11/1/2023
Justin leads Revenue Share on Wefunder.
He works with startups, investors, and partners that are interested in collaborating. Feel free to reach out!
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What I Learned Talking to 100 VCs
I spent the first three months of this year talking to 100 VCs with a pre-seed to Series A focus. All were professional investors who did this for a living.
There are small nuances between these different investors.
-- some had specific industry focus (e.g. music or AI or climate), others were agnostic
-- some only allocated capital in a syndication structure, others only led deals
– some had geographic focus, others had a global scope
-- some emphasized product, others emphasized deep tech, most focused on "enterprise" as the customer
But from my perspective these differences were on the margins. Almost all agreed on two things. They were investing in companies with:
1. Venture Scale
Companies that could grow very fast. Who had potential to receive future financing from bigger and badder institutional VC investors (upstream they go). Huge market potential ($1B target valuations in later financing). Target customer is BIG (consumer, bad!). Key emphasis on "scale". They loved enterprise saas. The most sexy economic prospect.
2. Power Law
The premise is that every bet needs to have the potential to pay off the entire portfolio. They're not making bets that have a 5 or 10x potential. They're making bets that have 100 or 1000x potential. Every bet they make needs to have 100 or 1000x potential. Because the nature of the game is that every bet needs to be able to be that "big winner".
It's a game of grand slams. No small bets. The expectation is for most bets to return 0-2x. And to have one great bet that makes everyone rich.
For what it's worth, I believe this game has merits. I believe that these investors are playing a winning game with a winning strategy. These are guiding principles in how to win at venture investing.
There's a reason they've got a venture scale and power law box that need to be checked. There's also a reason they refer to themselves as professional investors.
How I Felt About It
To me, the venture investing game was a reflection of a deep economic reality in our society.
The rich know how to play the game.
The rich have better access.
The rich get richer.
It's a race to the top.
At a "soul" level I did not resonate with how the game was being played. It wasn't my flavor of business. Money is not near the top of my list of priorities (more of a big hike guy myself). I play disc golf.
More importantly, I thought a lot about the (literal) thousands of companies I've spoken to over the past four years at Wefunder.
The vast majority of the companies did not have these two boxes checked:
-- venture scale
-- power law
The reality is that upstream venture capital is not accessible (at best, in very limited supply) for the vast majority of startups, small businesses, and cool companies in America. The venture capital world is not for the masses, but most people don't know this to be true. It's designed for a very small percentage of companies that are formed each year.
I was motivated to explore a different game, one that connected to my soul. Which led me to go all in on exploring different financing options.
Seeking Liquidity, Landing on Revenue Share
To me it all came down to liquidity. It’s important that investors have pragmatic upside.
A better exchange of risk and reward.
An option that made more sense for the masses.
An outcome that was predicated on base hits, not grand slams.
I consumed this website in search for the different options that were out there for startups and investors. I went down the rabbit hole with revenue based financing (Lighter Capital), acquisition marketplaces (Acquire), inventory financing (Kickfurther), secondary market platforms (Rialto), venture debt (Mercury), non profits (Kauffman), CDFIs (Catalyze), grant and govt funding (Turbo SBIR).
I’ve been helping startups raise capital for 11 years. Too long to believe there’s any silver bullet out there. All options have cons, no option is perfect. Options are good.
I landed on Revenue Share because it made the most sense to me. It’s the option I would have chosen to grow my own small business (Chill Charters). It was the structure that I wanted to personally invest in startups through.
It was simple and straightforward. There was a clear pathway for returns to investors. And it had relevance to more businesses.
And most importantly, I had the opportunity to build it at Wefunder. Our platform presents a unique opportunity to bring a financing product to the masses.
Revenue Share on Wefunder, for Investors
With equity, you're betting on the possibility of an acquisition. Generally a 5-10 year scope. You’re hoping for a big payout. The chances are unlikely in most cases (even for professional investors).
With Revenue Share on Wefunder, you're betting on the fact that you can 2x your money in 4-6 years, realizing a 10% to 30% IRR. You’re betting on revenue growth. There's a more pragmatic evaluation of how a company can double your investment (evaluating revenue projections).
Getting to $10M+ in revenue and positioning for a big exit is irrelevant. You're betting on the short term growth of the business, a defined scope.
In my opinion, a more fun evaluation of a business and their potential.
And one that has more opportunity for impact.
It caters to cool businesses in my community.
And offers liquidity, which will allow me to invest in more startups.
I love investing in startups.
This gives me more range in the types of companies I can invest in.
I would like to invest in more.
Liquidity helps me accomplish that.
Revenue Share on Wefunder, for Founders
If all options have cons, good to have options. My hope is for the community funded Revenue Share to be one option.
I see this option as having three core components:
Pros: no collateral, no personal guarantee, unsecured, flexible, friendly
Cons: eats into cash flows, doesn’t work well with tight margins
Consideration: do you have and do you want to raise funds from your friends, family, business network, customers, community.
There's a spectrum on this consideration, and I can appreciate all sides. But I'm very biased and believe community investment is the coolest type of investment. An objectively positive signal. Wefunder has a bunch of really awesome case studies that show this in practice across a huge range of companies.
Broadly, the more people who invest, the more people who are incentivized for you to succeed. Having your customers invest makes them evangelize you more. Having your professional network invest incentivizes them to open new doors. Having hundreds of investors is objectively positive from my perspective.
Hook the homies up.
So if you decide to raise from your community:
-- Structure a deal that makes sense. Be pragmatic.
-- Feel that you're getting a good deal and giving a good deal.
If you feel that way, you're going to be more successful fundraising.
Does a 2x return in 4-6 years make sense with your business model and economics?
My guess is that you'll be able to find investors if the answer to that question is yes.
You should look into the Revenue Share option if this is the case for you.
Too many founders spinning their wheels trying to raise equity. Hundreds of inefficient hours selling something that doesn’t make sense. The balance of risk and reward is off.
If raising equity isn't working. Then switch things up. This could be an alternative option that makes sense.
Or do both. Have a pathway for equity checks. Have a pathway for revenue share checks. Create more options for more people to invest.
Kiva
I’m very lucky to have the opportunity to build this at Wefunder.
I've been working on the same team with Jonny and Suzanna for 10+ years.
Many of my colleagues are good, kind, inspiring, mission focused people.
I believe our people are what gives Wefunder its best competitive advantage.
We're doing it because we believe.
Which was inspired by our start at Kiva.
Helping founders raise $5-10k 0% interest loans.
A true lense for impact. Start at the bottom. When founders need it most.
I'm still the most excited helping a small farmer (from Tom to Hayley).
Some context on Kiva.
-- Roughly $200M is lent through Kiva each year, with an average loan size of $500, 0% interest
-- 80% of the money raised on Kiva is recycled (meaning investors got repaid and re-lent that same capital to other entrepreneurs)
A dope model. Why not replicate that on Wefunder?
Wefunder
My goal is to create a multi billion dollar revolving revenue share machine at Wefunder.
Every company that raises using Revenue Share gets me one inch closer.
When Lovebox hits their goal and raises $500k, the expectation is that $1M of revenue share payments will be distributed back to investors within the next 3-6 years.
If we can fund $10M in revenue share deals on Wefunder, that would mean an expectation of ~$15-20M returning to investors in the next 3-6 years.
I’m confident a huge percentage of those payments will be recycled to other founders raising on Revenue Share.
Tens of thousands (and eventually millions) of investors participating.
The snowball grows quickly.
It's an exciting vision for me.
And one I believe in.
And one I will continue working towards.
Because I believe.
Progress to Date
– I started working on this full time in mid May
-- We have five companies live with Revenue Share: Lovebox, Neutral Ground, Sepia Coffee Project, Tylers Farm, Lillian Agusta (a dope selection in my biased opinion)
-- I'm expecting another 10 to launch by the end of the year
-- I'm talking to awesome founders every day. The pipeline is growing every day.
-- I'm hoping to get to $5M in investments towards Revenue Share, as quickly as possible
-- I'm trying my best to maintain a partnership network that's aligned with the core vision
-- I'm trying to find institutional money, matching funds, and strategic investor partnerships
-- I'm not sure if crowdfunding is the right avenue, but it's what I got. I believe in community investment.
-- I'm stretched super thin. Hoping to unlock more resourcing from Wefunder to help me go faster (hint hint, Nick)
My primary focus is finding awesome companies to work with. To grow the supply side and help more founders realize the gains of using this option. This thing snowballs with realized success.
If you know a founder who might be interested.
If you have ideas for strategic partnerships that could connect this to more founders.
If you believe in making this a thing in the world.
Please reach out. I’d love to connect with you.
Justin
619-629-5017
Good Vibes Always
