Airbitz, BitPay, and Wefunder leverage bitcoin and new US crowdfunding regulation

Equity crowdfunding platform, Wefunder, recently started accepting bitcoin. On the same day, popular bitcoin mobile wallet provider Airbitz announced the launch of its campaign on Wefunder to raise US$1 million.

This historic first for bitcoin crowdfunding was made possible when the U.S. Securities and Exchange Commission (SEC) completed the Jumpstart Our Business Startups (JOBS) Act mandates. Eligible companies have been allowed to raise capital under the new regulations since May. The JOBS Act was originally passed in 2012, over four years earlier.

The law encourages funding for small businesses in the U.S. by easing various securities regulations. Offers and sales of securities must be registered with the SEC under the Securities Act of 1933, unless an exemption from registration is available. Title III of the JOBS Act provides an exemption for certain crowdfunding transactions, and the Commission created Regulation Crowdfunding (Reg CF) to implement the requirements in 2015.

In order to claim Reg CF exemption issuers can only raise up to $1 million within a 12-month period, and have to file Form C with the SEC. The form includes various disclosures such as financial statements, alongside details of directors, officers and shareholders with more than 20 percent voting rights. In addition, individual investors can only invest up to a certain amount based on their annual income or net worth.

“Each Regulation Crowdfunding offering must be exclusively conducted through one online platform. The intermediary operating the platform must be a broker-dealer or a funding portal that is registered with the SEC and FINRA.”
— – SEC

Taking advantage of the new regulation, Wefunder recently launched ten new Reg CF offerings in what the company called, “The biggest one-week bump in offerings since the legislation took effect.”

Wefunder was founded in 2012 and offers crowdfunding services for startups and small businesses. According to its website, Wefunder Portal and the Third Party Funding Portals are registered with the SEC and are members FINRA.

The company claims to be the largest Reg CF platform by dollars funded, successful offerings, or number of investors. 77,261 investors are currently registered on the site. The company has helped funded over 134 companies, including bitcoin ATM manufacturer BitAccess. While it is free to register, there is a $195 fee for fundraising.

According to leading bitcoin payment service provider BitPay, which works with Wefunder to process bitcoin payments, non-US investors currently have to rely on bank wire transfers. The September World Bank states that bank wire transfer remains the most expensive way to send money abroad, averaging 11.18 percent.

Wire transfers involving a bank outside the US may also require an intermediary US bank, and each bank can charge a fee. International wire transfer take 2-5 days. “Bitcoin presents a big opportunity for equity crowdfunding platforms,” states BitPay. Both Wefunder and companies listed on its platform will “Gain a better way to reach international investors and the bitcoin community around the world.”

“WeFunder is the first equity crowdfunding platform to accept bitcoin, but it’s also an early leader in the regulated crowd equity space.”
— – BitPay

This historic event would be incomplete if not for the first bitcoin company to launch a campaign utilizing Title III. Founded in 2014, Airbitz offers a feature-rich bitcoin wallet made for mobile platforms. The company has continually expanded its services, which now include buying and selling bitcoins from inside the wallet, a merchant map listing, a merchant processing service, a discount gift card service, and Edge, their single-sign-on security app for external blockchain apps and services.

Airbitz is raising the maximum allowed by the SEC Title III on Wefunder, US$1m. The minimum investment amount for individuals is $300. Wefunder charges investors up to 2% of their investment, according to the platform’s website, “We also charge the company up to 4% of their total funding volume.”

The company is using a Simple Agreement for Future Equity (SAFE), with a valuation cap of $10 million. Valuation caps reward early investors more for the extra risk, “If you invest, you’re betting the company will be worth more than $10M in the future,” states Airbitz. As an added incentive, Airbitz has lowered their valuation cap to $7.5 million for investors who fund the first $250,000. At press time, approximately $31,000 has been raised.

“The campaign will accelerate progress towards the creation of secure, user-friendly, decentralized applications,” said Paul Puey, Airbitz CEO and co-founder. ”We very much intend and aim to be profitable in Q1 of 2017.”

“As of today 90% of our revenue comes from our Whitelabel partners and the other 10% comes from our Plug in services.”
— – Paul Puey, Airbitz CEO

The company previously raised approximately $825,000, $350,000 in 2014 and $475,000 last year. Airbitz claims that over 100,000 of their wallets have been installed, with 300 added every day. They also claim that two high-profile B2B customers are using the Edge security platform.

Airbitz Edge decentralizes security risk. The platform includes the Airbitz wallet and a software development kit for websites and apps. The campaign page explains that large enterprises usually store user information on globally accessible central servers, which is a very lucrative setup for hackers. “In one breach, hackers can obtain valuable, sensitive information from millions,” Airbitz states.

A June 2014 report by the Center for Strategic and International Studies (CSIS) and McAfee estimated the global cost of cybercrime at $375 billion, but it could be as high as $575 billion. Last May, Juniper Research suggested that the cost of data breaches will increase to $2.1 trillion globally by 2019, about four times the estimated cost in 2015. “Hacktivism has become more successful and less prolific – in future, Juniper expects fewer attacks overall, but more successful ones,” Juniper says.

Installing Edge gives apps and websites an instant authorization solution, where users can gain access to services by scanning a barcode with their Airbitz wallet. Edge also offers website and app developers automated password recovery, automatic account backup, and account synchronization across the various devices the user owns.

By encrypting user data in a way that cannot be accessed without the wallet running on the user’s mobile phone, there is nothing online worth stealing, only fully-encrypted data. “A hack on a user’s device yields only the data of that one user vs millions of users,” Puey explained, The incentive to attack systems running Edge is therefore “reduced by orders of magnitude.”

“Airbitz will empower users to secure their own data without relying on the trust of centralized organizations,” said Puey. He and his team have built a security model to ultimately protect end-users that is, “Robust enough to handle the storage, backup, and synchronization of sensitive data.”

“By turning money into data, bitcoin enabled a wave of never-before-seen opportunities.[…] Airbitz created a shift towards decentralized security & put users in full control of their data without trusted 3rd parties.”
— – William Swanson, Airbitz Chief Architect