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Lead Investors

  • What is a Lead Investor?

    The Lead Investor has vetted the startup and decided to invest on the same terms as those offered on Wefunder.

    More importantly, the Lead Investor directs the voting power of all Wefunder investors held by a Custodian. The Lead Investor fights for you. They are paid a percent of the profits of the investment to financially incentivize them to maximize the value of the company.  

    When deciding whether to invest in a company, you should look at who the Lead Investor is, see how much they invested and why, and make your own decision on if you trust their judgement.

  • Does every company have a Lead Investor?

    Not yet.  We are rolling this out in May 2020, and will grandfather in companies that already have active fundraising campaigns. We expect it will take several months until every company has a Lead Investor.  

  • What does a Lead Investor do for me?

    The Lead Investor:

    • Vets the company and decides if they want to invest on the same terms as those offered on Wefunder.

    • Helps the founder grow their startup, with advice, connections, and mentorship. They only earn money if the startup grows in value.

    • 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. (Technically, XX Investments LLC, as the Custodian, signs documents on behalf of other investors - based on the Lead's direction). These are the same documents a Lead signs for their personal investment.
  • What is XX?

    The XX is a collection of mentors and experts - often successful founders in their own right - who help startups.

    The XX Team is financially incentivized to help companies in the Wefunder portfolio succeed. The Lead Investor is hired by the XX team for a specific company. Other mentors may help a startup when appropriate.

    In addition, XX Investments LLC is a SEC-registered transfer agent that acts as a Custodian for all securities sold on Wefunder.

  • What is a Custodian?

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

    This means you do not actually possess the shares, convertible notes, or SAFEs. Instead, the Custodian holds them on your behalf. The Custodian also votes these securities and signs any documents on their behalf, following the direction of the Lead Investor.

    The finance lingo is that the Custodian holds these securities in "street name" on behalf of the "beneficial owners".  

  • Who holds my securities?

    When you invest on Wefunder, your securities are held on your behalf by XX Investments LLC, a SEC-registered transfer agent that acts as Custodian.

  • Why are my securities held by the XX Custodian?

    Using a Custodian increases the quality of startups that use Wefunder while also giving more voting power to investors on Wefunder. 

    • Access to higher-quality investments.  With a Custodian, higher-quality startups with other fundraising options are more willing to use Wefunder. Startups use a Custodian to ensure their follow-on financing won't be at risk. Venture capitalists are uncomfortable when startups have many small investors directly on the cap table  (they don't like collecting thousands of signatures). With a Custodian, all those smaller investors are represented by one entity on the cap table: XX Investments LLC. 

    • Concentrate investor voting power into one Lead Investor.  Before Custodians, almost no companies that crowdfunded offered voting rights to their investors.  Now, all voting rights are held by the Custodian, which must vote as directed by the Lead Investor. The Lead Investor is financially incentivized to fight for the rights of all investors on Wefunder.  
  • Do I have voting rights?

    All securities sold on Wefunder with a Lead Investor have voting rights unless explicitly stated otherwise. 

    However, these voting rights are directed by the Lead Investor.  

  • Can I still resell my shares if held by a Custodian?

    Yes. Securities sold via Regulation Crowdfunding can't be resold for a year.  After the year ends, if there is no clause in your investment contact that prohibits resale, then you may do so.  The Custodian - XX Investments LLC - will change the beneficial owner when provided with a signed contract between the buyer and seller.  

  • Can we fire a Lead Investor?

    Yes. If there is evidence of behavior that is against the best interests of the company, Wefunder can intervene in extraordinary circumstances. 

    Wefunder can replace the Lead Investor by organizing a vote of all Wefunder Investors. The Lead would be replaced if a majority agree (of those who vote within 14 days).

  • How are XX and the Lead compensated?

    Investors pay 10% of any of their profits on their investment to the XX team. The 10% fee only applies to the profits earned by investors - such as during an acquisition, IPO, or secondary trade.

    It works similar to carried interest. For example, if you invested $1000, and you later sold your shares for $10,000, you would keep $9100 while XX earns $900.

    XX then shares these profits with the Lead Investor and any other member of the XX who may help the company with office hours, connections, or advice. Typically, a Lead Investor receives 50% of the profits received by XX.

    The XX fee is not paid to Wefunder (or any of its affiliates), but to XX. The XX team are incentivized to help the company succeed and grow, and are only paid if they are successful and investors earn a profit.

    The Lead Investor may also earn 5% carried interest from any SPVs we may form to invest in the company during follow-on financings.  If you are legally eligible to invest in these financings as an accredited investor, you will get first right to invest up to your pro-rata share.  

    In addition, Wefunder Inc pays the XX team an annual cash fee to help mentor startups in our portfolio.