All of three weeks old, FundersClub has already raised more than $1 million for startups, attracting more than 1,000 investors from 25 countries with combined net worth of more than one billion dollars.
The Club offers accredited investors early access to investment in vetted start-ups, pooling checks from multiple sources for aggregated monies. Differing from Kickstarter, which solicits project-specific donations, and Kiva, where transactions are microloans, FundersClub exchanges shares of the company for every investment.
Early stage companies publish profiles and fundraising goals with FundersClub, which sets-up individual venture capital funds for each, and when a goal is reached, bundles the monies and lists each contributor as a shareholder.
“I’ve been wanting to do angel investing in the past, but there is a lot of pain involved,” said entrepreneur Sheel Mohnot, whose startup was bought by Groupon. He's signed on: “Sourcing deals is frustrating as an individual and the paperwork can be daunting. I don’t have the time or money to do a ton of due diligence. FundersClub enables me to do something I have always wanted to do. Literally in 10 minutes, I can make an investment. It is democratizing angel rounds.”
Funders Club’s due diligence covers legal documents, payment processing and communication tools and connects entrepreneurs to a broad network of like-minded investors, all of whom must have income in excess of $200,000 annually, or net worth over $1 million, although investments begin as low as $1,000.
The first group of Y Combinator companies on FundersClub platform are:
• Sponsorfied, software platform connecting brands with influencers and events, and more than 400 brands are now on board.
• Coinbase, PayPal for Bitcoin that enables fee-less money transfers and has collected 2,000 users, $30,000 in deposits and $15,000 in transactions so far.
• Virool video advertising for video creators which has banked $287,301 so far.
• Tracks.by, marketing for top recording artists like Lil Wayne, and just-launched Hipset, “Pinterest for music.”
Following Y Combinator’s Demo Day today, the SEC will be ruling on the JOBS Act, signed into law on April 5, which eases fundraising restrictions.
“Right now private companies cannot solicit investment publicly,” Steve Graham, mergers and acquisitions and IPO lawyer at Fenwick & West LLP told VentureBeat. “They have to show a prior connection to their investors. When the SEC implements the new rules, small entrepreneurs will be able to go ahead and solicit publicly.”
It’s a disruptive alternative to the Silicon Valley insider’s-only legacy, porting a traditionally offline process online and opening the game to any (vetted) investor with some cash on hand.
“By democratizing venture capital, FundersClub could shift the axis of power towards entrepreneurs and away from professional investors. It will force VCs to prove why they offer value to startups beyond their money. And if they don’t give founders reasonable terms, a team could potentially raise funds straight from The People at whatever valuation the market will withstand,” TechCrunch argues.