The transformative power of community rounds

Innovative high-growth companies are obsessed with customer obsession. It means putting your customers at the centre of everything you do. In business, it’s a reasonable modus operandi. No customers, no business, right? Put your customers at the centre of everything, and all else falls into place.

But there are a range of stakeholders in a company’s orbit. Customers, employees, investors. While you might not be able to please everyone (stakeholders) all of the time, forward-thinking companies have found an innovative way that gives you your best shot at it: the community round.

Pioneered by the team at WeFunder (an equity crowdfunding platform in the United States), a community round is when a company lets thousands of their customers, users and fans invest alongside VCs and angel investors.

As the CEO of Birchal, Australia’s leading crowd-sourced funding (CSF) platform, I’ve witnessed first-hand the transformative power of community rounds in aligning customer interests with business growth and it’s fascinating.

What are community rounds, and why now?

At their core, community rounds represent the convergence of investment and customer engagement. Unlike traditional funding avenues, they allow customers to become shareholders, blurring the lines between consumer and investor.

Until fairly recently, community rounds, which are essentially offers of regulated securities to the public, were either not possible or cost prohibitive. But with recent changes to securities laws around the world, including Australia, even early stage companies now have a pathway to inviting the public to participate in an investment round.

This model has gained traction in recent years, resonating with a market that values transparency, engagement, and shared success.

Community rounds are proving to be a credible and reliable form of capital for many startups in Australia. As we continue to see major funding declines in Venture Capital and across the broader financial system, Australian crowd-sourced funding (CSF) volumes have remained stable delivering $71 million to the ecosystem across the last 12 months (according to a new industry report ‘Yearbook’, compiled by Birchal).

For companies where the customer is the heart of everything they do, a community round is an interesting way of deepening that engagement with what is essentially an already loyal follower-base. Through capital raising, companies that are customer obsessed have the opportunity to involve passionate customers, or ‘super fans’ as they are often referred to, as part of their investor base. If you are raising 20 million, why not carve out 5 million of that for your customers?

High-profile community rounds

In May 2022, low-code software development platform, Replit, raised over US$5.4 million from over 2,600 investors on WeFunder. Replit’s CEO Ramjit Masad said: “Users are waking up to the fact that they should be part of the upside. It’s clear to me that the future of the internet lies in community ownership. And any startup that wants to align their incentives with that of their users should consider a community round!”

At the time of their WeFunder community round, Replit had recently raised an $80 million Series B with a register of notable investors including a16z, Coatue and Paul Graham.

Closer to home, in October 2021, Zero Co, a Byron Bay-based startup that makes reusable and refillable household plastics and cleaning products, became the first Australian company to reach a $5 million target under the CSF regime (the maximum allowed in a 12-month period) from over 3,000 investors on Birchal. Major Australian VC investor Square Peg invested $6 million on substantially the same terms as the CSF investors as part of the same round.

The customer-first approach

Community rounds epitomise a customer-first approach. By turning your customers into investors, companies cultivate a sense of ownership and loyalty that goes beyond the typical buyer-seller relationship. This isn’t just about capital; it’s about building a community of brand ambassadors who have a vested interest in your success.

Thriday is another example whereby $3 million was raised on the Birchal platform in 2021 with a waitlist of investors wanting in. Thriday used these investors for customer research to help them develop a more relevant product, and bring it to market. On the flip side, the investors wanted the product in the market as they could see from the outset how it would help their businesses run more efficiently (SMBs) and so they committed capital in order to see this happen.

Community rounds are powerful fundraising vehicles — they allow people to shape a future that they want to see. And as we’ve seen with recent examples like Replit and ZeroCo; a community round should not be seen as mutually exclusive to traditional funding sources. Rather it should be an essential component of any customer-obsessed company’s capital stack.

Navigating the process

Implementing a community round requires thoughtful strategy. The best campaigns use storytelling effectively to communicate their vision clearly and articulate how customers can contribute to and benefit from the growth of their business and community of supporters. However, it’s not without challenges. After all, it is a regulated offer of securities, so the key is to remain compliant with regulatory requirements, and work with experienced and credible partners and advisers.

Compliance: The cornerstone of trust

In the world of community rounds, compliance isn’t just a legal necessity; it’s a cornerstone of trust. While public offers of securities have historically been limited to later-stage public companies given their complexity and cost, Australia’s CSF regime (and others like it around the world), have made this process faster, simpler and available to companies even at the earliest stage. At Birchal, we’re committed to making community rounds an essential component of every company’s capital stack. Where others may see a regulatory obstacle, we see an opportunity to simplify the process and add value.

Conclusion

Community rounds are a great way to align customer and company goals, creating a collaborative ecosystem where everyone thrives. It’s time for more companies to embrace this approach, transforming their customers into their most valuable investors. Now that it is possible for any company to make a public offer of securities through the CSF regime (and others like it around the world), customer-obsessed companies should really be asking themselves: why not raise capital through a community round?

Matt Vitale is the CEO of Australian crowd-sourced funding (CSF) platform Birchal.