The Dark Secret of Crowdfunding

The Dark Secret of Crowdfunding

When we first started exploring crowdfunding as a mission-aligned way to raise capital at the beginning of this year, we spoke to many people who said things like:

Before I high-key rant about what these people are saying...

First Things First: What’s a Valuation?

Plain and simple, according to Investopedia: valuation is the analytical process of determining the current (or projected) worth of a company.

Because companies are complicated things to set a price for, “valuating” your company (aka setting a market price), can be a very complex process.

That said, there are some tools and shortcuts. “Multiples of revenue” is one of them.

In the Consumer Packaged Goods (CPG) sector, the multiples are generally 3-5x run-rate revenue (run-rate = annualized revenue).

So, if your company was on track to do $1M of business this year, then it would be worth $3-5M, as a rough general guideline.

The determining factors on whether it’s $3M or $5M come from a variety of factors, including subscription focus, customer retention, distribution channels, mission/impact, founder track record, and more.

And of course, there are outliers in acquisitions (when a company buys another company outright), and we’ve seen some wild ones in the last year—I’ve seen an 8x, a 9x, an 11x, and even a 13x!

CPG is a POPPIN’ space right now, and the valuations are an indicator of that.

Valuation is what determines how much of the company you own when you invest.

if you invest $1000 and the company is worth $1,000,000, you own .1% of the company.

If you invest $1000 and the company is worth $10,000,000, you own .01% of the company.

The Dark Secret of Crowdfunding

That 3-5x multiple is on the capital markets, ie when you’re shopping your business around to institutional capital—angels, VCs, investment banks, etc....meaning, people who know.

The problem with crowdfunding is that an unfortunate number of companies take advantage of everyday people who don’t have the kind of knowledge that, “Oh, most CPG businesses go for 3-5x and there’s also some moderately absurd valuations happening this year particularly.”

We have seen companies crowdfunding at 8x valuations...

10x...

15x...

...even 20x revenues...

We have even seen companies that are “pre-revenue” (ie have never sold a single thing, and haven’t even proven they have a business that works) asking for higher valuations than Rasa.

We see this as blatant and unethical taking advantage.
(Or as my British bestie would say, “Taking the piss.”)

I spoke with the founder of one company—that had roughly the same revenue as we did—who told me, “We didn’t want to do that whole ‘jack up your valuation’ thing that you always see in crowdfunding, so we went with a 10x multiple.”

10x was their version of not jacking up their multiple!! 🤯🤯🤯

We decided from the day we launched that we would always price Rasa at defensible valuations, no matter the market.

Our current valuation is 5x run-rate revenues, which we earn because we have incredible customer retention, 50% of our revenue comes from subscriptions and a whole host of other drool-worthy e-commerce KPIs (Key Performance Indicators).

Ie: if the IRS came to Rasa and asked us to defend our 5x valuation, we feel 100% confident we could do so, with substantive documentation.

One advantage: it’s allowed us to bring` in value-added “in the know” investors, such as the founder of a 9-figure Brazilian beauty website. If we were charging an absurd valuation, there’s no way in hell would we get experienced people like him!

Valuations: They Grow as We Grow!

When we priced Rasa at $25M (5x run-rate revenues), that was in July 2021. Since then, our subscriber cohorts have strengthened, we’ve opened new advertising channels, commenced the hiring process for 5 critical hires, and closed out October at a $5.4M run-rate as we gear up for our high season (Q4 & Q1). We will almost certainly close out the year at at least a $6M run-rate—which would be a $30M valuation at a 5x multiple, bc #maths.

Our experience each year is that we see a significant leap in revenue from Q4-Q1, and that leap becomes our new baseline.

And, as we gear up for Black Friday Cyber Monday, the other reality is that our team doesn’t have the bandwidth to manage holiday fun-time and crowdfunding.

So yep, this all leads to—we are beginning the process of closing this round! We will be closing it on Monday, Nov 15th at 11:59 pm Mountain. After that time, you won't be able to invest any further at the $25M valuation. Will re-price Rasa based on our new run-rate and launch a new crowdfunding opportunity in Q1.

That also means if you do invest, your share value will go up accordingly—if you own $100 in Rasa now at $25M, and the value of the company goes up 25%...so too do your shares! 🎉

Invest while you can!


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