What Does It Mean To Lead a Crowdfunding Raise?

In May we announced that we’re leading our first crowdfunding deal in a company called Mount, but what does that mean?

Intro to Crowdfunding

Crowdfunding allows companies to raise capital in smaller check sizes (in the Mount deal we’re doing, as small as $100 for example). This allows startups to raise capital from friends, family, customers and other investors that may not have the ability to write large checks. It also allows companies to raise from folks that aren’t accredited investors.

That’s a very high level explanation — there are plenty more resources out there if you really want to dig in.

The Role of the Lead Investor in Crowdfunding

The Lead Investor is an individual or entity that knows the company and the founding team, has performed its own diligence and is investing on the same deal terms offered to other investors. The Lead Investor directs the voting power for the remaining investors and allows all of the investments to be consolidated to a single line on the cap table.

Lead Investors will indicate how much they invested and why they invested in the company…

It’s important to note that Lead Investors do not make any money based on the success of the crowdfunding raise from listing platforms like WeFunder or Republic. If there is any sort of conflict of interest, like if the Lead Investor is a previous investor or has advisor equity, that has to be disclosed.

What Does the Lead Investor do for the Startup?

Wefunder articulates the role of the Lead Investor for startup teams well:

“The Lead Investor:

1. Gets to know the company and decides if they want to invest on the same terms as those offered on Wefunder.

2. Helps the founder grow their startup, with advice, connections, and mentorship. They only make a profit if the startup grows in value.

3. Directs the signing of documents on behalf of all investors on Wefunder, such as SAFEs converting to equity, follow-on financing authorizations, acquisitions, or any other corporate action. These are the same documents a Lead signs for their personal investment.”

Crowdfunding isn’t the right fit for every startup, but it can be a power tool for the right company and founding team. And isn’t a magic bullet either. Having the right Lead Investor that can be an evangelist for your startup is a big piece of the puzzle though.

Learn more about the crowdfunding deals we’re leading at Storied