2020 was a busy year for IPOs. 408 companies, including dozens of SPACs, went public last year. Some of the biggest winners were investors from the earliest days of companies like Upstart, Palantir and FuboTV.
So, who are these investors? Well, in many cases they are private market firms such as venture capitalists or private equity companies. These organizations raise large swaths of money from accredited investors (aka people with a lot of money) and then deploy that money to investments in early-stage companies. The earlier the investment, the larger the risk, the larger the return. Most of these investments will fail, but a handful will 10x, 25x, maybe even 100x their initial investment.
One alternative for startups to pull down dollars to build their companies or firms is the crowdfunding market. Historically, crowdfunding has taken on form in sites like Kickstarter and IndieGoGo. You’d throw some money into a project and (maybe) get something a few months later. Nowadays, it means something new. A handful of crowdfunding platforms are popping up online, offering working class people an opportunity to join the journey of a startup. One of them is Republic, a platform that allows people to invest in “high-growth” startups, real estate, video games and crypto.
“There’s no question that the traditional financial world is skewed towards a small group. If you think of the VC landscape, it has been concentrated in a homogenous group of ultra-wealthy people,” said Lisa Carmen Wang, the Head of Brand at Republic.
“We are giving an opportunity to people so that they can invest in the future, leaders, and people they believe in.”
With that message, Republic has created a two-sided marketplace to match private companies seeking investment with investors in search of investment opportunities. And it has been highly successful. $150 million has been invested in private companies in just the past 12 months. That number includes Republic’s platform dedicated to accredited investors, which has been utilized to raise money by companies such as Robinhood, Dapper Labs and SpaceX. However, working-class depth gobblers can still access diverse opportunities to invest alongside large VCs thanks to those who have started campaigns on the site like esports company Tempo Storm, mobile crypto wallet company Linen and some fan-controlled football franchises.
That might sound great. You might be ready to throw money at these companies right now. However, Republic is forthcoming that investing in private assets is risky. The company has an entire page dedicated to individual risk associated with investing on Republic, which is longer than any essay I ever wrote in college. The message is clear: you can, and might, lose your entire investment.
“We have a lot more than high-growth startups, but our platform is ultimately about participation and optionality,” Wang said. “The most wealth has come from private investing and the tech scene, which last left out 99% of people.”
Regardless of that risk, the money is moving faster than it ever has. On March 15, the Securities Exchange Commission (SEC) in the United States changed regulations, allowing private companies to start raising up to $5 million from crowdfunding.
“This increase is a significant change and has a big impact on the kinds of companies that will be attracted to raising money through platforms like Republic,” Wang said. The implication is that crowdfunding has mostly catered to small, super-early “seed stage” companies up to this point. The SEC’s change to regulation could change that.”
Take Gumroad, for example. The online platform for creators might be one of the most prominent crowd funds in the history of Republic. It also might be one of the most ‘legitimate’ startups to raise on the platform. The company has already raised over $5 million, is profitable, and has had over $5 million in revenue in the past 12 months. The company’s campaign launched the same day as the SEC’s new guidance was released and sold out its $5 million offering at a $100 million valuation in mere hours.
Private investing might not be for everyone, but its horizons are expanding — and much to the benefit of underrepresented fund managers, business owners, and investors. Where historically the money going into businesses has been controlled by wealthy, predominately white elites, companies such as Republic are trying to break the mold.
“At the heart of this there’s two sides: profit and power,” Wang said. “One significant change is the increase in underrepresented managers, founders and investors who couldn’t get VC otherwise. Those people [who couldn’t get money from traditional VC] are now selling out their fundraising on Republic.”