FundersClub lets its members who are accredited investors invest in startup venture funds online with investment sizes typically ranging from $2.5K to $250K. Investors can screen companies, sign legal documents with e-signature, and make payments all directly on the FundersClub website, with ease and speed. FundersClub manages the funds and provides value-add benefits to the startup companies we invest in, as well as the investors in our funds.
Most companies are brought to the attention of FundersClub through the FundersClub network and our partners. We typically invest in companies that feature strong teams, compelling addressable markets, and high traction or growth. Of the companies that have expressed interest in FundersClub, only a small percentage (we estimate to be 5% or less) end up being listed to our members. Our internal Investment Committee as well as the FundersClub Panel, a select group of FundersClub members, conducts due diligence and screens potential investment opportunities. Notwithstanding this process, FundersClub does not recommend investments opportunities as being suitable for any specific FundersClub member. There are many risks and merits inherent to investing in any of our listed funds, which you must carefully evaluate with your advisors before you decide to invest. FundersClub originally launched exclusively open to Y Combinator companies. We have since expanded beyond Y Combinator companies. If you are a FundersClub member and wish to refer a company to FundersClub, please use the Refer feature: https://fundersclub.com/refer/. We apologize that most referred companies cannot be listed.
FundersClub lists single-company funds and multi-company funds. For single company funds, the target company to be funded is known and identified. For multi-company funds, the target companies to be funded are not yet known at the time you decide to invest, though a target investment strategy for the fund is known and described.
FundersClub members are engaged in society and the world around them. Our members include serial entrepreneurs, angel investors, C-level executives, engineers and business professionals at tech companies. FundersClub allows these accredited investors to write smaller check sizes, to diversify across startup opportunities, and get access to opportunities through our managed venture funds.
FundersClub makes it easy for accredited investors to invest in startup opportunities: We provide access to otherwise difficult to access opportunities via venture funds which buy private company stock or convertible debt. We enable investment with dramatically smaller check sizes than is typical for angel investments, typically 10-20x smaller, allowing you to make a broader range of investments and diversify your holdings. We allow investing with ease, providing the first end-to-end online platform for startup investing including screening, payments, and legal document handling. FundersClub does not charge an annual membership fee.
Accredited investors can invest in FundersClub venture funds. Accredited investors are defined as individuals with greater than $200,000 of annual income (or $300,000 combined income with a spouse) or investors with $1 million or greater personal net worth, not including their primary residence. Entities in which all of the equity owners fall within the “individual” qualifications, as well as trusts with total assets greater than $5 million whose purchase is directed by a person with knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of the prospective investment may also invest. All potential investors will need to complete an investor qualification questionnaire, which will be part of the legal documents you will need to sign, before any investment request is accepted.
FundersClub venture funds operate as LLCs that could be managed by a replacement manager. FundersClub is working on setting up certain provisions so that the funds could be managed by an appointed agent in the event of FundersClub being unable to manage them. Our intent would be to find a substitute agent, though there is a possibility that no one will step into that role. We have allocated capital to enable the above continuity plan.
FundersClub was founded by serial entrepreneurs with the premise that founders should spend their time building products and talking to customers and not spend a disruptive amount of time fundraising. FundersClub is designed to let founders raise capital efficiently through managed venture funds. In addition, FundersClub makes it optional for the company to have access to a member community built by FundersClub - for example, if the company needs to build a partnership or hire a new developer, the founder may work through FundersClub to access our member community for help. In this way, startups can leverage the introductory power of the high net worth, highly-connected FundersClub network, and investors can add value to the startups.
The JOBS Act, meant to enable crowdfunding for all Americans, was signed into law on April 5, 2012 by President Obama and is currently under an SEC rulemaking period that ends in 2013. FundersClub’s main activities are not directly affected by this act because we are presently targeting accredited investors only. Furthermore, we are using legal structures and exemptions that have been used by angel groups and VC funds for decades and so are not relying on new legislation for our present operations. However, we are intrigued by the new possibilities enabled by the JOBS Act and look forward to potentially expanding our activities down the road.
We do everything possible to make the investment process seamless - that includes how we handle legal documents. After you have carefully reviewed them, all legal documents can be signed electronically and returned via our web site. After a fund has ended, we will carefully review the completed legal documents then reach out to you to complete the investment process. Again, no investment will be completed until the legal documentation is fully accepted, funds are received, and we provide you with the completed counterpart signature pages.
FundersClub currently features early, mid, and late stage private U.S. tech companies from Silicon Valley and beyond. The typical FundersClub listed company is a startup with high user growth, increasing revenues, reputable investor backing, and/or other signals of traction and growth.
When you invest in a FundersClub fund, you are purchasing an ownership interest in a venture capital fund that holds company stock or convertible notes in one or more private companies. For funds targeting a single company, there is a 1:1 relationship of fund dollars to underlying asset dollars (excluding the nominal administrative costs). This allows you to gain financial exposure to the companies similar to investing directly, although the FundersClub fund is the shareholder of record. This creates an attractive mechanism for startups that prefer to interface with a single entity, and enables you to participate in startup investing via better access, smaller check sizes, and lower fees. Upon a liquidity event such as an acquisition or IPO, you will receive your portion of the proceeds when they become available for distribution.
By adding a fund to your watchlist, you get the opportunity to reserve a spot in the fund 48 hours before other members. Watchlist members will also get exclusive updates about the funds.
A convertible promissory note is a debt instrument that is often used for angel investing. Convertible notes typically convert into equity of the issuing company if the company reaches certain milestones. In the case of many funds on FundersClub, the convertible note issued to the fund by the startup will convert to equity of the startup upon the startup completing a qualified priced equity round above a certain size (see legal documents for details). [There are a few important terms in convertible notes, including a cap if one is included. The cap is the maximum valuation that the note can be converted at. For example, if the cap is $10 million, and the next qualified equity round of the company values the company at $20 million, then the note will be converted at a $10 million valuation, which is a perk to investors for having participated in an earlier round. If the valuation is instead $5 million, then the note will get converted at $5 million. In this example, the note will get converted at the lower value between the valuation and the cap.] The risk is that you can end up investing at a higher valuation than you might expect for the company, and you won't know until that later round occurs (at a later time you don't control). We are interested in educating our members who are not familiar with convertible notes. If you have any questions about how convertible notes work, please email or call us and we can explain this in more detail.
For an investor, there is no ongoing right to interact with company management. Fund investors are not beneficial shareholders of the company, and the fund (not the investor) votes the proxies and has whatever other management rights a shareholder might have. Prior to investment, investors can ask questions via a moderated Q&A forum on each company's page on the FundersClub site that the founders can choose to answer. In addition, some founders have offered to have one-on-one phone conversations with interested investors to answer questions. After investment, startups and FundersClub may offer a range of ways to keep investors up-to-date and involved. See each startup's profile for details, but examples include: quarterly email update on progress, inclusion on an “insider investor distribution list” to keep investors in the loop on achieving milestones as well as ask for targeted help and advice (e.g., if a startup is looking for a new employee or connection), video message from founders, hand-written card by founding team, invitation to private events with founding team and other investors. In addition, all FundersClub investors and members become part of the FundersClub network that gets special invitations and early access to deals, invitations to private events with FundersClub investors and founders, membership gifts and other benefits.
There are currently no annual membership costs for investing via FundersClub funds, nor do FundersClub’s single company funds charge any commission, management fees or other transaction-based compensation. FundersClub will receive compensation equal to a portion of the increase in value, if any, of the investment determined upon a liquidity event (i.e., a carried interest), the amount of which may vary for different funds but is expected to be equal to twenty percent (20%) for most funds. Administrative costs are set aside within the funds on an investment-by-investment basis at cost, with the allocated cost corresponding to your proportion of the anticipated fund cost. FundersClub may vary the rate of administrative costs for different funds and for different investors within the same fund. Neither FundersClub Inc. or any of its employees receive any compensation from the administrative costs. Since administrative costs are front-loaded, such costs are intended to operate the fund to maturity without the need for further capital from investors. Any administrative costs that are not used for expenses are returned to investors along with the distribution proceeds from the underlying investment. For FundersClub’s multi-company funds, fees will be as described in the fund profiles.
As an example, the current administrative cost to invest $2,500 in a $250k single-company fund is $250. On an annualized basis for a 4 to 7-year fund, that is approximately $42-63/year, which compares favorably with the annual membership fee charged by many angel groups of $2,000-3,500/year. Any excess administrative costs reserved within a fund are returned to investors at the conclusion of a fund.
No, FundersClub does not currently charge any fees to startups. This helps avoid creating an adverse selection process. (We want the most promising startups to be listed on our site.)
Neither FundersClub Inc. nor any of its employees receive any compensation from the administrative costs or any other transaction-based fees for its single company funds. FundersClub will charge a performance based carried interest for most of its funds, which are expected to provide returns over time. Our immediate goal is to develop a compelling funding platform that will benefit both the most promising startups and investors. Over time, FundersClub has a number of additional ways in which it can make money. FundersClub may operate liquidity services for private companies, including employee liquidity program management for private companies, and eventually a trading platform for private companies that wish to provide ongoing private market liquidity to their shareholders. We may also participate in the investment funds, which can achieve returns for us along with other investors. We will continue to assess the opportunities within regulatory and legal guidelines, and are not providing any of those services currently.
Private company securities are illiquid and not publicly traded on exchanges or markets, so you will not receive a return on your investment until the fund makes a distribution of cash or securities to you following a liquidity event with respect to the securities owned by the fund in which you are invested. A distribution typically occurs either because the company has been acquired by another company or because the company undergoes an initial public offering of its stock on NASDAQ, NYSE, or other exchange. It can take 4-7 years (or longer) from initial investment to see a distribution of this sort, as it takes years to build companies – and in many cases, there may not be a distribution at all.
Yes, investing in startups and small businesses is risky. Each year, many companies in the US go out of business due to changing market conditions, unforeseen challenges, and other problems. FundersClub funds invest in high-risk opportunities and may not retain their value. If a business in which a fund owns stock goes out of business, your ownership interest in such fund will lose all value. While there are no guarantees that this strategy will reduce your risk, some investors choose to address this risk by practicing portfolio diversification. That is, investing in smaller amounts and spreading their investment across a larger number of different opportunities, which also helps them to support a broader number of entrepreneurs.
A company will typically come to FundersClub with a desired valuation/ set of terms. In many cases, they have already raised capital from offline investors on these terms, and wish to extend those same terms to FundersClub. In all cases, FundersClub will vet the terms offered by the company with its Investment Committee, and typically with the FundersClub Panel, which is a select group of members, and determine if these terms are reasonable to potential investors before we invest under those terms. Startups are hard to value and there's no guarantee that the valuation will be "correct".
There will be a specific investment minimum for each fund. While it will vary depending on each fund, on average the minimum investment will range between $2,500 and $5,000. Currently, there is no maximum investment but one may be applied, for example, if a fund oversubscription prevents democratized access to investing.
Up to 95 investors can invest in each deal, although the exact number will depend on the funding amount and applicable regulatory limitations and precautions. FundersClub reserves the right to limit the number of investors in each deal.
After you become a member by signing in and confirming you are an accredited investor, the Browse Investments page allows you to browse opportunities to invest in our single and multi-company funds. Each single company fund page relays company-provided information about the company including a video introduction from the founders and information on the management team, the product, the market, early traction, and news about the company, as well as legal documents describing the terms of your investment in the fund and the underlying holdings of the fund. You can then choose the fund in which you would like to invest, indicating a specific amount and completing required legal forms. Investors will generally be given access to the deal on a first-come, first-serve basis and investors who opt to invest before the deal reaches its target will be “reserved” a spot. We accept e-checks as payment, with payment information collected via the secure web site. Note that we are only obtaining your payment information to help facilitate the closing process after the fund has ended. You will not be charged unless the fund successfully reaches its target amount and the investment is closed, which will not be less than 30 days after you become a member of FundersClub. Note that if you do not return documents within 5 business days of indicating your desire to invest, your spot in the fund may be forfeited and it may be provided to another investor, so ensure accuracy of payment info and prompt return of documents (which you can do via the website). You will not be able to choose to invest in a fund after its funding page expires or the number of fund spots remaining reaches zero. Only when a deal closes and your payment and legal documents are received, reviewed and processed successfully, will you become an interest holder in the fund. FundersClub will reach out to you to confirm and complete your investment prior to closing, and you will have an opportunity to cancel your proposed investment at any time prior to your capital contribution being made to the fund. For the sake of clarity, your investment in any fund will not occur before the fund is closed, FundersClub has confirmed the legal documents you submitted, your capital contribution has been received, and FundersClub returns the applicable countersigned investment documents to you. Remember that we are not providing any recommendation as to whether or not you should invest in any particular fund and we may not independently verify all company-provided information.
In the event that the target amount is exceeded before deal expiry time or before spots run out, you will still be able to choose to invest, but your spot is not reserved. It is at the discretion of the company to accept additional funds beyond the target amount, so you might not be allowed into a fund that is oversubscribed. However, we can still submit your investment interest if you are serious about participating, as many companies may accept more funding than their initial target amount. In no event will a fund have over 95 investors.
It is up to the specific company to determine how they would like to update FundersClub and its investors. Often, the company will list on their deal page prior to investment how they plan to update FundersClub and its investors. While there is not an explicit requirement that FundersClub mandates, it is in the companies’ best interest to have investors on FundersClub in the loop and excited about the companies’ progress so that they can help promote its products and services and be helpful in other ways. The companies are not required to provide periodic financial statements (or audits) or other updates and this is one of the significant risks of investing in the startup space.
Most entrepreneurs using FundersClub recognize the benefit of having well-informed investors, but also need to manage their time and focus on building their business to succeed. FundersClub manages this balance by encouraging companies to create complete profiles, and by collecting your questions and allowing the company to answer them in aggregate, with answers posted as updates to the deal page. Please note that not all questions can be answered, and some companies may be unable to answer any questions.
You are encouraged to tell friends, family, potential users, and anyone you wish to share with about the company, including via using tools like Facebook, LinkedIn, and Twitter. You will also be provided with links to the company’s blog, Twitter, Facebook page, and other similar online presences so you can track the progress of the company. In addition, the company may contact you with specific requests for advice or assistance, which you may provide at your option.
FundersClub cannot provide individualized tax advice. In general, the tax implications of investing in FundersClub funds are similar to investments in any other fund and will also depend on the company invested in and the nature of the proceeds received in any liquidity event. However, you should review the investments with your tax advisor for tax considerations specific to your situation.
No. This is a clear violation of our Terms and Conditions due to legal issues with posting information about FundersClub investments to the public. Members reposting fund or company information will be banned from FundersClub.