Why we are excited by equity crowdfunding
The beauty of genuine equity crowdfunding is that you are not
appealing to traditional investors but rather recruiting supporters of a bold vision. That meant that we could create a video that clearly showed the typical headaches patients faced and how the RX-Pass is an obvious solution to their problems. For a regular equity campaign the video would have usually focused on all the stuff “sophisticated” investors expect - market size, competition, team etc. etc. It’s a tough job to make an interesting video when the boring stuff plays such a big role. It also marks a key difference in the future between equity crowdfunding for startups (by which I mean companies that are less than 1 year old) because the main goal will be to sell the vision to gain support. All the other stuff will still be there as required by law, but the focus is likely to be on the vision. The other stuff as it were is readily available for viewing on the campaign page but need not be part of the video anymore. After all, what meaningful financial data is to be expected from a young startup? The wisdom of the crowd is pitted against the experience of “the experts”.
What is really cool is that within a year we are bound to see the establishment of exchanges where these startup shares can be traded which of course provides a liquidity event and thus regular folk finally have the opportunity to bet on what they hope to be the next Google.
We were delighted to see that both of the teams at StartEngine and CrowdCheck
(who handled the Due Dilligence) were great teams that worked tirelessly - literally on Saturday and Sunday of that weekend to get the campaigns launched on May 16th. NextRX was elated to be one of the first startups out of the gate on the first day of this new equity crowdfunding world. The post listing experience
Sadly the euphoria lasted less than 48 hours. By Tuesday late afternoon we were informed by our contact at StartEngine that the escrow bank they had contracted with to handle all campaigns absolutely refused to handle ours for fear of losing their banking license. The problem of course was that NextRX is engaged in the cannabis industry - even if only on the ancillary side. StartEngine removed the campaign from its active listings page as well as the Invest button rendering it effectively stopped if not cancelled. (The campaign
page is still accessible)
Ironically StartEngine was as surprised by this as we were since they already have a campaign running for Med-X
which is decidedly cannabis related. The problem appears to be that theirs is a Title IV listing for accredited investors only while NextRX is listed under Reg. CF. The difference is that for CF campaigns the SEC appears to require a separate escrow processing bank while for the other campaigns FundAmerica
(which provides a transactional platform for sites like StartEngine) can handle both functions.What Next?
We put together a database with all of the funding sites we could find as shown below to ascertain other potential avenues for our campaign. As you can see, WeFunder is by far the most active and indeed has an excellent system from what we can see. Sadly they have the very same problem with their escrow bank and thus cannot take the campaign.
Since this appears to be a fundamental problem that will only be resolved once a crowdfunding platform finds a cannabis friendly escrow bank or the SEC changes what is arguably a totally unnecessary rule, the best course of action would appear to be either to list internationally on a platform like Sweden’s FundedByMe
or to move up to a Title iV funding like Med-X
. The jury is still out on which direction we will take.
Fast Forward To January 26th. 2017
NextRX becomes the first listing on Fundanna.com (think Fund Canna) a new equity crowdfunding platform dedicated exclusively to ancillary cannabis startups.