Jet.com Crowdfunding Model Just Turned Referrers Into Millionaires

When Jet.com founder Mark Lore decided he wanted to take on e-commerce giant Amazon, he knew he would need to take a non-traditional approach.  So Mark decided to use an atypical form of crowdfunding to get the word out as broadly as possible.  The Jet.com team creatively launched a program called Jet Insiders, offering 200,000 shares of Jet.com to those who referred the most people to signup.  The program was a huge success for Jet.com as well as for the most active referrers.  Jet.com was able to acquire 350,000 users ahead of even launching, and the top referrers just became millionaires from simply supporting the company early on.

One of Jet.com's early backers, an insurance agent based in Pennsylvania named Eric Martin, received 100,000 shares in exchange for referring the most people to Jet.com.  At the time, Eric disclosed that he spent just $18,000 on online ads in order to drive Jet.com signups.  As a result of the recent Walmart acquisition of Jet.com for $3 billion, Martin's share is now worth a reported $20 million.  That represents an 1,111x return on investment in just 1.5 years and a staggering 10,674% IRR. Nine other backers received 10,000 shares each and they will all walk around with a reported $2 million each.

The Jet.com story is full of lessons for large public companies, startups and investors alike.  Large corporations will need to launch additional innovation-focused initiatives, which position them to acquire the most disruptive startups as early as possible in those startups' development.  The fact that Jet.com was able to build a company worth $3 billion in just two years shows how critical it is for potential acquirers to initiate conversations with promising startups early on.

APPLE is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells AAPL? Learn more now.

Tech companies in particular are sitting on record amounts of cash with the top six sitting on an astonishing $480 billion:

  • Apple - $200 billion in cash and cash equivalents
  • Microsoft - $105 billion in cash and cash equivalents
  • Google - $75 billion in cash and cash equivalents
  • Cisco - $60 billion in cash and cash equivalents
  • Facebook - $23 billion in cash and cash equivalents
  • Amazon - $16 billion in cash and cash equivalents

For startups, more of them should consider following Jet.com's strategy of crowdfunding, but through more traditional means.  The two largest challenges for startup founders are almost always raising capital and getting the word out.  

ALPHABET is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells GOOGL? Learn more now.

Recent changes enacted as a result of The JOBS Act enable startups to invite large amounts of backers to invest small amounts.  This enables startups to not only raise capital efficiently but also to get the word out broadly through backers like Jet.com.  

CISCO is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells CSCO? Learn more now.

For investors, the Jet.com exit illustrates the massive potential returns associated with investing in the right startup early in its infancy.  Emerging platforms such as SeedInvest enable investors to invest as little as $100 in startups for the first time.

FACEBOOK is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells FB? Learn more now.

Wal-Mart and Amazon investors will be watching closely to see whether the acquisition of Jet.com and equally importantly, the acquisition of Jet.com CEO Mark Lore, will help Wal-Mart to keep Amazon's growing e-commerce dominance in check.  

It was an expensive play by Wal-Mart but one that might ultimately prove necessary. Meanwhile, Amazon continues to dominate e-commerce with no signs of slowing.

This article is commentary by an independent contributor. At the time of publication, the author held positions in APPL and GOOGL.

More from Investing

Bitcoin Today: Prices Come Off Highs as Rally to $10,000 Pauses

Bitcoin Today: Prices Come Off Highs as Rally to $10,000 Pauses

10 Key Takeaways From Facebook's Fear-Reducing Earnings Report

10 Key Takeaways From Facebook's Fear-Reducing Earnings Report

Abercrombie & Fitch CEO: We Aren't the Same Abercrombie You Once Knew

Abercrombie & Fitch CEO: We Aren't the Same Abercrombie You Once Knew

Amazon Wants to Use Your Car as a Mobile Warehouse - Here's What That Could Mean

Amazon Wants to Use Your Car as a Mobile Warehouse - Here's What That Could Mean

Ford Beats on First Quarter Earnings, Says Turnaround Well Under Way

Ford Beats on First Quarter Earnings, Says Turnaround Well Under Way