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Lead Investors

  • What's the TLDR?

    Wefunder has partnered with XX to help make Regulation Crowdfunding much better for founders.

    1. One Line on Cap Table. When you raise on Wefunder, your cap table only has one entry: XX Investments LLC.

    2. Wefunder investors never directly hold your shares. XX Investments LLC is an SEC-registered transfer agent that serves as a custodian. The custodian holds all of the securities in "street name" on behalf of your investors.This means your investors do not actually possess any shares, convertible notes, or SAFEs in your company. Instead, the custodian holds them on behalf of your investors. The custodian signs any documents on their behalf, as directed by your Lead Investor.

    3. Your Lead Investor is the only signature you need. To raise on Wefunder, you must choose a Lead Investor who invests on the same terms. If you don't already have a Lead Investor, we can introduce you to an XX Partner. Your Lead Investor is the only signature you need to authorize corporate actions like converting a SAFE or note, initiating a follow-on financing, or getting acquired.

    4. XX Partners Are Ready to Help.  In addition to your lead investor, XX will help your company grow. Your Lead Investor and XX are here to help your company succeed.

    5. It's the same outcome as an SPV and a Syndicate Lead. From the standpoint of startup founders, this works like an SPV and Syndicate Lead like on AngelList, except the legal structure is not a fund. When using Wefunder, your company will have one line on your cap table, a single Lead Investor you choose to sign any corporate documents, and a network of mentors you can call upon for help.
  • What is a cap table?

    A "cap table" is startup jargon for "capitalization table".  This keeps track of exactly who owns equity in your company - for instance, each founder, employee, and investor.  

  • Are all Wefunder investors one line on my cap table?

    Yes! All investors on Wefunder are treated as one shareholder: XX Investments LLC.

    Even if you raise funding from 2,000 investors on Wefunder, only XX Investments  LLC - a SEC-registered transfer agent  - will appear on your cap table. 

  • If I raise on Wefunder, what name will appear on my cap table?

    XX Investments LLC will be the single line on your cap table, representing all investors on Wefunder.  

  • What is XX Investments LLC?

    XX Investments LLC is a SEC-registered transfer agent that also acts as a custodian on behalf of your investors for all securities sold on Wefunder, so your company has only one entity on the cap table.

  • What is a Custodian?

    A Custodian is an entity (such as a broker-dealer, bank, or transfer agent) that holds any securities you sell on behalf of your investors (who are the "beneficial owners" of the securities).  

    This means your investors do not actually possess legal ownership of any shares, convertible notes, or SAFEs in your company. Instead, the custodian is the legal owner on behalf of your investors. The custodian also votes these securities and signs any documents on their behalf, following the direction of your Lead Investor.

    The custodian (XX Investments LLC) is the one entity on your cap table, because it is the legal owner of all the securities.  The finance lingo is that the custodian holds these securities in "street name" on behalf of the "beneficial owners".  

  • Do I still use Carta or another transfer agent?

    Yes!  The custodian only holds investments offered on Wefunder. You should still use Carta or or other software to manage the rest of your cap table - such as your founders, employees, or non-Wefunder investors.

  • Who signs any corporate documents?

    XX Investments LLC signs corporate documents on behalf of your investors at the direction of your Lead Investor - a single individual you choose who can make decisions on behalf of your Wefunder investors on SAFE conversions, follow-on financing authorizations, acquisitions, or any other corporate action.

    XX Investments must follow the direction of the Lead Investor in all circumstances.
  • What does a Lead Investor do?

    If you are familiar with an AngelList syndicate lead, the Lead Investor acts similarly.

    As your company grows, your lawyers will eventually ask you to get signatures from every investor on your cap table, even if you don't explicitly need their permission.  

    These signatures will authorize corporate actions like expanding a stock option pool, converting a SAFE or note, initiating a follow-on financing, or getting acquired.  

    The Lead Investor is the single person who makes decisions with respect to these documents on behalf of your investors on Wefunder and then directs the custodian to take a specific action, such as directing the signing of the documents.  

    The Lead Investor is here to maximize the value of your securities and, by extension, to help your company succeed.  

  • Who chooses the Lead Investor?

    You do, with our approval. Before you close a fundraise on Wefunder, we must mutually agree on who the Lead Investor is.  

    Your investors on Wefunder must know who the Lead Investor is before they finalize their investment and are no longer eligible for a refund.  

  • Who is qualified to be a Lead Investor?

    We will almost always approve a Lead Investor that invests $20,000 or more on the same terms as other Wefunder investors, provided there is no conflict of interest or family ties. We will also always approve an XX team member.

    If you recommend someone to be a Lead Investor, we will approve after a 10 minute interview based on if:

    • They invest at least $1,000 in your company on the same terms as other Wefunder investors
    • They are not a family member
    • They are founder-friendly (as the best investors in Silicon Valley are), but they also understand their fiduciary duty to the investors.
    • They have enough basic sophistication to understand how venture financing works
    • They are willing to provide a quote (text or video) to Wefunder investors about why they have agreed to be the Lead Investor
  • What if I don't yet have a Lead Investor?

    We suggest choosing from your professional network or from the Wefunder investors that back your company during the campaign. We can give you advice and help you through the process but choosing from your own network is best anyway – there's already a relationship of trust between you.

    Unfortunately, if you can't find a Lead, you won't be able to withdraw any money you raise on Wefunder. 

  • How should I go about choosing a Lead Investor?

    If you have multiple options for a Lead Investor, that's great!  Here's how we recommend choosing, in this order of priority:

    • Are they smart and do they get your business?  You want someone who groks your long-term vision. 
    • Do you think they can offer good advice?  When times get tough, it's good to be able to call on someone who has been there and done that.  We think former founders often make the best seed investors.  
    • Do you like them personally?  Life is better if you follow the "no asshole" rule.
    • Do they have an audience on Wefunder?  We just launched this, so it's early yet.  But as time goes on, we expect certain Lead Investors to be followed by a large audience, and to invest when they do.  You'll raise money faster if you pick a prestigious lead.
    • How strong of an endorsement will they give? This will appear on your Wefunder profile. You want passion over lukewarm. 
  • How do SPV Rights work?

    When you raise follow-on financing (such as your Series B), SPV Rights will allow an SPV advised by Wefunder Advisors to invest up to the amount you raised through your Regulation CF offerings (at the valuation and terms at that round that the VC's negotiated).

    The SPV will be a Venture Capital Fund specifically meant to only invest in your company.  Only eligible accredited investors may invest in it, including eligible accredited investors who invested in your prior Regulation CF’s offerings.  

    The Lead Investor will act as portfolio manager of the SPV on behalf of Wefunder Advisors and can earn an additional 5% carried interest on the SPV, providing an additional incentive for them to help your company grow.

  • What contract does a Lead Investor sign?

    A Lead Investor is an independent contractor, hired by XX.  

    You can send a potential Lead Investor the Lead Investor Agreement to review.

  • What kind of help can I expect from the XX Mentors?

    Besides your Lead Investor, a pool of XX partners are also available to help.

    In the spirit of under-promising and over-delivering, you should not expect help from any particular XX partner who is not your Lead Investor.  These are all busy people - many of which are actively running their own companies - who are making different time commitments.  

    However, these are all experienced founders who love helping other founders. If you make a reasonable ask every now and then, there is a good chance someone will help.  If you form a real human connection with one, they will likely help even more. 

  • Does XX act like a Single-Purpose-Vehicle (SPV)?

    From the standpoint of a founder, the services provided by XX work the same as a SPV. Exactly like if you had raised from an SPV on a site like AngelList, there is only one entity on your cap table, and there is only one person who needs to sign any documents.

    However, legally speaking, an SPV is an investment fund, and XX is comprised of two entities that together provides the services of an SEC-registered transfer agent, a custodian, and a Lead Investor.  

  • How is XX and a custodian better than the Crowd SAFE?

    The Crowd SAFE and most other crowdfunding securities used in Regulation Crowdfunding from 2016-2019 are worse for both founders and investors then using XX. 

    From the standpoint of founders, the Crowd SAFE is not one line on your cap table:

    • With a Crowd SAFE, you could choose to aggregate all investors in one line on Carta. However,  you are in charge of keeping track of this spreadsheet of who your investors are. That spreadsheet can be called a cap table. With XX Investments, as a SEC-registered Transfer Agent and custodian, XX Investments simplifies the cap table and manages the record of beneficial owners.   

    • With a Crowd SAFE, all of your investors - even if they have not converted their SAFE to own equity - still count towards the 12(g) threshold. This means if you have more than 500 unaccredited investors and more than $25 million in assets, you are subject to SEC public company disclosure and reporting obligations.  With XX, - as with a broker-dealer that hold securities in “street name” – XX Investments will hold Wefunder investors’ securities in “street name” and will be your only record owner for the purposes of 12(g). 

    • With a Crowd SAFE, you are only postponing the problem of getting signatures from every single investor.  One day, you might want to take an acquisition offer.  The lawyers - in order to prevent your investors suing you for of a breach of fiduciary duty - will ask you to get a signature from all of your SAFE-holders, even if they don't have equity. With XX, you only need one signature. 

    • With a Crowd SAFE, there is no concept of a Lead Investor who is financially incentivized to help you. With  XX , there is a Lead Investor - who you choose - who is incentivized to help your company succeed, along with other XX mentors who you can book office hours with.

    • With a Crowd SAFE, you will raise less money, because experienced and larger-dollar investors will not accept the Crowd SAFE terms.  With XX, you can use an investment contract that professional investors use - such as the Y Combinator SAFE.
  • How much does XX cost?

    XX Investments LLC charges companies $10 per investor per year, capped at $1,000 per year.  

    If you raise on Wefunder, we will pay XX Investments LLC for the first three years of transfer agent services on your behalf.  In the fourth year, your company will be responsible for annual payments, of no more than $1000 per year.  

    If the annual fee is not paid to XX Investments LLC, the transfer agent may discontinue services to your company.

  • Do I have to use a Custodian to raise on Wefunder?

    If you are raising with equity, practically speaking -  we require a Custodian and the XX team.  However, we would make an exception for any company that would prefer to offer an investment contract a professional investor would use (for instance, a standard YC SAFE instead of a Crowd SAFE) directly to every single investor on Wefunder who invests as little as $100, with voting rights, pro-rata rights, information rights, and no proxies. 

  • Can I pick some investors to invest directly in my company?

    Yes.  If you'd prefer that your grandmother - or some angel investor you respect - be directly on your cap table, you can send them a special link that will bypass the Custodian and the XX.  This means these investors will hold their securities directly, and you will need to obtain their signatures to authorize corporate actions like follow-on financings.

  • Can I replace my Lead Investor? What if they quit?

    You can't fire them. The Lead Investor is meant to advocate for investors. You should choose your Lead Investor carefully - pick someone you like working with.  

    However, if you have evidence of bad behavior that is against the best interests of your company, Wefunder can intervene in extraordinary circumstances. We can replace your Lead Investor by organizing a vote of all Wefunder Investors. We'd lay out all of the facts and let them decide.

    (We'd also replace your Lead Investor by organizing a similar investor vote if the Lead Investor quits or was incapacitated).

  • Do I need to give up control of my company to the Lead Investor?

    While the Lead Investor should have normal rights that professional angel investors enjoy, we don't advocate that founders lose control of their companies.  

    We believe the best investments come from founders who remain in control, driven by a long-term view of the impact they want to make.  It is now common for founders to remain in voting control of their companies at the Series A, so they can't be fired.

    However, to use Wefunder, founders must now offer investment contracts that a normal angel investor in Silicon Valley would sign.

  • What is the relationship between XX and Wefunder?

    XX Team and XX Investments LLC are separate companies run by former Wefunder team members. Our alumni are awesome.

    Wefunder Inc, Wefunder Portal LLC, and Wefunder Advisors LLC do not have any equity stake in the XX companies. Our officers, directors, and associated persons also have no equity.

    Since they are different companies, Wefunder receives no fees from XX Investments related to its transfer agent and custodian activities. And Wefunder also receives no performance based compensation from the XX Team. 

    Wefunder's motivation is to help create an ecosystem of other companies that make equity crowdfunding work better for both founders and investors.

  • Do you have some legalese I can send my lawyer?

    Sure! Morrison & Foerster LLP (MoFo) set this up. You can send your law firm the MoFo Memo which turns our layperson explanation into appropriately dense legalese.

    You also can review the custodian agreementstartup agreement, lead investor agreement, and the lead independent contractor agreement.