We’re excited to announce that we’ve completed our community round, via Wefunder. (Check out our website for the most up to date information.*)
In late July of 2021, we set aside ~$5M to allow our customers and supporters to join our $120M Series B equity round (led by Coatue). Within 90 minutes of launching our campaign, we had $5M in reservations. In the nine days that our campaign was open, we reached a total of $23M in reservations—a record on Wefunder. Eventually, we had to trim down some investments to comply with the $5M limit set by the government. We closed our community round with ~2,500 new investors on our cap table, 75% of whom are customers.
Our community round was a success and we would love to do it again. We learned a lot from the process, and we hope our learnings can help others who are considering a community round.
For years, customers have asked to invest in us, explaining that they love our product and want to contribute to our long-term success. We’ve always wanted to say yes. As a company, our growth is intricately woven with the growth of our customers. Unfortunately, because of regulations in the U.S. that require investors to be accredited (have a net worth of $1M+), we’ve had to turn these offers down.
So when the SEC updated its equity-crowdfunding regulations (Regulation Crowdfunding or Reg-CF) in March 2021, increasing the amount that private companies could raise in a community round from $1.07M to $5M and allowing investors to be pooled into a special purpose vehicle (SPV), we were excited. The increased maximum made it feasible for us to consider a community round and the work that came with it.
There were many benefits we’d get from having our customers as investors—they would be invested in our success, incentivized to spread the word about us, excited to recommend our product to other founders, provide feedback as we improve, and even become resources for things like hiring. In return, we could improve our product and services, and share any financial upsides with our customers.
The new regulations also coincided with our Series B fundraise and made it easier to run a community round. We were able to use the same subscription agreement for our community round and our other Series B investors. We also used the SPV to group community-round investors on a single line on our cap table. This allowed us to avoid triggering SEC rule Section 12(g), which mandates that companies with 2K+ shareholders, or 500+ unaccredited investors and $25M+ in assets, report as public companies.
The SPV also helped us streamline communications, allowing us to communicate with a single point of contact—the lead investor of our community round, Sahil Lavingia, CEO of ecommerce platform Gumroad. Gumroad was the first company to take advantage of the new crowdfunding rule, raising $5M in March 2021.
In total, it took about seven months from making the decision to run a community round to closing it.
It’s important to choose a community round platform that can work with your needs. We chose Wefunder for a few reasons:
Our priority with raising a community round was to give our customers the opportunity to be investors, so we chose not to be featured on Wefunder’s “Explore” page. However, because we value inclusivity and wanted to expand our brand’s reach, we decided to open the round to those who weren’t customers as well.
Each company will have its own strategy. Other companies may benefit from wide-reaching campaigns that help acquire new customers. In the future, we may consider community rounds that are limited to customers.
Wefunder helped us file our Form C, which is a required document for all businesses that raise capital through Reg-CF crowdfund. These forms are straightforward, except for a few sections that need more effort—financials/audit, risks, and the subscription agreement.
Financials/Audit: Form C requires financials from the past two years. Additionally, an audit is required for community rounds over $1.07M. Audits (especially first-time audits) take a lot of time, money, and internal resources.
Risks: We listed the risks that our company faced that potential investors might want to know about, including those that were specific to our industry as well as to the company. This process was relatively simple.
Subscription agreement: Because we wanted our community round investors to have the same terms as other Series B investors, our subscription agreement was straightforward. Our lawyers helped make small revisions to our contract to suit the Reg-CF requirements.
“Testing the waters” (TTW): Once a company files their Form C, they can create a page on a community round platform like Wefunder and solicit investments. However, we knew our audit would take some time, delaying the process of filing our Form C. Because we wanted to announce our community round campaign along with our Series B announcement, we used TTW rules to kick off the campaign. Under TTW rules, we were only allowed to solicit non-binding reservations to investments. Once we filed our Form C, we were able to ask our investors to confirm interest and convert their reservations into investments.
On Wefunder, you can set up a central page where potential investors can make investments (or if you’re using TTW, make reservations).
We launched our campaign on July 29th in conjunction with our Series B announcement. We sent emails about the campaign to our customers, and shared the campaign on social media and our blog.
We also shared periodic updates with potential investors over email, with details on what to expect and next steps.
Our support team received a fair number of questions during and after the campaign.
We anticipated oversubscription and wanted to ensure that we prioritized our customers. At the end of our nine-day campaign, we received $23M in investment reservations. To remain under the $5M limit set by the government, we capped allocations based on whether an investor was a customer and how much they held in deposits with us. We also chose to include investors who weren’t customers.
We paused the campaign from accepting new reservations nine days after launch. However, we weren’t able to officially close the round right after—we had to wait until our audit was completed to file our Form C, and had to wait 21 days after filing the Form C before the community round could officially be closed.
Community rounds can be an excellent way to raise capital, especially for:
However, community rounds have their challenges.
You'll need to disclose the last 2 years of financials (for newer companies, you’ll need to disclose your financials since inception).
You might need to have an audit, which can be time-consuming and expensive.
> For community rounds $1.07m+, you'll need a full audit.
> For community rounds $250k-$1.07m, you'll need a CPA review.
> For community rounds <$250k, you'll need the last 2 years of financials in GAAP format.
The amount you want to raise may not be worth the time and cost of community-round platform fees, potential audit fees, and legal fees to draft your subscription agreement.
You have to raise a minimum of $50K in order to receive funds (this is the case on Wefunder; this number varies by platform).
We enjoyed the outcomes of our community round, and would love to do it again (we’re only allowed to do it once a year). We expect the next community round to be easier because we’ll know what to expect—like how much time and money to budget for an audit and to file our Form C ahead of launching our campaign.
We also like doing community rounds in conjunction with traditional VC raises—this ensures that community-round investors are getting the same terms that our VCs are getting, lessens the legal and administrative work involved in drafting subscription agreements (we’d use the same agreement for both), and reduces the time and cost of doing audits (the community round audit is similar to the investor due diligence audit).
Most importantly, we’d like to continue building customer-investor relationships with our customer base, especially with those who didn’t get a chance to join the first time around.
*Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust®; Member FDIC.