Adam Torres and Woodie Neiss discuss crowdfunding.
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Show Notes:
How does Regulation Crowdfunding differ from traditional funding methods? In this episode, Adam Torres and Woodie Neiss, Partner at Crowdfund Capital Advisors, LLC, explore the pros and cons of crowdfunding and what business owners and investors need to know.
About Woodie Neiss
Woodie Neiss co-authored the “Crowdfunding Exemption Framework,” which became the basis of Title III of the U.S. JOBS Act to legalize equity and lending-based crowdfunding. He is at the forefront of the crowdfunding industry, from issuance to data analysis to secondary trading and liquidity. He co-founded Crowdfund Capital Advisors (“CCA”), a consulting firm serving certain governments and multi-lateral organizations, including the Inter-American Development Bank, the World Bank, governments of Chile, Malaysia, Israel, and the UAE, professional investors, crowdfunding professionals, and the entrepreneurial community. He is also a co-founder of GUARDD, the EDGAR of financial disclosures for private companies, and is a General Partner of D3VC, a Venture firm focused on diversified investing among investment crowdfunding issuers. Co-authored the World Bank’s research report “Crowdfunding’s Potential for the Developing World,” the MIF report “Creating a Crowdfunding Ecosystem in Chile,” and “Crowdfund Investing for Dummies.”
He is the chief architect of the CCLEAR Regulation Crowdfunding Database, which tracks and monitors online security transactions for investors, regulators, platforms, and the media. He is a co-founder and former board member of the Crowdfunding Professional Association and the Crowdfunding Intermediary Regulatory Advocates. Mr. Neiss was selected as a recipient of the Crowdfunding Visionary Award and Crowdfund Beat’s Person of the Year. VentureBeat listed Mr. Neiss as one of the most influential thought leaders in crowdfunding. Before crowdfunding, Mr. Neiss co-founded FLAVORx, Inc., acted as its chief financial officer, and won Ernst & Young’s Entrepreneur of the Year award, as well as the Inc. 500 award three years in a row.
About Crowdfund Capital Advisors
Crowdfund Capital Advisors is a crowdfund investing advisory firm founded by Jason Best and Sherwood Neiss, the leaders of the investment crowdfunding movement. CCA provides comprehensive advisory solutions for both the public and private sectors—that enable their clients to achieve maximum results. As part of the team that led the fight to make crowdfunding legal, and through their ongoing work with the SEC, FINRA, crowdfunding platforms, and industry leaders, They can help you succeed in this new era of financing in a way that few can match. They work with a variety of groups, from professional investors, crowdfunding platforms, and professional services firms to governments and entrepreneurs.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest in the show, just head on over to missionmatters. com and click on be our guest to apply. All right. So today’s guest is Woody Neese, and he’s a partner over at CrowdFund Capital Advisors.
Woody, welcome to the show. Hey, it is great to be here on Mission Matters. Excited to talk about crowdfunding. All right, Woody. So I understand you got a keynote coming up, right? For the REG A and crowdfunding conference held by Dioflolo Events. I know that’s how you made your way over to us. So, so talk to me.
Are you excited for the conference? I’m super excited about the conference. You know, crowdfunding hasn’t It’s been around for terribly long, particularly the investment side, and to see the growth that’s taken place in just the past seven years and see these conferences come in, I think it’s just a great way for us to get the message out there.
How did you initially interested and or excited about crowdfunding? Like, like, how did it suck you in? I, you know, I had started a business that was venture capital funded, but the entire time I was out there raising money, I always wanted to raise money from our customers but I couldn’t because they weren’t rich.
And only rich people can really invest in startups and small businesses. Thanks to laws that were written 80 years old. So I sat down with two friends of mine after I sold that company, we wrote a framework for What became regulation crowdfunding. I was living in Washington, D. C. At the time did the lobbying on Capitol Hill testified in front of five U.
S. House and Senate panel committee hearings and really ushered this through Congress. If you can believe it. And we were invited to the White House by President Obama for the bill signing ceremony and really launched this entire industry. Why were you such an advocate from the beginning? , like, talk to me about that.
Like,, why this stick out to you so much? I feel like there’s a missed opportunity in the fact that we can’t turn to our friends, family, and customers and say to them, listen, you see what I can do in terms of building a business, you know what I can achieve in terms of putting my head , and trying to achieve something.
Why not put your money where your mouth is? Like I am putting my time and energy and money myself and collectively I can use Your voice to help amplify my message and grow this business. And so I was always frustrated with the fact that I couldn’t do that. And so that was, that’s what drove me to create this framework.
Which is now inserting itself really after, individual starts a business and before you go out for angel or venture funding. Now, we’ve created this entire whole, , ecosystem that really filled the void. If you, if you recall, like a lot of people talk about the valley of death, which is where companies run out of money before they can access venture capital.
And that’s usually starts at 25, 000 of someone’s personal capital. And they’ve tapped that out. And then it goes to 250, 000 where people are like, you know, VCs really don’t go below that angels. Yeah, they start to play in that space, but between, , 25, 000 and 250 people were, , out in the cold.
And so this really was meant to fill that void, but it’s taking on a much bigger role in the sense that it’s now become a stepping stone to angel NBC funding. Let’s let’s go further down that and maybe juxtapose it a little bit. So how does regulation crowdfunding differ from some of the traditional funding methods?
Yes. So the beauty about this is, is it allows you to take money in from both retail and accredited investors. Before, like I was saying, you could only use your own money or you can go to rich people to access them. Now anyone can invest in these companies. The thing that makes it different is we created a regulatory structure under which you can go out and raise this capital.
So you can’t just go to anyone and say, Hey, invest in my business. You actually have to do it on these online investment platforms. People have to be given disclosures about, you know, your company and what you’re trying to do, why you need this money, the valuation of the company. And the beauty about it is.
Because it takes place online, there’s a digital footprint there. So if you say anything that’s misleading, it can come back to haunt you. So that’s why there’s been only one case of fraud in it, but investors have access to all this information and they can talk about it openly. And I love that part of this because when you look at these deals that are taking place and there’s 8, 500 of them that have happened now you go on to these websites and you look at these deals and you go to the comment section, you might not know about biotech or
just so many different things, but someone on there is asking these questions that’s helping you understand. Is this a good investment that you should be making? And so you mentioned and we started this interview and you mentioned that there’s been such explosive growth like over the seven years or so since you started in this and it’s become and it’s been available really.
Talk to me about that growth. Like, do you think there has been so much growth? Yeah, you know, when we left the White House Karen Kerrigan, who was our chief champion and advocate in Washington DC, and she runs the Small Business and Entrepreneurship Council, she said, you know, Woody, it’s going to take five years for anyone to really know what investment crowdfunding or regulation crowdfunding is.
But after that, it’ll be like health savings accounts where everybody learned about it. Now everybody has one. And so we’re seven years into this and it took that first five years for the industry to raise a billion dollars It took 18 months for the next billion dollars to come in and we’re probably going to be about 12 or 13 Months before the third billion comes in and I think it goes to what Karen was saying is something launches , nobody knows about it.
So it’s been taking a lot of The industry getting out there, spreading the message, spreading the awareness. But the thing that’s really been helping is, , when you invest in companies and startups in particular, VCs do, they do it with this like seven to 10 year horizon under which they want to exit the business.
We’re in that seven to 10 year period now where the companies that were in the first vintage in 2016 of these offerings are now having exits. And I think that creates the excitement that we’re looking for because People that invested in it back then, and mind you, these are average Americans, people that, you know, your average Joe they’re, they’re starting to make money off of it.
And so that’s coming back. And these are the stories I think that the media, the general media is going to start to pick up on, which will bring more awareness to it, which will actually increase the velocity of not only investors into the space, but entrepreneurs looking for capital. And I think we’ll really start to see things take off.
So I want to take this next question, maybe from two different angles here. Let’s start, I guess, exploring from the company or the business owners point of view. And then maybe we can think about it from the investors point of view. So from the business owners point of view, what are some things they should keep in mind on crowdfunding route and if it’s going to be right for them?
Yeah, I’ll tell you right off the bat. You cannot crowdfund without a crowd. So, if you’re thinking, you know what, I need to raise a couple hundred thousand, a million dollars, up to five million for my business. This isn’t a fishing expedition where you go out to a pond and you throw , a net out there.
No fishing. You’re straining, you catch some fish. No! You literally have got to, this is just a new way to do a very old thing. And so what we’re doing is applying technology to capital formation. So you need to actually have your investors lined up. You need to have your crowd there. So this works really well for businesses that are past prototype stage.
Businesses that have an engaged audience. They don’t have to necessarily be active customers. That does help, but people that have seen what you’ve been doing, because they’re going to be the ones that are the investors. So,, I tell people, , can’t crowdfund without a crowd. That’s the most important thing.
The second thing is, is. Putting these offerings together takes time and energy and money. You’re going to have to have a team of people working with you to get the disclosures together. You need to have financials, which in many cases need to be reviewed by a CPA firm, or in some cases they need to be audited.
So this is not something you can really just do on your own. You have to do it with a team. And part of this is, It’s a marketing endeavor. Raising capital is , it’s not just about, , getting checked in. It’s about getting a message out there. And that’s like a really, really critically missed component of this when I talk to a lot of entrepreneurs, which is when you’re offering goes up.
That’s where the work begins. Like you thought you were done. No, you’ve got to do social media posting. You’ve got to email your contact list. There’s just a ton of work that you have to do in that capacity to make sure that people are coming to your offering page. And so,, I tell people all the time, keep that in mind, because it’s going to take a team to get it done.
And it’s just a lot of hard work to raise money. It’s never easy. But this sort of streamlines that process. And does any campaign stick out to you? Like you’ve been watching this industry for a long time, like that went well. Like, did anything stick out to you? Yes. So there’s some really, really cool ones, but you know, the thing that blew my mind about this thing is when we were walking the halls of Congress, I was thinking, okay, this will probably be great for, , software technology type companies.
I can see on the debt side, it would be really good for the peer to business, P to B type of thing where you’ve got these main street companies that just need some like a hundred thousand dollars, their cash flowing entities. But whoa, I mean there’s been over 500 different NAICS industry codes that have received funding and it does not matter like You know i’ve told you before you could be in biotech.
You can be software It’s just the whole spectrum of companies that are getting funding is blowing my mind away And I think that’s probably one of the coolest. Coolest aspects of it , is the broad spectrum of it. But there’s there’s so many different great stories. One of my favorite ones recently is a company called Boxable.
So this is like prebuilt prefab casinos. You go online, you can sort of go to their website and sort of structure it all out and they ship it to you and you can set this up in your backyard. So that’s how they started. Now it’s migrated to workforce housing. So how can we stack these things on top of each other?
I’m, I live here in Colorado. We need workforce housing up in the mountains. And so they’re building these, , massive buildings now based on these individual, , blueprint little casitas that , started and the company started their online funding journey. At a 42 million valuation, they graduated out of crowdfunding into Reg A but their latest valuation is 3.
4 billion, and they have not signed in public yet. So if you had put 25, 000 into them, it’d be worth over 2 million right now. Yeah, , that is an amazing story. And now, like, as I mentioned, let’s take that question kind of from the investor’s point of view for investors that now have this newfound power and opportunity to invest , in companies , what are some of the things they should be thinking about as they evaluate and think about whether it makes sense for them or not?
You can’t be swayed by what you see. You have to do the diligence and research that VCs tend to do it’s not going to be at the same level. These companies not quite at the complexity of big, large companies, but you need to make sure you understand the revenue model of a company. You need to look and see, have they, you know, actually sold some of this , it’s investing in companies where they are pre revenue, it’s the highest risk type of thing.
So. Do they have a prototype have people purchased it? So look for those things. Do they have cash on hand? What is their burn rate? I tell investors all the time, , there’s right now There’s about 450 active deals So if you’re out there, , you need to figure out where you’re going to look And you need to figure out what are the tools?
out there that can help you find the deals. So you need to use the tools that are out there that can help you find the deals that are in the area that you want to focus on. You need to look at the companies from a revenue perspective to see where you’re comfortable investing. Don’t invest in companies where the valuations are out of whack.
You would be shocked at what we’ve seen in terms of some beverage companies that have a million dollars in revenue, but a 115 million dollar evaluation like What are you thinking? Like nobody’s going to invest in you, but so you have to look at, , you’re an investor. You have to be smart about this.
I want to go in early. I want to go in at a low valuation. I want to see if this is the type of team that’s looking for an exit. Ask the question, , what is your exit plan? Because you want to get a feel for how they’re thinking about how they’re going to return that investment to you and take all that into consideration when you’re coming up with your investment strategy.
Mind you. Again, this is the highest form of risk in probably your entire portfolio. So don’t put all your eggs in one basket. You should look at like if 10 percent of your entire portfolio is alternative investments. Consider this in that 10 percent and it should be a fraction of that 10 percent that you’re putting in there.
And so how do you let’s kind of round this out with crowdfund capital advisors. Like, how does your data, like, how does this play a role , in the overall ecosystem of crowdfunding? Yes, so CCA, Crowdfund Capital Advisors sits in the intersection of 3 themes. 1 is data, 1 is venture, and 1 is liquidity.
And so we built this database that collects information on all the companies that are raising money online. It captures 8500 offerings by over 7100 companies. Deal after deal. We, we capture the financials over time and we do a ton of research and analysis. We’ve got a weekly care sheet. We’ve got a bi weekly report, a monthly report that digs into everything that’s happening in the entire industry so that the subscribers can see what trends are happening, where money’s flowing, which companies are receiving the most money on a monthly basis.
We actually cover a specific sector. Like AI or blockchain investment in crowdfunding. And so the, that’s like the data arm and that’s our, we call that C clear CCLEAR. We have a venture arm that believe it or not, we took all of the data and we sat down with three data science PhDs. And we said, if we can build an algorithm that’s machine learning, so we can constantly take in the new data that’s coming in, but look at the entire data set and look at the companies that have graduated out of it.
What can we tell from the signals of the companies that left and compare that to the companies that are coming in and see if we can come up with a methodology for ranking those companies that are new in the data set to see if they’re worthy of investment. And so our venture arm revolves around this algorithm that on a weekly basis feeds us the top deals that we should be looking at.
And so we do that through D3VC. Where, you know, we’re constantly looking at these deals and we’re investing in them and that’s, you know, our goal is to invest in 200 companies, 25, 000 a pop there and aim for higher returns because we believe if we can crack this nut, we figured out a way for institutional capital to now come down into this marketplace because, you know, the P2P marketplace really popped when institutional capital came in this industry regulated investment crowdfunding hasn’t had that pop yet because we haven’t had Institutional capital in there.
So if we can crack the net with this, , venture fund and this idea that we have with D3VC, we simply found a pathway for, institutional capital come in. And then the third arm is a guard. And this is where we focus on liquidity. So most companies, you have to wait until there’s an IPO, a sale, or a merger to get out.
But what happened with the jobs act in this legislation, legislation is we put a 12 month holding period on these securities, after which the freely transferable and that’s true for reg A securities as well. So what that means is if you’re an investor in one of these companies and they’re doing really well, you could actually list those securities now on an alternative trading system and get liquidity for it prior to an exit.
And so we facilitated the liquidity, the secondary trading. So CTA is like involved in all of that. What’s your plan for growing the company? Like, , where do you see this position long term? Because I love the way you’re positioned, by the way, to have those three different arms.
It’s really interesting because it seems it’s really balanced to me. I can see how, since you were there from the beginning, you had a lot of time to, Develop how you would be positioned in the ecosystem and how you wanted to add the most value. But do you see your position? Like how do you plan on continue to grow this thing?
I think there’s a a role to be played to usher in that institutional capital that I was telling you about. Yeah, so What i’m really trying to do is talk to the financial service, firms out there Help them understand what you know what this industry is how it’s grown so much You And, I’m telling them, like, you guys run the industry, like, the markets are your markets.
This is a subset of the entire markets. You will want to own this someday. And I will show you how to do that. And so a lot of the conversations I have are, , helping people understand and how they can play in this marketplace. Yeah, it’s interesting because it’s like when I try to think about what companies you, from the old, let’s say some of the old systems.
Okay. So like for the data and some other things, maybe like a Moody’s, a Bloomberg, like, like there’s all these different, but then you have the other part of the funding and then you have the other. So it’s kind of interesting. It’s definitely a a alchemy of sorts of different financial benefits and instruments there.
So. I see us a lot of similarities to different companies, but I haven’t really seen them all in one. And I think it’s interesting cause it’s all in this one niche and crowdfunding. Yeah, right. It’s exhausting. Yeah, I was gonna say I know it is. I’m like, oh my gosh. Yeah Yeah, I can see it though, but but it’s also it’s it’s fun from the standpoint of because it’s all in the same niche It’s all in crowd playing it’s all in this and like you’re in the it really is because even when I think about like I mean, way back when, before drip plans, right?
Stocks. So even with just stocks, if we go back far enough with like a drip plan or somebody being able to purchase and like being able to, that was giving, or Charles Schwab in the seventies or whatever exactly it was that he made online trading very possible for many, or when he started it back then, but like, all these different, , like these different things that allow accessibility to investments that becomes interesting, that becomes interesting for the market.
It gives people opportunity and lets people participate, right? Like, that’s the thing, like you said in the beginning, like, you didn’t necessarily have access to maybe some of these investments and you wouldn’t have been able to do it in the past. And then when you read about these, like the example you gave, all of those gains, assuming they could have gotten it through traditional methods or, and all of that would have happened.
That’s an assumption, right? Maybe they didn’t and they failed because they didn’t crowdfunding. We don’t know. But. Now there’s a lot of other participants in that financial gain and in that market. So I, I like the story as a whole. I just think it’s there’s any new thing or anything’s going to take time.
Like you said, seven years in and we’re just, you know, people are starting to understand what it is but long ways to go. It’s good. Yeah. Yeah. I mean, you know, and it’s not just about getting money. You got to remember all of these businesses are buying products and services and inventory and all that money is being pumped back into our economy.
So these companies hire people, they spend money, you know, they pay taxes. I mean. The opportunity for our economy in general is phenomenal. If you focus more attention on this in general. Yeah. Woody, if somebody listening to this and they want to learn more about a crowdfund capital advisors, CCA, how do they do that?
They can go to [email protected]. They can go to CCL, CCEA r.ai for data. They can go to D three vc.ai for our venture information, and they can go to GUR dd.com, guard.com for our liquidity tool. Fantastic. And for everybody listening, just so you know, we’ll put some links in the show notes so that you can just click on the links and head right on over.
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This is a daily show. Each and every day we’re bringing you new interviews and we don’t want you to miss a thing. And Woody, again, thank you so much for coming on the show and best of luck on your keynote. And I know one thing, you can definitely talk about crowdfunding, so I’m not worried about you.
Well, thank you so much, Adam. It was great to be here.