Raising capital has undergone many iterations—from government backed loans to borrowing from banks. But over the last decade, ever more innovation has occurred through the rise of the internet. Few have been more significant than equity crowdfunding, a means of raising capital through online platforms where investors fund young or upstart businesses seeking capital. Notably, the investors participating can be both accredited investors as well as ordinary everyday consumers. This unique form is different from other forms of crowdfunding, such as donor based or gift-based crowdfunding, due to its offer of equity ownership in a business.
The amount of money permitted to be raised online varies, though the model specifically enabled for crowdfunding allows private companies to legally raise up to $5 million during a 12 month period.
But what does crowdfunding mean for the country’s increasingly diverse cast of borrowers, founders and small business owners? To get a sense, Dr. Chris Brummer, a professor at Georgetown University Law Center and the Faculty Director at the Institute of International Economic Law, recently hosted an episode of the Fintech Beat podcast, in which he invited Pierre Le Veaux, a former Goldman Sachs banker and startup investor, to discuss how an increasingly diverse group of entrepreneurs is slowly gravitating towards equity crowdfunding.
Dr. Brummer’s work has been featured in The New York Times, CNN, Marketwatch, Fast Company, The Wall Street Journal, Bloomberg, Yahoo Money, Roll Call, Cointelegraph, and Coin Desk, among others.
Meanhwile, Pierre Le Veaux is a founding member of Seed at the Table, a 100% minority-owned crowdfunding site that combines on and off portal services to help companies seeking capital.
Dr. Brummer and Le Veaux spoke in detail about Seed at the Table and how his efforts have borne fruit for those looking to create new avenues for economic opportunities.
The episode began with Pierre Le Veaux walking Dr. Brummer through his journey into the equity crowdfunding space. Le Veaux has been a banker at Goldman Sachs for over 11 years. During that time, he came across multiple viable businesses that were seeking capital. To arrange funding and facilitate these businesses, Le Veaux realized that he was repeatedly approaching the same angel investors.
One day he came across the platform of equity crowdfunding, and after carrying out extensive research on the funding model, he came to the conclusion that it provided an additional pool of capital that did not historically exist. He was instantly attracted to the model of equity crowdfunding as a way of bridging early-stage businesses with capital to aid in their expansion.
What advantages does equity crowdfunding offer businesses in comparison to alternative and more conventional methods of raising capital
According to Le Veaux, there are four primary verticals through which an entrepreneur can access capital.
- An individual has access to his balance sheet e.g. savings, earnings, etc;
- An individual will also have access to a robust family and friends network that consists of some wealthy individuals;
- Financing from a bank: However, accessing a loan from a bank will present certain challenges, such as the lack of collateral.
- Venture capital: However, VCs are generally looking for established businesses capable of providing a high return on investment.
Equity crowdfunding provided an entrepreneur with access to capital when they have exhausted their balance sheet, cannot source a loan from a bank, and are not yet at the stage to access VC funding.
Seed at the Table has created a platform that allows diverse entrepreneurs access to non-accredited investments. Rather than only being able to have access to a finite number of wealthy individuals in their circle, entrepreneurs cannot approach their classmate, cousin, or even their teammate to source an investment of 500 or 1000 dollars in comparison to 50 thousand from an accredited investor.
Unique Differentiation between Seed at the Table and other platforms
Le Veaux also walked with Dr. Brummer through the unique differentiation between Seed at the Table and other portals. Seed at the Table has a ‘family system’ which consists of bankers, attorneys, tech entrepreneurs, and other professionals that are committed to being resources to the companies that come on the portal and are trying to raise capital. As a business, once you come on to this portal to raise anywhere up to $5 million, you are also provided with support from a team of experienced professionals from all sectors of the industry. These are individuals who have worked for decades in particular industries and will help you scale your business as a support network.
Common traits found in issuers looking to raise capital
Dr. Brummer was also keen to discover what type of entrepreneurs come to Seed at the Table to raise capital and which of those were doing so successfully.
According to Le Veaux, these entrepreneurs are from a diverse set of backgrounds and are people who have just had an idea as well as those who already have a product and are doing a million dollars in revenue. There are b2b companies, b2c companies, as well as e-commerce ones. The founding member was of the view that these platforms are better suited for e-commerce and b2c companies. This is because when looking to invest in a b2c company, there is also a chance that the investor may be a beneficiary of the product being sold, which allows them to market it within their circle of family and friends.
The latter half of the episode was spent discussing how the current inflationary economic environment and higher interest rates are affecting business for Seed at the Table, both from the standpoint of the portal and the issuers. Le Veaux explained how businesses on the portal were experiencing the hard-hit of financial insecurity especially due to Covid and the logistical challenges that come with it.
Well acquainted with the regulatory atmosphere of the US government, Dr. Brummer was interested to know about how the regulatory question was impacting equity crowdfunding. “Are there any things that you think complicate the business or would make your ability to serve some of these companies a little bit easier, and for that matter, investors as well?” asked Brummer.
Le Veaux was quick to point out how he believes that regulators often lack a human element, which can be challenging for the equity crowdfunding sphere. It would serve the community better if regulators were more cognizant of the demographic that equity crowdfunding catered to. Le Veaux also pointed out that service providers also need to be more thoughtful, as many accounting and law firms tend to engage with issuers in the same way that they would engage with a company that had raised $20 million during a series A round. Many issuers are surprised when they realize that while going in to raise $1 million, they are faced with the initial prospect of paying $40-50 thousand in loosely stated fees.
In conclusion to the fascinating oversight Pierre Le Veaux provided on equity crowdfunding, he also mentioned how Seed at the Table has been intentional in terms of their partnerships. This crowdfunding platform was not formed with VC firms in mind. There is a focus on ensuring that all partners are aligned with the company in terms of their core values, whether it is a capital injector or a family member.
Dr. Brummer, himself the son of the law professor and civil rights advocate Chauncey Brummer, had some interesting thoughts to end the episode. “For all the special difficulties that historically marginalized people may face, many of their concerns and opportunities are cut from the same cloth as everyone else. It’s just that the stakes are a little bigger. When the economy sneezes, they get damaged tenfold.”
