Popular Equity
seed stage
seed stage
What happens when my venture is first listed at Popular Equity?
When your venture is first listed, you get a page that briefly describes your venture and that summarizes the money already invested. That page includes a link where investors can buy $10, 1K, 1M, or any amount of your venture. It also says that your venture is in the seed stage, but for many investors that's just a detail. As an investor, if you want to buy in, you can always click the buy button, regardless of the stage, and invest whatever amount you'd like.
But during the seed stage, no one sells, there is no active trading. We're just collecting seed capital to determine the eventual starting valuation in open trading for the venture.
First investors: competing for the 20% investors ownership
By definition, the first investor in your venture will own 20% of your venture, and the entire venture will have a valuation 5 times the amount invested. So if Abe puts up 1K to buy into your venture, then Abe owns 1K of your venture, and your entire venture is worth 5K. If at the same time as Abe, Betty also puts up 1K to buy into your venture, then Abe and Betty split the investors' 20% share, and the total venture now has a market valuation of 10K.
Subsequent investors: discounting ownership with time
If the next month, Cathy invests 20K, then Cathy now owns almost 20/22 of the 20% investor share. It's only "almost" because Cathy invested after Abe and Betty, so she's taking less risk. The amount of her ownership is discounted at a rate of 3% / month (implying 50% in 2 years).
20K * 0.97 is 19.4K, so Cathy owns exactly 19.4/(19.4+2) * 0.2 = 18.1% of the venture. Her investment is worth its face value of 20K, and that means the venture is now worth 20K * (1/0.181) = 110.5K.
Abe and Betty own 20%-18.1% = 1.9% which is now worth about 1,050 each. Woohoo!
We're still in the seed stage. How did Abe and Betty's investments go up in value? They went up because Cathy came in later with more money. Because investors can't sell during the seed stage, the minor gain is obviously only on paper.
Backing out
Investors can't sell during the seed stage, but they can back out.
There could be lots of reasons to back out. Maybe it's as simple as the investor accidentally bought the wrong venture, or thought they were buying something else. Or maybe there wasn't enough interest from other investors, and the original investor might decide that there won't be a sufficient market for the venture. Or maybe they decided they wanted to invest in something else.
Minus transaction fees, initial seed investors can ask for their money back for upto 5 months, or until the end of the seed stage. They'll get a reminder at 4 months. 6 months after the first clearance of any investment during the seed stage, that investment is paid to the venture as seed capital. After that, or after moving to the open market stage, the investor can only eventually sell their ownership on the open market.
Again traditional VC investment dynamics are more time pressured. Everyone's looking for critical mass: both in terms of the right talent in the venture, and in terms of the right mix of investors, and then everyone pulls the trigger together. That's hard to coordinate.
With a simple open seed stage, where we're just collecting investments, we're asking a lot of initial investors. So we do 2 things for them: we discount the dilution impact of subsequent investments (3% per month), and we give investors the opportunity to ask for their investments back, at least for a while.
If you don't like how the venture is developing, or how other investments are showing up, you can back out. We hope that encourages more early investment.
Moving to the open market stage
After a minimum of 3 months, when there's sufficiently consistent investment, and sufficiently diverse ownership of your venture, we move on to the open market stage.
During the open market stage investors issue buy and sell orders, and the ones that can be met during the monthly clearance are executed. The price at the monthly clearance determines the total valuation.
Stalling out, or failing in the seed stage
Many ventures will fail to attract sufficient, or sufficiently diverse, investment to warrant open market trading. If it's likely that might never happen, then keeping a listing in seed stage at Popular Equity mostly adds a 6-month overhead to when your venture would otherwise be receiving donations. If there's a good chance that things might change for your venture in the future, keeping the seed stage running might make sense.
Or it could be time to pull the plug, and delist your venture.
In that case, the seed capital that's already been paid to your venture is a donation (that's not tax deductible, because there was potential upside for the investor). Those investors have become donors, and they no longer own anything. Seed capital that hasn't yet been paid to your venture will be returned to those investors, along with the option for the investors to make that capital a donation to your venture. (And if your venture is a registered nonprofit, then that donation would be a donation for tax purposes.)
The listing for your page will remain for 2 years after it's moved into delisting. That includes the information about the investments that occured.
Next: open market
Contact: seedstage@popularequity.com