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Avoid the WeFunder Scam and You Avoid Investing Your Money for 0% Return

MJ DeMarco

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Folks who are interested in investing in companies via equity crowd sourcing?

Avoid WeFunder.

I can't speak for how the other equity-crowd-sourcing companies operate.

The platform is a joke for investors, but let me tell you, as an early stage company, its a great place to get 0% loans and 0% equity funding.

Let me give you the process in a nutshell.

  1. Invest $X,000s in a company.
  2. Wait 4 years.
  3. Company gets acquired.
  4. Get your original investment back.

No gains, no explanation, nothing.

What a F*cking joke.

I had two investments with them and the company I invested in got acquired (YEA!!!!!!! Right?) -- but guess what? The investors got ZERO ROI, just a cute little note about getting your money back. Gee thanks!
 
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MTF

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Was it because of dilution? I've heard it's a common trick that not only hurts crowdfunding investors but angel investors as well.
 
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MJ DeMarco

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Was it because of dilution? I've heard it's a common trick that not only hurts crowdfunding investors but angel investors as well.

They never offer any explanation or financial details.

They just frame it all the same way, that the company was near insolvency and lucky for them, "so and so" came by and wants to acquire it, and now you get your money back!!

But the key is to mention that we're so fortunate to get our money back, when "we" were near the precipice of losing it all.

Of course, this isn't a function of Wefunder itself, but these individual companies that Wefunder promotes. I've heard from other investors as well that this "outcome" seems to be the usual MO when a company is acquired. So in other words, you picked the right company, they get acquired, but you get nothing.

What a FN racket.

I'd rather be told that I lost my investment and the company went insolvent.

This is why it pays to be in control over the investment as an owner, not a passive investor. I'm sure the owners did just fine, and after all, why not? That had interest free loans for years.
 

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Folks who are interested in investing in companies via equity crowd sourcing?

Avoid WeFunder.

I can't speak for how the other equity-crowd-sourcing companies operate.

The platform is a joke for investors, but let me tell you, as an early stage company, its a great place to get 0% loans and 0% equity funding.

Let me give you the process in a nutshell.

  1. Invest $X,000s in a company.
  2. Wait 4 years.
  3. Company gets acquired.
  4. Get your original investment back.

No gains, no explanation, nothing.

What a f*cking joke.

I had two investments with them and the company I invested in got acquired (YEA!!!!!!! Right?) -- but guess what? The investors got ZERO ROI, just a cute little note about getting your money back. Gee thanks!
Class action lawsuit?

I would imagine there's something to win in a settlement here. This is obviously shady and disingenuous.
 
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Was it because of dilution? I've heard it's a common trick that not only hurts crowdfunding investors but angel investors as well.

As far as MJ's situation is concerned, that sucks, and I have no idea what voodoo accounting methods they used to screw him. That's crap, pure and simple and probably the individual company, not the platform itself. There's no excuse for offering up zero financial information and being shady like they were.

Used correctly, dilution isn't really a trick, it's just something that takes some surgical diplomacy. It can certainly be used to shit on people, but there is a BIG reason for it and you should never sign away your leadership rights to proportional dilution.

Let's say you sell 40% of the stock in your startup for 500k, you still own 60%. Your assumptions were right, the investor will receive the entirety of their expected return, but you discover something additional to do as a company. A pivot that will make the company 10x more lucrative, but you need money to do it.

It profits 1m a year now, whatever.

With the new business function, it will profit 10m.

You need the money, it's deal on with the money, and deal off without it.

Let's say you need 3 million dollars this time, if you want to chase this... The best deal you have found is 50% for 3 million.

At this point, your original investor should be acting in WITH YOU, for the best move forward for the company. BECAUSE IT ISN'T ONLY YOUR COMPANY, it belongs to BOTH you and your investor.

Just for the sake of the argument:
Your stock currently represents ~$600K/year
Theirs currently represents ~ $400K/year

The first investor's investment would be fine, but not amazing, without the second raise. With the new money, even if you proportionally diluted, the original investor would be MUCH better off and so would you.

With the injection and dilution:
your stock would eventually represent ~$3m per year
the original investor at ~$2m per year
new investor at ~$5m per year.

Better across the board.

Now, let's say you give them the entire 50% out of your stock.

Your 10% remaining share of the company represents only ~$1m/y of the company. Only 400k more of the company per year and you have to build it to $6m per year just to break even on this stock sale.

It is bullshit to ask only the CEO to shoulder that second raise. After all, it isn't just the CEO's company at the time they needed more money. They TOGETHER are acting in the best interest of the company.

The deal really is, once stock is owned, proportional hits are always the best. Everyone just needs to understand and agree on what is best for the company.

Choosing 40% of 1m is stupid if you can have 20% of 10m.

An expectation for the entrepreneur to have to shoulder that raise is ridiculous and would likely erode their loyalty to that business in favor of a second company.

As someone that has always had respect for his investors, I have always mentioned this in the very beginning. Dilutions are possible, but only to make ALL OF OUR INVESTMENTS, both my time and your money more lucrative. A move forward for the company. This isn't about screwing anyone and I like my stock as much as you like yours, that's why it will be a tough decision to dilute because it will hit me every bit as much as you. So, if it happens, there will be a good reason.

This also works on the flipside, the company runs out of money, needs more to pull out of a slump, the proprietor and the investor should shoulder the dilution burden together to keep the company going or else their investment could become worthless.
 
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MJ DeMarco

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The purpose of early stage investing is to get in at the early stages of a promising company, or go bust trying.

At Wefunder, it's clear this is a scheme to be a conduit for interest free loans for the company's they promote at investor expense.

Again, this "you get your money back!" seems to be the normal outcome for investors (this is now my second with a third seemingly likely, and I've heard from others as well that this seems to be typical).

I expected to lose my investment, or get rolled into the acquisition - even at a lower valuation.

Successful early stage investing is a low-probability endeavor, I'm guessing at WeFunder it is actually a ZERO probability endeavor - "success" seems to be have been normalized into "you get your investment back."

Again, the joke's on you. But it will be the last time I'll be the punchline. I can make more money in a .001% bank account without being misled by hype and promises.

Fool me once...

This is obviously shady and disingenuous.

I've had 2 of 3 investments end like this, now waiting for the 3rd. The 3rd company seems to be doing pretty good, but I doubt it matters. But when I heard others reported outcomes like this on various other investments, it appears something more nefarious is going on.... Use interest free investor loans to get acquired, shaft the early stage investors by claiming some type of hardship, but still accomplish the main objective of getting acquired, without future growth being diluted by 1000s of smaller investors.

What a F*cking scam.
 

jdion71119

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Aug 3, 2021
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Folks who are interested in investing in companies via equity crowd sourcing?

Avoid WeFunder.

I can't speak for how the other equity-crowd-sourcing companies operate.

The platform is a joke for investors, but let me tell you, as an early stage company, its a great place to get 0% loans and 0% equity funding.

Let me give you the process in a nutshell.

  1. Invest $X,000s in a company.
  2. Wait 4 years.
  3. Company gets acquired.
  4. Get your original investment back.

No gains, no explanation, nothing.

What a f*cking joke.

I had two investments with them and the company I invested in got acquired (YEA!!!!!!! Right?) -- but guess what? The investors got ZERO ROI, just a cute little note about getting your money back. Gee thanks!


Hey, MJ. I work for Wefunder. It's disappointing to hear that you didn't make any money on the companies you chose to back. But it is good that you didn't lose any! The nature of investing in startups is that you take a risk on your money, more so than with the general market. You take the risk of course because your potential upside is much greater than the general market, if you make the right choices. It's tough work though, and even the best VCs make 7 or 8 incorrect choices out of every 10! I just wanted to pass along that your experience does not have anything to do with Wefunder, but rather the interaction between your investment and the company you invested in (i.e - did they fail, do OK, or become a unicorn). I hope you'll try to search around for some more cool companies on the platform and hopefully make some winner choices this time around. Our FAQ section (wefunder.com/FAQ) is really helpful at gaining investor knowledge as well.
 
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MJ DeMarco

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Hey, MJ. I work for Wefunder. It's disappointing to hear that you didn't make any money on the companies you chose to back. But it is good that you didn't lose any! The nature of investing in startups is that you take a risk on your money, more so than with the general market. You take the risk of course because your potential upside is much greater than the general market, if you make the right choices. It's tough work though, and even the best VCs make 7 or 8 incorrect choices out of every 10! I just wanted to pass along that your experience does not have anything to do with Wefunder, but rather the interaction between your investment and the company you invested in (i.e - did they fail, do OK, or become a unicorn). I hope you'll try to search around for some more cool companies on the platform and hopefully make some winner choices this time around. Our FAQ section (wefunder.com/FAQ) is really helpful at gaining investor knowledge as well.

Thank you, but I'm well aware of the risks in early stage investing and don't need to read some boilerplate FAQ. My expectations are to lose all my money, or get rolled into an acquisition with a potential upside -- not to be the source of an interest free loan for a number of years.

Are you willing to disclose how many companies you represent that actually DO get acquired, and yet, only return the money to their investors under the guise of duress? (% of occurrence)

Are you willing to disclose how many companies (% of success) give their investors an ACTUAL ROI post acquisition?

I'm guessing NO on both. And I'm guessing your internal numbers show a dismal probability of success, far worse than any deal flow I'd find on my own.

Between investor losses and companies who get acquired and only do a ROC (0% ROI) post acquisition, I'd have better luck playing the lottery.

But hey, if anyone wants an interest free loan for 2-5 years, we all know which platform offers it as an option.
 

jdion71119

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Thank you, but I'm well aware of the risks in early stage investing and don't need to read some boilerplate FAQ. My expectations are to lose all my money, or get rolled into an acquisition with a potential upside -- not to be the source of an interest free loan for a number of years.

Are you willing to disclose how many companies you represent that actually DO get acquired, and yet, only return the money to their investors under the guise of duress? (% of occurrence)

Are you willing to disclose how many companies (% of success) give their investors an ACTUAL ROI post acquisition?

I'm guessing NO on both. And I'm guessing your internal numbers show a dismal probability of success, far worse than any deal flow I'd find on my own.

Between investor losses and companies who get acquired and only do a ROC (0% ROI) post acquisition, I'd have better luck playing the lottery.

But hey, if anyone wants an interest free loan for 2-5 years, we all know which platform offers it as an option.
MJ, I feel yah man. Everyone wants a high ROI. We're actually in the middle of doing a sweeping review of where our investor's money stands. If I forget to post back here in 2 months when it's complete, PLEASE hold me to it, and I'll provide the most recent report for you! We have absolutely nothing to hide my new friend. As a BCorp, as the leading platform, and as our companies have had $5 Billion in follow-on financing post-Wefunder raises, there is nothing to hide about! I'll be in touch with our update in a couple months, and again, PLEASE hold me to it if I forget to report back here :)
 
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As far as MJ's situation is concerned, that sucks, and I have no idea what voodoo accounting methods they used to screw him. That's crap, pure and simple and probably the individual company, not the platform itself. There's no excuse for offering up zero financial information and being shady like they were.

Used correctly, dilution isn't really a trick, it's just something that takes some surgical diplomacy. It can certainly be used to shit on people, but there is a BIG reason for it and you should never sign away your leadership rights to proportional dilution.

Let's say you sell 40% of the stock in your startup for 500k, you still own 60%. Your assumptions were right, the investor will receive the entirety of their expected return, but you discover something additional to do as a company. A pivot that will make the company 10x more lucrative, but you need money to do it.

It profits 1m a year now, whatever.

With the new business function, it will profit 10m.

You need the money, it's deal on with the money, and deal off without it.

Let's say you need 3 million dollars this time, if you want to chase this... The best deal you have found is 50% for 3 million.

At this point, your original investor should be acting in WITH YOU, for the best move forward for the company. BECAUSE IT ISN'T ONLY YOUR COMPANY, it belongs to BOTH you and your investor.

Just for the sake of the argument:
Your stock currently represents ~$600K/year
Theirs currently represents ~ $400K/year

The first investor's investment would be fine, but not amazing, without the second raise. With the new money, even if you proportionally diluted, the original investor would be MUCH better off and so would you.

With the injection and dilution:
your stock would eventually represent ~$3m per year
the original investor at ~$2m per year
new investor at ~$5m per year.

Better across the board.

Now, let's say you give them the entire 50% out of your stock.

Your 10% remaining share of the company represents only ~$1m/y of the company. Only 400k more of the company per year and you have to build it to $6m per year just to break even on this stock sale.

It is bullshit to ask only the CEO to shoulder that second raise. After all, it isn't just the CEO's company at the time they needed more money. They TOGETHER are acting in the best interest of the company.

The deal really is, once stock is owned, proportional hits are always the best. Everyone just needs to understand and agree on what is best for the company.

Choosing 40% of 1m is stupid if you can have 20% of 10m.

An expectation for the entrepreneur to have to shoulder that raise is ridiculous and would likely erode their loyalty to that business in favor of a second company.

As someone that has always had respect for his investors, I have always mentioned this in the very beginning. Dilutions are possible, but only to make ALL OF OUR INVESTMENTS, both my time and your money more lucrative. A move forward for the company. This isn't about screwing anyone and I like my stock as much as you like yours, that's why it will be a tough decision to dilute because it will hit me every bit as much as you. So, if it happens, there will be a good reason.

This also works on the flipside, the company runs out of money, needs more to pull out of a slump, the proprietor and the investor should shoulder the dilution burden together to keep the company going or else their investment could become worthless.
Isn't this why silicon valley pioneered the simple agreement for future equity (SAFE)?

The SAFE investor receives the future shares when a priced round of investment or liquidity event occurs.

They don't want none of that dilution crap if they get in really early.
 

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MJ, I feel yah man. Everyone wants a high ROI. We're actually in the middle of doing a sweeping review of where our investor's money stands. If I forget to post back here in 2 months when it's complete, PLEASE hold me to it, and I'll provide the most recent report for you! We have absolutely nothing to hide my new friend. As a BCorp, as the leading platform, and as our companies have had $5 Billion in follow-on financing post-Wefunder raises, there is nothing to hide about! I'll be in touch with our update in a couple months, and again, PLEASE hold me to it if I forget to report back here :)
Couldn’t you simply look up either of these companies that we was invested in and explain how it was acquired and for how much. We’d love to see how the numbers penciled out.
 

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I was looking into wefunder awhile ago and I don’t like what I’m reading.

If you got your initial investment back then I think it’s safe to assume the investment did very well as it was cycled through the business and came out the other end.

Why weren’t you given a penny more or a penny less than your investment. Why exactly? Sounds unethical to me.

It’s basically a stock repurchase at a shitty market break even market price without your consent.
 
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The start-up basically exercised a deep in the money call option and paid no premium for it. A risk-free investment even better than US treasuries.
 
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MJ DeMarco

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If you got your initial investment back then I think it’s safe to assume the investment did very well as it was cycled through the business and came out the other end.

Even if not, I would have accepted shares in the wind up company at a lower valuation. The point is a long-term potential upside, not a "gee thanks".

Nope, squeezed out with a pleasant "here's your money back, thanks for helping us get acquired."

The first time this happened raised my suspicions as I had thought the company was doing really well.

When it happened again on another acquisition the BS meter blew-up.

There clearly needs to be some type of rule put in place on the platform that "IF YOU GET ACQUIRED, NO MATTER CIRCUMSTANCE OR VALUATION" that your investors are rolled up into the newer entity, even if it's pennies on the dollar.

Isn't this why silicon valley pioneered the simple agreement for future equity (SAFE)?

LOL, a Simple Agreement for Future Exclusion.

The start-up basically exercised a call option and paid no premium for it. A risk-free investment even better than US treasuries.

And there is nothing from stopping any of their companies from doing the same thing over and over.

And why not?

There's no oversight. No regulations. No audit of numbers to really dig in deep to see who benefited, and who got stiffed.

At the end of the day, there's no reason why EVERY acquisition they rep to do a ROC on an acquisition. All you need to do is draft a cute little letter saying "thank you, things didn't work out but we got acquired" and boom! You just got a free no-interest loan. And you can't do a damn thing about it.
 

MJ DeMarco

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1629134921415.png
"We're here to fix capitalism."

Why does this not surprise me...
 
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Absolute a scam. 100 percent refund for winning a lottery and expect you to be happy.

There is no way that the equity value remains the same…after some activities. All the more to show that it is fishy and investors are getting ripped off.

Definitely worst than interest free loan. Since it is equity investment you could lose your capital.
 

TJD

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Hey, MJ. I work for Wefunder. It's disappointing to hear that you didn't make any money on the companies you chose to back. But it is good that you didn't lose any! The nature of investing in startups is that you take a risk on your money, more so than with the general market. You take the risk of course because your potential upside is much greater than the general market, if you make the right choices. It's tough work though, and even the best VCs make 7 or 8 incorrect choices out of every 10! I just wanted to pass along that your experience does not have anything to do with Wefunder, but rather the interaction between your investment and the company you invested in (i.e - did they fail, do OK, or become a unicorn). I hope you'll try to search around for some more cool companies on the platform and hopefully make some winner choices this time around. Our FAQ section (wefunder.com/FAQ) is really helpful at gaining investor knowledge as well.
Can you send a link to a list of at least 10 success exits where WeFunder investors made 10X their money (and received it)? That is the promise - would love to see the actual results.
 
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MJ DeMarco

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Can you send a link to a list of at least 10 success exits where WeFunder investors made 10X their money (and received it)? That is the promise - would love to see the actual results.

I doubt such a list exists.

In fact, I'd love to see ANY data from this company. You'd think if they had success in actually delivering GOOD INVESTMENT YIELDS to their investors they would advertise it?

"31% of our companies had successful acquisitions generating an average yield of 52% for our investors."

I'd love to see an actual list of fully funded companies and their closed outcomes -- a complete list with zero editing.

I'm betting < 5% of all investors get any yield on their money. I'm betting the plurality of their investors simply get their money back with a cute note. The rest lose it.

Of course they can justify such dismal returns with the standard boilerplate: Investing in startups is risky. No shit Sherlock. However most startups go bankrupt and disappear, they aren't acquired and their original investors screwed.
 

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At least you're getting out WITH your money intact. Hopefully this was just a few play dollars and not considerable amounts. Consider it a cheap lesson in evaluating all current / future investments with more prudence - and given the fact that I've never heard or came across 'WeFunder' - that screams *risk* and *stay away* from several miles away from the get go.

I'm very wary of even all the big RE crowd funded platforms. Sure they might of had a few solid years of a good run but long term / track performance is still unproven to me (and highly illiquid as well). I have a few bucks with them, but nothing that I can't blink to lose in a heartbeat.
 

MJ DeMarco

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At least you're getting out WITH your money intact. Hopefully this was just a few play dollars and not considerable amounts. Consider it a cheap lesson in evaluating all current / future investments with more prudence - and given the fact that I've never heard or came across 'WeFunder' - that screams *risk* and *stay away* from several miles away from the get go.

I'm very wary of even all the big RE crowd funded platforms. Sure they might of had a few solid years of a good run but long term / track performance is still unproven to me (and highly illiquid as well). I have a few bucks with them, but nothing that I can't blink to lose in a heartbeat.

Check this out...


Had to be the *worst* investment I ever read.

Thing is, 99% of the investors won't read the prospectus. The other 1% have no idea what it means.
 
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MJ DeMarco

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Another example of why this is nothing but a racket...

One company I invested with 3 years ago just reported they had a record quarter. Things look awesome. And yet, they also announced that they will be seeking additional funding through Wefunder. Guess what? Looks like the valuation rate is the same as when I invested years ago. In other words, despite positive growth, record revenues and even profitability (per them), my "investment" hasn't done a damn thing except float as a free-interest loan.
 

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Thing is, 99% of the investors won't read the prospectus. The other 1% have no idea what it means.
and that is why everyone should avoid investments they do not understand.

*disclaimer: I've read the prospectus on QQQ, a popular index fund, and did not understand any of it either. Still bought some :/
 
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