Raising early stage funding is no simple task. Many startups spend thousands of dollars and weeks or months on the road courting investors. A new funding platform from Santa Monica-based FlashFunders is designed to change that.
FlashFunders was started by Europlay Capital Advisors, law firm Stubbs Alderton & Markiles, and co-founders Vincent Bradley and Brian Park, and was formed to help startups raise capital efficiently while also opening up access to startup investing for accredited investors.
“Most investors are locked out of startup deals,” Bradley told me when we met earlier this month. “Of the people who have the money to invest in startups, I’d estimate that more than 95 percent don’t have access to the deals.”
FlashFunders first innovation is to focus on “accredited investors.” The SEC, under the Dodd-Frank Act, defines an accredited investor as a “Person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1,000,000.” There are other guidelines for trusts, business development companies, employee benefit plans, charitable organizations, etc., but FlashFunders is really focusing on the individual investors, since the other entities are more likely to have access to a range of investment vehicles.
FlashFunders also intends to help startups by simplifying the ramp-up process, especially compliance. FlashFunders’ platform helps entrepreneurs navigate complex SEC regulations and offsets costly legal fees, while giving accredited investors access to startup investment opportunities. FlashFunders provides a turnkey solution for raising capital and a marketplace where entrepreneurs can connect directly with accredited investors across the globe.
FlashFunders ensures all investors are accredited and that all offerings are SEC-compliant and executed using FDIC-insured escrows — which are created and paid for by FlashFunders.
“FlashFunders is designed to fundamentally alter the capital-raising process,” said co-founder Brian Park. “We provide startups with a compliant, efficient and no-fee online equity funding platform to develop their business plans, publicly market their offerings and collect funding from accredited investors —saving startups thousands of dollars in legal fees. At the same time, investors on FlashFunders can purchase shares directly in startups with no transaction fees or carried interest charges.”
FlashFunders has created “Flash Seed Preferred,” a set of transparent investment documents that have been customized to facilitate fundraising on the platform, further streamlining a process that would otherwise take months of road shows, multiple middlemen and tens of thousands of dollars in legal fees to execute.
The way FlashFunders monetizes this business plan is by, quite simply, retaining an ongoing right to invest a limited amount under the same terms as all other investors if a startup is successful in getting funded on the platform.
“We don’t want to get into a situation where we have to pick winners,” Bradley told me. “We thought it was a better idea to let the process play itself out, and, hopefully, we’ll end up investing in successful startups that would have never caught our attention otherwise.”
Investors miss out on winners all the time. Every VC has a tale of saying no to Facebook or Google or Salesforce. Check out Bessemer Venture’s anti-portfolio for a look at some of their biggest misses and the thinking behind skipping those opportunities. My favorite is about eBay: “Stamps? Coins? Comic books? You’ve GOT to be kidding,” said BVP’s David Cowan. “No-brainer pass.”
That’s the genius of this new type of investment plan hatched by FlashFunders. They’d never miss out on an eBay. Even if it seemed like a “no-brainer pass,” if the next eBay attracted investors and earned a niche in the market, FlashFunders would retain the right to invest until after the startup had proven itself more fully.
“We are educating a new generation of investors and building a more efficient roadshow for startups,” Bradley said. “We’ll focus on angel and seed funding for now, but there are inefficiencies throughout the entire investment process up to IPOs, so we see plenty of opportunities to expand our approach in the future.”
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