'Keep the American Dream Alive': Equity Crowdfunding Is Surging From an Appeal to Patriotism and Altruism

Ben Bergman

Ben Bergman is the newsroom's senior finance reporter. Previously he was a senior business reporter and host at KPCC, a senior producer at Gimlet Media, a producer at NPR's Morning Edition, and produced two investigative documentaries for KCET. He has been a frequent on-air contributor to business coverage on NPR and Marketplace and has written for The New York Times and Columbia Journalism Review. Ben was a 2017-2018 Knight-Bagehot Fellow in Economic and Business Journalism at Columbia Business School. In his free time, he enjoys skiing, playing poker, and cheering on The Seattle Seahawks.

'Keep the American Dream Alive': Equity Crowdfunding Is Surging From an Appeal to Patriotism and Altruism

When Christine Outram, founder and CEO of Everydae, a digital tutoring app, met with investors last year to try to raise a seed round she kept being told to come back in six months.

"I guess you can say we were turned down," she said.

Outram decided to try a different route, turning to equity crowdfunding, which allows mom and pop investors to dabble in something that until recently was solely the domain of professional investors. Her campaign proved successful – she raised $1.2 million from 1,586 people who wrote checks between $250 and $50,000.


"I've been really pleasantly surprised by the whole process," said Outram.

For reasons no one can quite explain, equity crowdfunding is having its moment during the coronavirus pandemic. Wefunder, the largest funding portal, recently had its best three months in the company's four-year history, with investor volume up 35% February through April. In early May, the site recorded $2 million of investment in a single day, a new record.

Wefunder had its best three months in the company's four-year history, with investor volume up 35%.assets.rebelmouse.io

"I have been so confused," said Nick Tommarello, co-founder and CEO of Wefunder. "I don't know the answer. The big question for us was always how we would respond to a recession. You would assume that people would not want to invest."

Tommarello theorizes that more startups are turning to platforms like his as other sources of capital dry up, attracting casual investors who don't mind parting with what usually amounts to no more than the cost of an expensive meal to take a lark on a company. The median investment is $200 and 80% are less than $500.

"Our users aren't rich but they're middle class," said Tommarello. "People are not allocating it as an investment, but as discretionary income. They say they can go out for dinner or back someone and support them."

Brian Citizen, who lives outside Washington D.C., has invested in about a dozen startups through Wefunder usually at $250 a piece, including Everydae.

"It's become a passion of mine and something I really believe in and it's also fun because I get to help out entrepreneurs and be a part of the building process," said Citizen, who adds that COVID-19 has made him more excited to invest. "I think there's an opportunity to get better deals. The terms are going to be better for investors."

There is an oft repeated statistic that 90% of startups fail. Even professional VCs who have been at it for decades expect most of their portfolio to be a bust, so experts are wary about casual investors trying their luck in such a risky asset class.

"Some analysts even project that equity crowdfunding could surpass VC investments in the not-too-distant future," Waverly Deutsch, clinical professor of entrepreneurship at The University of Chicago Booth School of Business, wrote in a post warning investors. "This may be exciting news for entrepreneurs, and perhaps for people eager to help start-up founders that they know—but will likely lead to a start-up bubble and massive losses for the majority of individual investors."

Citizen says he is well aware of the risks and limits his total crowdfunding investments to about $2,000 a year. "I'm only willing to invest what I'm willing to lose," he said. "But the returns have the opportunity to be great."

Wefunder is upfront with users about the risks and avoids any impression that users will strike it rich, according to Tommarello.

"Our marketing is very blunt that you might lose all your money and most startups will fail," he said. "We say that over and over again. We don't even talk about our investment returns."

Instead of returns, the site tries to appeal to a blend of users' patriotism and altruism with a hopeful message on the homepage: "Keep the American Dream alive. Back founders solving the problems you care about and help their startups grow."

Equity crowdfunding was made possible by the SEC allowing anyone to invest in private companies in 2016, a privilege previously only accorded to "accredited investors" who made more than $200,000 per year or had investable assets of $1 million or more. A further loosening of the rules went into effect this year, which Tommarello says is likely contributing to the platform's popularity.

"A lot of the downsides have been taken away," he said. "The biggest crowdfunders previously needed to have thousands of direct shareholders on their cap table."

The SEC announced in May it would temporarily make it easier for companies affected by COVID to qualify. "In the current environment, many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner," SEC Chairman Jay Clayton said in a statement.

Wefunder has backed 382 startups with $135 million, an amount smaller than many individual venture capital funds. Crowdfunding is still a niche, but it is gaining more widespread acceptance.

"I do think VCs are opening up to it more," said Kevin Morris, Chief Financial Officer at Wavemaker Labs, an early stage firm with offices in Santa Monica and Singapore. "Crowdfunding has been a bit of a bright spot in this economy so I think it would only help them."

Christine Outram, founder and CEO of Everydae, a digital tutoring platform.

Wavemaker invests in the pre-seed and seed rounds of companies and then raises follow-up capital via equity crowdfunding, a strategy that has worked well with Miso Robotics, a robotic kitchen assistant and Graze, which makes a roomba-type device that mows lawns.

"Both of these businesses were always well suited for crowdfunding but what we've seen in COVID is businesses in the automation space are doing even better," said Morris. "With crowdfunding in general you can get slightly higher valuations than you would from a VC and in a business that is consumer facing you're not only getting capital but you're building brand ambassadors."

Marketing her virtual tutoring app has been one of the most appealing parts of equity crowdfunding for Everydae's Outram, but she says attracting investors took considerable effort. Most campaigns, including hers, see a spike at the beginning but trail off after the initial excitement.

"My job was to always have new news to draw eyeballs to the page," she said.

Outram posted a steady stream of content to her Wefunder page and appealed directly to podcasts and groups centered around education and investing. She also bought ads on Instagram and Facebook, which proved to be worthwhile when a Facebook ad led to a $150,000 commitment.

"What a lot of founders don't realize Is that equity crowdfunding is as much work as other kinds of fundraising," she said.

https://twitter.com/thebenbergman
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Here’s Why Streaming Looks More and More Like Cable

Lon Harris
Lon Harris is a contributor to dot.LA. His work has also appeared on ScreenJunkies, RottenTomatoes and Inside Streaming.
Here’s Why Streaming Looks More and More Like Cable
Evan Xie

The original dream of streaming was all of the content you love, easily accessible on your TV or computer at any time, at a reasonable price. Sadly, Hollywood and Silicon Valley have come together over the last decade or so to recognize that this isn’t really economically viable. Instead, the streaming marketplace is slowly transforming into something approximating Cable Television But Online.

It’s very expensive to make the kinds of shows that generate the kind of enthusiasm and excitement from global audiences that drives the growth of streaming platforms. For every international hit like “Squid Game” or “Money Heist,” Netflix produced dozens of other shows whose titles you have definitely forgotten about.

The marketplace for new TV has become so massively competitive, and the streaming landscape so oversaturated, even relatively popular shows with passionate fanbases that generate real enthusiasm and acclaim from critics often struggle to survive. Disney+ canceled Luscasfilm’s “Willow” after just one season this week, despite being based on a hit Ron Howard film and receiving an 83% critics score on Rotten Tomatoes. Amazon dropped the mystery drama “Three Pines” after one season as well this week, which starred Alfred Molina, also received positive reviews, and is based on a popular series of detective novels.

Even the new season of “The Mandalorian” is off to a sluggish start compared to its previous two Disney+ seasons, and Pedro Pascal is basically the most popular person in America right now.

Now that major players like Netflix, Disney+, and WB Discovery’s HBO Max have entered most of the big international markets, and bombarded consumers there with marketing and promotional efforts, onboarding of new subscribers inevitably has slowed. Combine that with inflation and other economic concerns, and you have a recipe for austerity and belt-tightening among the big streamers that’s virtually guaranteed to turn the smorgasbord of Peak TV into a more conservative a la carte offering. Lots of stuff you like, sure, but in smaller portions.

While Netflix once made its famed billion-dollar mega-deals with top-name creators, now it balks when writer/director Nancy Meyers (“It’s Complicated,” “The Holiday”) asks for $150 million to pay her cast of A-list actors. Her latest romantic comedy will likely move over to Warner Bros., which can open the film in theaters and hopefully recoup Scarlett Johansson and Michael Fassbender’s salaries rather than just spending the money and hoping it lingers longer in the public consciousness than “The Gray Man.”

CNET did the math last month and determined that it’s still cheaper to choose a few subscription streaming services like Netflix and Amazon Prime over a conventional cable TV package by an average of about $30 per month (provided you don’t include the cost of internet service itself). But that means picking and choosing your favorite platforms, as once you start adding all the major offerings out there, the prices add up quickly. (And those are just the biggest services from major Hollywood studios and media companies, let alone smaller, more specialized offerings.) Any kind of cable replacement or live TV streaming platform makes the cost essentially comparable to an old-school cable TV package, around $100 a month or more.

So called FAST, or Free Ad-supported Streaming TV services, have become a popular alternative to paid streaming platforms, with Fox’s Tubi making its first-ever appearance on Nielsen’s monthly platform rankings just last month. (It’s now more popular than the first FAST service to appear on the chart, Paramount Global’s Pluto TV.) According to Nielsen, Tubi now accounts for around 1% of all TV viewing in the US, and its model of 24/7 themed channels supported by semi-frequent ad breaks couldn’t resemble cable television anymore if it tried.

Services like Tubi and Pluto stand to benefit significantly from the new streaming paradigm, and not just from fatigued consumers tired of paying for more content. Cast-off shows and films from bigger streamers like HBO Max often find their way to ad-supported platforms, where they can start bringing in revenue for their original studios and producers. The infamous HBO Max shows like “The Nevers” and “Westworld” that WBD controversially pulled from the HBO Max service can now be found on Tubi or The Roku Channel.

HBO Max’s recently-canceled reality dating series “FBoy Island” has also found a new home, but it’s not on any streaming platform. Season 3 will air on TV’s The CW, along with a new spinoff series called (wait for it) “FGirl Island.” So in at least some ways, “30 Rock” was right: technology really IS cyclical.

As TikTok Faces a Ban, Competitors Prepare to Woo Its User Base

Kristin Snyder

Kristin Snyder is dot.LA's 2022/23 Editorial Fellow. She previously interned with Tiger Oak Media and led the arts section for UCLA's Daily Bruin.

As TikTok Faces a Ban, Competitors Prepare to Woo Its User Base
Evan Xie

This is the web version of dot.LA’s daily newsletter. Sign up to get the latest news on Southern California’s tech, startup and venture capital scene.

Another day, another update in the unending saga that is the potential TikTok ban.

The latest: separate from the various bills proposing a ban, the Biden administration has been in talks with TikTok since September to try and find a solution. Now, having thrown its support behind Senator MarkWarner’s bill, the White House is demanding TikTok’s Chinese parent company, ByteDance, sell its stakes in the company to avoid a ban. This would be a major blow to the business, as TikTok alone is worth between $40 billion and $50 billion—a significant portion of ByteDance’s $220 billion value.

Clearly, TikTok faces an uphill battle as its CEO Shou Zi Chew prepares to testify before the House Energy and Commerce Committee next week. But other social media companies are likely looking forward to seeing their primary competitor go—and are positioning themselves as the best replacement for migrating users.

Meta

Last year, The Washington Post reported that Meta paid a consulting firm to plant negative stories about TikTok. Now, Meta is reaping the benefits of TikTok’s downfall, with its shares rising 3% after the White House told TikTok to leave ByteDance. But this initial boost means nothing if the company can’t entice creators and viewers to Instagram and Facebook. And it doesn’t look promising in that regard.

Having waffled between pushing its short-form videos, called Reels, and de-prioritizing them in the algorithm, Instagram announced last week that it would no longer offer monetary bonuses to creators making Reels. This might be because of TikTok’s imminent ban. After all, the program was initially meant to convince TikTok creators to use Instagram—an issue that won’t be as pressing if TikTok users have no choice but to find another platform.

Snap

Alternatively, Snap is doing the opposite and luring creators with an ad revenue-sharing program. First launched in 2022, creators are now actively boasting about big earnings from the program, which provides 50% of ad revenue from videos. Snapchat is clearly still trying to win over users with new tech like its OpenAI chatbot, which it launched last month. But it's best bet to woo the TikTok crowd is through its new Sounds features, which suggest audio for different lenses and will match montage videos to a song’s rhythm. Audio clips are crucial to TikTok’s platform, so focusing on integrating songs into content will likely appeal to users looking to recreate that experience.

YouTube

With its short-form ad revenue-sharing program, YouTube Shorts has already lured over TikTok creators. It's even gotten major stars like Miley Cyrus and Taylor Swift to promote music on Shorts. This is likely where YouTube has the best bet of taking TikTok’s audience. Since TikTok has become deeply intertwined with the music industry, Shorts might be primed to take its spot. And with its new feature that creates compiles all the videos using a specific song, Shorts is likely hoping to capture musicians looking to promote their work.

Triller

The most blatant attempt at seducing TikTok users, however, comes from Triller, which launched a portal for people to move their videos from TikTok to its platform. It’s simple, but likely the most effective tactic—and one that other short-form video platforms should try to replicate. With TikTok users worried about losing their backlog of content, this not only lets users archive but also bolsters Triller’s content offerings. The problem, of course, is that Triller isn’t nearly as well known as the other platforms also trying to capture TikTok users. Still, those who are in the know will likely find this option easier than manually re-uploading content to other sites.

It's likely that many of these platforms will see a momentary boost if the TikTok ban goes through. But all of these companies need to ensure that users coming from TikTok actually stay on their platforms. Considering that they have already been upended by one newcomer when TikTok took over, there’s good reason to believe that a new app could come in and swoop up TikTok’s user base. As of right now, it's unclear who will come out on top. But the true loser is the user who has to adhere to the everyday whims of each of these platforms.

https://twitter.com/ksnyder_db

We Asked Our Readers How They’re Using AI in a Professional Setting. Here's What They Said

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

We Asked Our Readers How They’re Using AI in a Professional Setting. Here's What They Said
Evan Xie

According to Pew Research data, 27% of Americans interact with AI on a daily basis. With the launch of Open AI’s latest language model GPT-4, we asked our readers how they use AI in a professional capacity. Here’s what they told us:

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