!

June 8, 2016
The Honorable Jeb Hensarling
Chairman, Committee on Financial Services
Washington, DC 20515
The Honorable Maxine Waters
Ranking Member, Committee on Financial Services
Washington, DC 20515
Dear Chairman Hensarling and Ranking Member Waters:
On behalf of Wefunder, I support H.R. 4855, the Fix Crowdfunding Act of 2016.
Wefunder is a funding portal and exempt reporting advisor. Since 2013, we funded 110 startups
with $16 million from accredited investors. With Regulation Crowdfunding, in three weeks,
weve raised $1.3 million for 21 companies ranging from a donut shop to a bionic pancreas for
children with diabetes. Over 2000 investments have been made 30% are for only $100.
Weve dedicated over four years of our lives to building a healthy crowdfunding portal that
balances investor protection with capital formation. The Securities and Exchange Commission
did a tremendous job on these issues given the constraints of the legislative text of the JOBS Act.
However, a few improvements must be made. In particular, the 12g and SPV fixes of H.R. 4855
are vital to protect retail investors from harm.
Single-Purpose-Vehicles
One lesson learned from three years of offerings under Title II of the JOBS Act is the importance
of single-purpose-vehicles to protect investors. Since 2013, accredited investors have invested
over $250 million in early-stage startups using single-purpose-vehicles.
Single-purpose-vehicles allow small investors to invest alongside a sophisticated lead investor
with a fiduciary duty to advocate for their interests. The lead investor may negotiate better terms,
defend against unfair dilution by negotiating with venture capitalists during follow-on financing,
mentor the company, and represent small investors on the board.
Retail investors do not enjoy these benefits under Regulation Crowdfunding. Worse, the crowd
has no control: not a single company on Wefunder fundraising without a single-purpose-vehicle
offers voting rights to retail investors. As such, professional investors in follow-on rounds will
likely take advantage of a fragmented pool of small investors with no voting rights.
This situation is not because entrepreneurs are trying to take advantage of the crowd. Rather,
founders are scared that collecting thousands of signatures from online strangers will endanger
their follow-on financing and cripple the governance of their business. In contrast, there is no
such risk when granting voting rights to a single entity where a lead investor acts as a fiduciary
for retail investors. From the point of view of a founder, thats similar to dealing with a venture
capital partner that has a fiduciary responsibility to their limited partners.
HELLO@WEFUNDER.COM
CAMBRIDGE INNOVATION CENTER ! 1 BROADWAY ! CAMBRIDGE MA 02142!

!
Due to the fear of collecting thousands of signatures needed to sign off on the types of strategic
decisions common among pre-IPO companies, higher-quality issuers particularly those with
other financing options are less likely to crowdfund without a single-purpose-vehicle. Over
80% of the companies that were interested in Regulation Crowdfunding dropped out when we
informed them a single-purpose-vehicle was not an option.
To protect against potential conflicts of interest, it is important that the fund manager and lead
investor be an associate of an investment advisor or exempt reporting advisor, and therefore fall
under existing laws that regulate those entities.
On a related note, we also support Congressman McHenrys companion bill, H.R.4854, which
increases the number of accredited investors allowed to participate in single-purpose-funds for
Regulation D offerings from 100 to 500. After three years of offerings under Title II of the JOBS
Act, it is clear that accredited investors have high demand for investing in these vehicles given
the extra protections it affords.
Exchange Act
The power of equity crowdfunding is realized when thousands of people invest very small
amounts, so no one loses too much money in risky ventures. 30% of our investments are for
$100 each. As such, a company that raises $1 million will likely have over 2000 shareholders.
Unfortunately, if a company has more than 500 retail shareholders and $25 million in assets, they
are subject to expensive reporting regulations akin to being a public company. We understand
why the SEC desires Exchange Act reporting. However, based on our on-the-ground experience,
its clear that companies are not willing to be subject to the Exchange Act just to crowdfund.
All of the issuers raising on Wefunder are either accepting the investments of only the top 480
unaccredited investors and/or only offering securities that allow them to re-purchase investors at
their option before the $25 million asset threshold is met.
This harms investors in three ways. First, investors are pressured to invest more than they can
afford to lose to get in on the deal we expect the real minimum to be $2000. Second, retail
investors will be unable to hold a diversified portfolio, as their annual investment limitation will
be hit after one or two investments. Third, the most successful companies will buy out their retail
investors as soon as possible: imagine investing in Facebook in 2004, and then venture capitalists
forcing the sale of your stake in 2005. Retail investors take the risk without reaping the reward.
Increasing the asset threshold would not solve the problem. Entrepreneurs are ambitious while
they may have nothing now, they dream of expanding to 10 restaurants one day, or getting a
check for $50 million from professional investors to expand. They wont endanger their dreams.
No decent lawyer would let them.
As such, we believe crowdfunded securities should be exempt from 12g, conditional only on
being current with their existing Regulation Crowdfunding reporting obligations. We believe
that the Regulation Crowdfunding reporting obligations provide sufficient information to retail
investors who invest on average $450 each.

HELLO@WEFUNDER.COM
CAMBRIDGE INNOVATION CENTER ! 1 BROADWAY ! CAMBRIDGE MA 02142!

!
Testing the Waters
Given the data so far, we expect 25% of the companies on Wefunder to fail at their fundraise
after spending up to $10,000 on legal and accounting costs. We will feel horrible when this
happens. We believe the regulations hurt first-time entrepreneurs, whose only error was trying to
fundraise too early, before they were ready. These entrepreneurs can ill-afford to waste money.
Under present law, before talking with potential investors, startups must have their lawyer draft a
Form C, convert their cash accounting to GAAP, and perform a CPA review. This can cost
thousands of dollars. While these costs should be incurred before money changes hands or a
binding commitment is made, it serves no investor protection interest to force an entrepreneur to
spend their limited cash before they are allowed to learn if anyone even wishes to invest.
Creating a similar testing the waters provision as in Regulation A+ solves this issue.
Enforcement Actions
As a funding portal, we have serious concerns with the five-year moratorium on enforcement
actions. Every interaction weve had with FINRA and the SEC has convinced us that they are
acting in good faith to tackle a complex issue. While we may disagree with a few fine points of
the regulations because of our experience on the ground, we do not feel we need protection from
enforcement actions. We expect to be held accountable to the highest standards.
Conclusion
Some say we should wait and see before fixing equity crowdfunding. I am sympathetic to this
argument when it comes to raising the investment cap from $1 million to $5 million. While I
strongly support that increase, it can be delayed without endangering investors.
However, I would like it on the record as an expert who has thought about these issues nearly
every working hour over the last four years that Im convinced that without the SPV and 12g
fixes, retail investors will be heavily disadvantaged as compared to accredited investors and
equity crowdfunding will ultimately be seen as a failure. Early evidence already bears this out.
For that reason, I strongly support the passage of H.R. 4855. It will allow us to continue this
experiment in a safer way, gather additional data, and come back to Congress with more facts.
Sincerely,

Nicholas Tommarello
CEO, Wefunder

HELLO@WEFUNDER.COM
CAMBRIDGE INNOVATION CENTER ! 1 BROADWAY ! CAMBRIDGE MA 02142!