For inexperienced investors looking to back private companies, a business they already patronize as customers can be an attractive target.
Pearachute, the Chicago-based kids’ activity booking platform launched last year by GiveForward founder Desiree Vargas Wrigley ⇒, found parents who use the service raising their hands to invest after the company used a Portal called Republic to launch an equity crowdfunding campaign.
Equity crowdfunding allows startups to raise cash from nonprofessional investors who get a stake in the company. It’s a step beyond earlier crowdfunding models, popularized by Kickstarter and Indiegogo, that let businesses offer perks and products in exchange for funds.
Investors with an annual income or net worth of at least $100,000 can invest up to 10 percent of the lesser of those, up to $100,000, in a 12-month period, according to Securities and Exchange Commission rules. Those who fall below that mark can invest the greater of $2,000 or 5 percent of their annual income or net worth in a 12-month period.
With a little more than two weeks left in Pearachute’s campaign, 195 investors have put in about $153,000, and the company has raised the limit on how much it will raise to $250,000.
But Vargas Wrigley said funding isn’t all she’s after in this process.
“The cash is nice for sure, but the real reason for the campaign is we wanted to a way to bring our partners into the outcome of the business,” Vargas Wrigley said.
Funding tiers for Pearachute run from $25 to $25,000. As with any investment, there’s a risk investors may not get their money back. But if Pearachute goes public, is sold or merges with another company, their stakes would convert to shares whose price is based on the company’s valuation in this round, $7 million.
Already, Vargas Wrigley has raised $1.2 million in venture capital to support Pearachute and is in the process of raising a bridge round from professional investors, she said.
Her company, which is live in Chicago, Dallas and Kansas City, lets parents and caregivers book one-off classes and activities for kids, with 350 partner locations across the three cities, she said. Vargas Wrigley said Pearachute benefits those partner businesses by sending customers their way, albeit at a discounted rate.
Vargas Wrigley said she was surprised by how savvy potential investors were in their questions, as well as in the discussions they held in the comments of the campaign page.
Allie Forsberg, a mother of two who lives in Wrigleyville and works in sales at tech company Tapjoy, said she and her husband, who works in finance, decided to invest $25,000 in Pearachute. As parents, they had been Pearachute members for nearly a year and subscribed to its unlimited plan at $129 a month.
Forsberg said she received an email blast from Pearachute announcing the investment opportunity, and had seen social media ads as well. She found out she shared mutual friends with Vargas Wrigley, so she met the founder for coffee and came away impressed.
Forsberg said she was already interested in investing in private companies and liked that $25,000 would get her a lifetime unlimited subscription for up to four children. But perhaps more importantly, she’ll get to join a board of advisers.
“Somebody mentioned to me that it was like (earning an) MBA in real life,” Forsberg said. “Having an opportunity to … look at how something goes from a startup to, hopefully, the next level, that to me was really what was exciting and interesting.”
Pearachute also has a formal board of directors, led by Chicago entrepreneur and investor Sam Yagan ⇒. But through the advisory board, Forsberg hopes to remain involved with the company and provide her professional perspective on digital advertising and the mobile app experience.
Alina Pitman, a Chicago mother who takes her 13-month-old daughter Dylan to three Pearachute classes a month, said she invested $5,000. That was an amount she said she would be OK with not getting back if the investment fails.
Pitman, like other crowdfunding investors who backed Pearachute, did her homework. The first-time investor and director of engagement for a global consulting firm evaluated Pearachute’s competition, its financials and Vargas Wrigley herself.
She said she was already planning to invest in Pearachute, but became more sure of how much to put in after meeting with Vargas Wrigley. The founder’s track record was a positive for Pitman, who was impressed by how far Vargas Wrigley took medical crowdfunding site GiveForward before leaving to start Pearachute. But more than that, Pitman liked Vargas Wrigley’s plans to expand the company’s footprint and offerings.
For example, Pitman said she and her wife were happy to learn Pearachute plans to introduce options for planning birthday parties, an experience they recently went through and found frustrating.
“You want somebody that’s going to have the right vision to take it to the next level,” she said.
Samantha Edwards, who moved to Chicago, got married and had a baby last year, said she sees an absolute need for Pearachute as a parent who wants to get her 8-month-old son James into as many classes as possible.
Edwards, the co-founder and chief creative officer of a creative and digital agency called The Charles, said she had participated in friends and family investing rounds before, but this was her first experience with equity crowdfunding. She invested $10,000 — enough, she said she thought, for a decent return in an exit — but also worth it for the lifetime unlimited subscription, even if she never makes back her investment.
She said Vargas Wrigley’s track record wasn’t a deciding factor. For Edwards, what was more important was her experience as a Pearachute customer and the quality of the product.
“I was interested enough in the company,” Edwards said. “For me it was less about the founder, and more about future growth plans and the product itself.”