When John Wu looked to raise up to $10 million for his San Diego startup that helps parents manage screen time and keep their kids safe online, he didn’t go the traditional venture capital route.
Instead, he opted for a less common fundraising vehicle called a Regulation A — an equity offering mechanism that sprang out of the Obama administration’s JOBS Act to give everyday investors the opportunity to put money into startups.
“We have tens of thousands of customers who love our product, so this is a good way to leverage that to do a raise,” said Wu, co-founder and chief executive of Gryphon Online Safety. “And another benefit is you are building your brand. You’re able to reach a wider community with the right game plan.”
Although Reg A and its sister JOBS Act vehicles have been around for years, they have been considered fringe funding sources, used mostly by startups unable or unwilling to pursue traditional venture capital, said Neal Bloom, managing partner of Interlock Ventures who is heavily involved in the San Diego startup scene.
But that could change if more local firms are successful in regulation crowdfunding campaigns, he said. GroGuru, which provides irrigation management software to farmers, is currently seeking to raise $3.9 million through regulation crowdfunding on the StartEngine platform.
“It is probably not preferred but it is a vehicle,” said Mike Krenn, head of Connect/San Diego Venture Group. “And for companies like John’s where it is an easy-to-understand product, I think it makes some sense. It is a cool product that people can touch and relate to.”
Founded in 2014, Gryphon makes Wi-Fi routers with baked-in security and finely tuned content filtering. From their smartphones, parents can block inappropriate websites, view their children’s browsing history, suspend access to social media during homework hours, shut off the Internet at bedtime and enforce safe search features on web browsers across multiple devices.
With its new HomeBound mobile app, all the content filtering, encryption and data privacy capabilities found on the routers continues even when a child’s smartphone is connected to the cellular network or public Wi-Fi hotspots.
Other home router companies also provide content filtering and malware protection. But Wu contends Gryphon’s service is easier to use and delivers more granular controls to patents or business owners. The whole home Gryphon Tower route costs $209, while the smaller Guardian sells for $99. A year subscription to its content filtering/security suite costs $79.
Gryphon Guardian
(Courtesy of Gryphon)
For startups, Reg A and other JOBS Act crowdfunding can be a quicker way to raise money. Moreover, founders maintain control, which isn’t always the case with venture capital deals.
But startups also must disclose a significant amount of financial data and risk factors to potential investors — akin to a mini-prospectus for a public stock offering.
Gryphon’s unaudited revenue increased 95 percent to $3.3 million last year, according to its latest filings with the U.S. Securities and Exchange Commission. It has sold more than 25,000 routers to date.
But the company also lost $1.54 million in 2020. Audited financial statements say its lack of sufficient cash flow and history of losses “raises substantial doubt about the company’s ability to continue as going concern.”
Before founding Gryphon, Wu was one of the inventors of the MiFi mobile hotspot. To date, Gryphon has raised about $5.8 million in angel and seed funding prior to this latest $10 million Reg A campaign.
The new fundraising effort launched on the SeedInvest platform about two months ago. So far, nearly 800 investors have committed $2.84 million to own Gryphon shares. The campaign is ongoing.
“We are one of few companies in San Diego successfully utilizing the Reg A+ equity crowdfunding, and I hope we pave the way for more promising startups to utilize this as another means of funding their ventures,” said Wu.
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San Diego startup Gryphon ignores stigma, opts for equity crowdfunding over venture capital - The San Diego Union-Tribune
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