Here at WealthForge, we have the privilege of working with entrepreneurial clients who are raising capital for innovative opportunities, often in creative ways.
One particularly interesting trend in raising private capital has been described as the “rise of the Investomer”. An “Investomer” is an investor who is also a customer. The idea is to cultivate a community of followers that is so loyal that they want to own a piece of the brand for themselves. This approach is especially well-suited to B2C businesses.
We have seen this approach work in our own client base, as well as in the broader market. Among our clients is the consumer company HYLETE. Ron Wilson, HYLETE co-founder and CEO, was generous enough to let us pick his brain about his investomer strategy.
“Hylete is a direct-to-community brand targeted at the lifestyle of functional fitness with over 100,000 customers and over 255,000 followers on various social media platforms; designing and building men's and women's premium performance apparel, footwear, and gear. Hylete does this with the support, input, and feedback of the ‘Hylete Nation’ community; thousands of which are influential fitness professionals.”
Ron and the team at HYLETE are building a community—the “HYLETE nation”—that builds engagement through products, investment, and the fitness lifestyle. They cater to their “investomer base” by providing low investment minimums and exclusive product discounts for investors. Theoretically, the most voracious customers would be able to see a cumulative discount on product purchases that exceeds their initial investment.
We have seen a similar approach in the market from other successful consumer brands including the craft brewer BrewDog. From their website, BrewDog describes their community as “Equity for Punks”.
“BrewDog is an alternative business owned by thousands of people who love craft beer. They are our shareholders, our friends, our community and the heart and soul of our business. At BrewDog, our philosophy has always been to shorten the distance as much as possible between ourselves, and the people who enjoy our beers.” - BrewDog Website
In an interview on BBC’s Today, BrewDog’s founder, James Watt summarized his strategy succinctly: “For us, it's not just about raising finance - it's about building that culture and community around what we do… Investors are also our best customers, we get feedback from them - they play a part in the running of the company.”
There are a couple of key elements that brands like HYLETE and BrewDog have in common that seem to support the community aspect of their investomer strategy:
A Large, Engaged Customer Base
Plenty of companies have lots of customers, but not all of them have a community of fans. Both HYLETE and BrewDog have tens of thousands of customers. They have utilized social media and other platforms to connect those fans both with the brand and with each other to build a community. And a portion of those communities are engaged enough to consider becoming shareholders.
A Secondary Goal
While the primary goal of any capital raise is obvious—to raise capital—some businesses see secondary benefits. A call for capital not only attracts those who already know about the company, but, with good press and marketing, it can also attract strangers. If a large, engaged customer base serves as a way to turn customers into investors, good press and marketing can turn potential investors into customers.
For example, BrewDog may raise capital from thousands of individual investors who each pay at least $50 for the privilege of becoming a "punk," or member of the community. If the proceeds from the capital raise just cover the cost of the raise, then companies like Brew Dog have effectively just added thousands of members to their community of deeply engaged current and potential customers—for "free!”
Of course, these issuers have to be careful that the offering does not become a gimmick. These are securities first, with all of the regulations and responsibilities that entails.
A Regulation A (Reg A+) Offering
The investomer approach fits nicely with a Reg A offering, which allows for investment from both the general public and accredited investors. As a result, the investomer securities offerings tend to have a relatively low minimum investment, as to ensure that investing is approachable and feasible for their fans, very few of whom may be accredited. Regulation A provides the easiest route to raising capital from the public without the high cost and administrative burden of a traditional IPO or the restrictive $1 million maximum raise of Regulation CF (crowdfunding). Both HYLETE and BrewDog have pursued Reg A offerings.
Technology and Compliance Services
One of the hardest parts of a successful Reg A offering is figuring out how to efficiently process a high volume of investors. With low minimum investments, a Reg A offering can attract thousands of investors. Verifying and processing them manually is extremely difficult.
That is why savvy issuers turn to technology and compliance solutions. Enlisting the help of a broker-dealer can not only help with the processing of investors, but also can ensure that the offering is compliant with state and federal securities regulations.
Some broker-dealers, such as WealthForge, even offer integrated investment workflow technology solutions to compliment the work of their compliance team. This helps automate the process, allowing for more efficient transactions and cutting subscription time down to mere minutes.
HYLETE has engaged WealthForge to provide transaction processing technology and broker-dealer services for its Reg A offering.
Are you considering a Reg A capital raise?
Read our whitepaper, The Risks and Rewards of Regulation A:
Regulation A security transactions involve a high degree of risk and are not suitable for all investors. They are illiquid, may have a long hold period, and may result in the loss of invested principal.