the Reg CF exemption.
As always, it is important for any prospective investor to read and understand the terms of any investment in an early-stage firm. All investments entail an amount of risk and you need to know what you are buying before you commit your money.