We’ve always looked at MULTI as an opportunity to reshape the startup landscape. We know as we create this business and continue to grow, we can create a new blueprint for the way things are traditionally done. A large focus for us is reshaping the way cap tables look. A lot of times with startups you’ll find shiny headlines like “Startup Y got acquired by Conglomerate Z for $700m”. A question from those not well versed in this space: where is that money going?
How Startup Investors Make (Big) Money
When a startup goes through a liquidity event, which is either an acquisition (a large conglomerate buys the startup) or a public offering/IPO (the company goes public on the stock market), whoever owns equity in that startup gets a return. This means whatever percentage of the business they own (however many shares or however much equity they own), they get that percentage from the amount they get acquired for.
Example: If Startup Y gets acquired for $700m, and Founder 1 owns 10%, they will receive 10% of $700m, which equals $70m.
So if you’ve ever wondered how startup founders end up with so much capital, this is how. That doesn’t insinuate that getting incorporated is an easy feat. This is why you see founders dedicate so much of their time and efforts to building their startups, and this is why it takes true dedication to your business to get to those heights.
So, why explain this? Well, when talking about equity we have to talk about who normally owns equity in startups? Like I’ve mentioned above, returns on successful startups can lead to incredible amounts of wealth… but who typically receives this kind of wealth?
Who’s Actually Investing in Startups?
When you own equity in a startup, you are on that startup’s cap table. A cap table is a list of all the shares/securities your company has issued and who owns them. Traditionally in the startup space, cap tables look very…white.
An NVCA-Deloitte Human Capital Survey done in 2019 showed that 76% of investment professionals were white, 17% were Asian/Pacific Islander, 5% were Hispanic, and 4% were Black. Needless to say that these numbers disproportionately favor white folks. Wealth lives in close proximity to wealth. Wealthy folks will traditionally work with, uplift, and collaborate with other wealthy folks. With this in mind, and with these stats in mind, it is not hard to see why wealth continues to circulate amongst white communities.
Leadership, especially co-founders and high level employees are typically the ones holding equity in the business. So for us, that’s a great start to diversifying our cap table. But we’ll talk more about our leadership and management efforts in another post, however this post is about our Access Round, so let me get to that.
What are the Barriers to Investing?
With all of this information above, we knew that the representation on cap tables was, for lack of a better word, sad. Also in the process of learning the logistics and legalities of raising early fundraising rounds, we learned that only accredited investors have opportunities to invest in businesses like ours.
To be accredited you need to be making $200K/year for the last 2 years and/or have a net worth of $1 Million or more. BONUS: There is an exception for non accredited investors to have the opportunity to invest, however this is limited to 35 individuals who have to be close family or friends.
We’ve always been aware that we wanted investors from our communities: BIPOC, women, queer. However our communities are traditionally in lower socio economic standings and meeting those requirements of “accredited investors” are not as common or as easy for us. Also, privilege breeds privilege and wealth breeds wealth. Grandfathered networks and having close friends and family who are in these spaces is something not as common for our communities. We wanted to find a way around this.
The Access Round is Born
After doing some research we came to find Regulation CF, or Regulation Crowdfunding. In 2016, the US SEC passed the allowance for Regulation CF, which allows a startup to raise funds from an unlimited number of investors, both accredited and non accredited. This can only be done through an approved equity crowdfunding platform, so we found one that would work for us with a low entry ($100 minimum).
In January 2022, we opened what we coined our Access Round, which is exclusively for BIPOC with an annual income of $60K or under to make investments into our company between $100-500.
And even though we were able to open up access to many first time investors that typically don’t have access to the type of opportunity – our access round isn’t perfect and we still have work to do. We had no trans, Indigenous and/or disabled investors, which is why we opened up some sponsored equity spots for these folks. All of these small efforts combined, we hope we are able to redirect the traditional flow of wealth, even if just a little bit.
The Breakdown: Who Invested
Check out our official breakdown HERE.