Regulatory changes for equity crowdfunding could very well democratize fund-raising in much the same way e-tailing has done for premium goods.
That’s the thought Mark Lynn and Corey Epstein, the cofounders and co-chief executive officers of Los Angeles premium denim e-tailer DSTLD, hold as they test consumer appetite for investing in their company via SeedInvest. The company has so far garnered $10 million of interest from 2,117 people representing investments from $1,000 to $100,000.
“From our senior management team and our founding team, it appeals to our sense of meritocracy and our brand positioning in terms of cutting out the middleman and being direct and being transparent and distilled and open,” Lynn said.
Companies such as DSTLD are taking advantage of recent changes to securities regulations under the JOBS Act, more specifically Regulation A-Plus, that allows for nonaccredited investors to invest in a business, eliminating the need to meet certain net worth and other requirements.
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“It allows you to go out to the other 99 percent of people and potentially solicit them for smaller investments in the business and so it’s a very unique opportunity and unique timing piece for a brand like ours that’s looking at a long-term growth plan,” Lynn said.
SeedInvest has three companies, including DSTLD, testing the waters under Regulation A-Plus, according to ceo and cofounder Ryan Feit. That represents more than $30 million in investor interest across more than 8,000 people.
“If you’re an e-commerce company, two of your biggest challenges is marketing and getting the word out,” Feit said. “By conducting a mini IPO, it allows you to raise up to $50 million but, at the same time, it allows you to attract people who have a vested interest in your success.”
The e-commerce vertical is of particular interest to SeedInvest moving forward, according to Feit.
“It’s always been a vertical that we’ve been open to,” he said. “Historically, the last three years, we’ve been focused on companies with some sort of technology angle to them.”
SeedInvest is in talks with a few other apparel companies interested in the platform to raise money, although Feit was unable to provide more specific details.
It remains to be seen how successful the regulatory change will be for companies looking to raise money. The more than $10 million in interest DSTLD has raised is simply that and following this test period, the company will have to pound the pavement to follow-up with interested investors and then submit a regulatory filing to the Securities & Exchange Commission, a process they said they’d like to at least start by the end of the year. In exchange, investors would receive an equity stake in the company.
It’s an interesting move for a fast-growing company that already raised $4.4 million in seed funding last year via the more traditional funding route. But the two founders said this avenue, if successful, creates “brand evangelizers” and rewards loyalty “allowing [customers] to share in the growth of the company,” Epstein said.
“Every individual has become a publisher with Facebook and Instagram and all these platforms,” Lynn said. “Even within a very small circle. So this platform will allow them to participate in a business they care about in the very early stages and really help evangelize. A customer as an investor is also a marketer and that’s a lot more valuable than having an institutional investor.”
DSTLD expects revenue of about $5 million this year and will also likely realize a profit. The company earlier this year began dabbling in new categories such as sunglasses and leather moto jackets, the latter of which sold out on a test run and is now moving into full production. Test runs typically range between 100 to 200 units.