Equity Crowdfunding Week: How RegCF Helps Pre-Revenue Companies

Speakers

Oscar Jofre

CEO and Co-Founder

KoreConX

Oscar Jofre

CEO and Co-Founder

Oscar is currently one of the Top 10 Global Thought Leaders in Equity Crowdfunding, a Top 5 Fintech Influencer, Top 10 Blockchain and a Top 50 InsureTech. He has published an eBook that has been downloaded in over 20 countries, and been distributed by partners worldwide. Oscar is a featured speaker on Fintech, regulated, equity crowdfunding, compliance, shareholder management, investor relations, and transparency in the USA, Australia, UK, Germany, France, Netherlands, Canada, Singapore, Indonesia and China. He speaks to audiences covering alternative finance, RegTech, insurance, banking, legal, and crowdfunding. Oscar also advises the world’s leading research, accounting, law firms and insurance companies on the impact Fintech, RegTech, LegalTech, InsurTech and OrgTech is having in their business.

Len Lanzi

Managing Partner

Preccelerator

Len Lanzi

Managing Partner

William Stringer

Founder

Chisos

William Stringer

Founder

Len Lanzi: 00:22

Welcome, everybody. It’s nice to be here. Thank you all for attending. It looks like we’re getting close to wrapping up equity crowdfunding week. It’s been a dynamic week with lots of opportunities. And I want to commend the startup starter team for making this all happen because I know that it’s been a challenge and lots of opportunities. So good job to the team. And I guess we can just start here. 

 

My name is Len Lanzi. I am the managing director of the Preccelerator program at Stubbs, Alderton, and Markalies. We are a full-service law firm located here in the Los Angeles area. And the Preccelerator program is a division of the law firm. I think we’re the only law firm in the country that has an accelerator program. And we focus on pre-revenue tech startups and help them get their feet on the ground. And the timeliness of crowdfunding is always of interest to our portfolio companies and to the people that apply. So I’m happy to share some of the experiences that we’ve had at the pre-stellarator program and working with the crowd. So that’s who I am. William, why don’t you introduce yourself?

 

William Stringer: 01:41

Perfect, thanks, Len. Excuse me. So William Stringer, founder of Chisos, managing partner in Chisos capital. We invest in people, in individuals. So we’ve designed unique investment terms to provide early-stage capital to individuals that are starting businesses. Kind of coming in before angels before venture capital, can kind of think of us as friends and family capital. Our unique terms are a convertible income share agreement, which is kind of a debt-equity hybrid instrument that really allows individuals to leverage their future earning potential to raise capital. So we’ve invested in 15 companies to date. We’ve also built out an automated and semi-automated application process that starts online and is open to really anyone in the United States. So yeah, that, that’s what we do and kind of. Additionally, we are wrapping up our own campaign, our own crowdfunding campaign on Wefunder, that’ll be wrapping up next Friday. And so we sit in a unique position where we’re investors, but we’re also raising capital on using reg CF. So we can kind of see both sides of the CF marketplace. That’s Chisos.

 

Len Lanzi 03:08

Thanks, William. Oscar, why don’t you introduce yourself?

 

Oscar Jofre: 03:12

Well, I’m Oscar. There we go. My name is Oscar Jofre. I’m one of the co-founders of KoreConX. We have built an all-in-one platform end to end for the Reg CF, Reg A, and Reg D world. And most of our time is spent advocating for the sector so we can keep growing it, so we can keep expanding it, never losing sight of why we’re here. Which is the everyday investor who we help democratize and participate.

 

Len Lanzi: 03:48

Super, well, Welcome. I’d like to start off this morning with just kind of setting the table. And I was reading an article that I thought was very pertinent to our discussion today as we talk about starting a company with the intent of funding it either through the private markets or the crowd, or however we want to do that. But here, and this is from Fundera and some statistics on startup funding. 77% of small businesses rely on personal savings for their initial funding of companies. 33% of small businesses start out with less than $5,000 in funding. Only five out of 100 companies raise venture capital. Five out of 100. And if you take that a step further, those that actually get a funding round of venture capital, there’s less than a 9% success rate that they will actually end up building an enterprise. Startups with two co-founders have raised 30% more capital than they would if they were only one founder. I think that’s a really instructive statistic. 

 

So, just using that as a basis of, of starting. You know, when I look at early-stage pre-revenue startups, you know, these are the things that come up. How have you funded yourself so far? And what does that friends and family round look like? And that varies, that varies by startups, that varies by founders. If this, if you’re a serial entrepreneur, this is a non issue because typically, you have personal capital that you can start with. Most likely from your last enterprise. And most of the cases that I see, I’m not working with serial entrepreneurs. I’m working with first-time entrepreneurs, people who have an idea, people looking for funding. They’ve maxed out their credit cards, they’ve mortgaged their house, they’ve gone to friends and family. And now they’re coming and saying, We’ve spent all the money that we’ve raised, whether that be $25,000, or $5000, or $150,000. And now we need to raise money. But we don’t have an MVP. Or we haven’t done a market validation. So what do we do? And what are the solutions? And I think what this week has shown is that there are other solutions than going to a VC fund and asking, begging, cajoling for money. Because there are, you know. Crowdfunding has opened up this opportunity for more businesses to go out and raise dollars, as we’ve heard all week. So any comments on any of those kind of foundational statistics? To start with? Oscar?

 

Oscar Jofre: 06:45

Oh, yes, thank you. So, you know, because I’ve been involved with this. It’s amazing. I have to really reflect today, it’s gonna be the 12th year, and I’m excited. The energy I have to work today is the same it has been. And I remember 12 years ago, or even when it got launched, people were using words like “this is an alternative way of raising capital.” And what the statistics are showing us is that there is always going to be a pocket of companies looking for capital, at different stages. Whether it’s early-stage seed, and all that. But the measurement that we measure the success is where we are wrong. And this is the part that I think for entrepreneurs listening in, the measurement that everybody strives to is, if you don’t get venture capital, it feels like all you know what I’m going to do crowdfunding because that’s the only other option. And in fact, I. We are finally telling you today that your capital, it’s money, whether it’s venture capital, or this money is equally the same. And all you’re really doing is like any smart business if you see a market, and you go, okay, there’s 100, you know, potential targets. And there’s one market there that only represents 5%. And there’s an open market 95%, of course, you’re going to go after the greater market. And I think that’s the way you got to look at it. There’s 95% of the market open for you whether you want to raise $10,000. I still, you know, I still have memories of the company who raised $10,000, a few years back. And this lady did it on Republic, and she only wanted it to make dresses. To buy sewing machines to make dresses. That’s what the JOBS Act was for. That’s it right there. It wasn’t that the bank turned her down. It’s just that there was a greater chance you already knew there, it was going to get narrow. So it’s almost like entrepreneurs. We get told that you got to go through that narrow gap so you can get told no. So, and it’s funny, you said 5%. The statistics we’re seeing in an angel investing on the overall scope. It’s point 000055. So it’s even more narrow. So, where’s that money coming from? So I think that’s it, we got to turn the conversation around to where is the money? Where’s the largest pocket of it? And we addressed the mentality of how we view it, because that will change the statistics of numbers that we’re seeing.

 

Len Lanzi: 09:26

It also changes how your approach to that money is too because if you’re going after VC funds, venture funds. The pre-seed level, the amount of hoops that you have to jump through in order to get even to the introduction of that venture partner to make your presentation is extraordinary, and it’s an extraordinary lift. 

 

Oscar Jofre: 09:47

I agree.

 

Len Lanzi: And I think CF funding has democratized that and made it much easier. And there’s a lot of different ways to do it. There’s many, as we’ve heard all week, there’s many different platforms. William, you have a different way of doing it. And, you know, I think it’s too early to say that you’ve had successes in this because you just kind of launched this enterprise. But what are your opinions on just how we’ve set the table so far?

 

William Stringer: 10:14

Yeah, I think you were kind of given my pitch when you were reading out those stats, and just the fact that there’s all of these entrepreneurs out there. And, you know, the holy grail that everybody worships from is the venture capital world. That’s what’s in the news, everyone’s, you know, fundraising, everyone’s exits, everyone sees venture capital. But there’s increasingly more and more options to raise capital today. And I think the efforts of, you know, startup starter and equity crowdfunding week and all the CF platforms, they’re doing a good job of helping entrepreneurs see that there’s more options out there.

 

Obviously, we have an option at Chisos that is complimentary, honestly. There’s a few of our portfolio companies that we’ve invested in very early on that we’ve been pushed towards equity crowdfunding, because, you know. Various reasons, either, maybe they don’t quite have traction yet. Or maybe they are growing at a little bit slower pace than venture capitalists would like to see. Or maybe their market is a little bit smaller than venture capitalists would like to see. A whole host of reasons why venture capital might not be the right path to go down. And increasingly, there’s more options. You know, if you have traction, you can look at revenue-based financing, you can look at, you know, pipe all sorts of things. And now crowdfunding as it’s growing, is an excellent option for that entrepreneur to, you know, activate their community. Or, you know, maybe their friends and family that aren’t accredited investors to get off the ground, and really get started.

 

Len Lanzi: 11:54

And I want to jump on something that Oscar said, you know. That 95% of the money that’s out there seems like it would be a lot easier to go after the bigger bucket, or bigger pool than to try and contain yourself into one avenue of fundraising. Whether being venture capital and, and they’re not mutually exclusive. I think one of the challenges a lot of startups have is they think it’s mutually exclusive. That oh my gosh, if I raise venture capital, I can’t do a CF funding. Or I can’t, you know, I can’t raise capital from a broader group of people than just a fund. Or if I go out and do CF funding, that’s going to preclude me from going to venture capital later on and do a subsequent round. 

 

And they’re not mutually exclusive. They work hand in hand. And I’ll illustrate a company without naming the company that’s in my portfolio, because I didn’t get permission to talk about them. But they worked with a very early stage accelerator, they had some capital put in by that accelerator, and they were introduced to micro ventures, a crowdfunding platform. And they went out and raised $112,000, first time out on the micro ventures platform. And that gave them enough money to do some development and to get to their MVP. And they went out and raised a little bit more capital, from a venture funder. And then they did another second CF funding and raised another $120,000. What they found is if they can do that every couple of months, when they need capital to go out to the crowd. They’re, they’re finding a marketplace to do that. 

 

And that money is not as expensive as it would be if they were getting it from VC funding, you know. You have to look at the expense of money and how much money you spend to go raise that capital. And then how much is that capital actually going to cost you down the line, and giving up equity or shares. So I think that there’s lots of ways to skin this cat. And from an accelerator program, we look at all ways of raising money, not just venture capital. Because it’s not the panacea for everybody. You know, one of the things venture needs to do is de-risk that investment, and how do they de-risk that investment? And especially at the very early stage, it’s hard to de-risk something that doesn’t exist. So you’re de-risking it on people. And so you really have to trust the people. I think one of the challenges in CF funding is how is that de-risked? And what you know, if anybody just comes on to the platform, how do you know that the folks that are actually going to run that company are going to be able to execute? Oscar, what do you think? What are your thoughts on that?

 

Oscar Jofre 14:45

But that’s a good question, but it’s a risk that even everybody takes. The only difference is that in the VC world, obviously, the venture capital gets on the board and provides a little bit of guidance. And, mentorship, but I see a lot of platforms already doing that as well. I think I think we have to take the approach that a company is met, it’s our regulatory obligation, not all of them are going to make it. I mean, we’re fooling ourselves to think it’s going to be 100%. But I think there’s enough of an ecosystem now surrounding itself to make sure the platform’s are finally taken on the responsibility to make sure that companies not only when they raise capital. Now they hey, okay, you need to plan for this, after you raise your capital, you’re going to need to do this, you’re going to need to plan for that. 

 

Because, you know, you went from a company with five shareholders, now you got 4000, you got 5000 shareholders. Which is a great thing, because, you know, which company would not want to have 5000 customers? Or 5000 brand ambassadors? Or 5000 people that will go out and tell the whole world what it is they’re doing? So I, I really believe that we’re now maturing to that stage. We went from, you know, in 2012, all we heard was, we were going to be filled with fraud. And 2015 we went live, the industry went live, there was no fraud. Why? Because, you know, there was a filing that needed to be done with the SEC, and that still needs to be there. 

 

Now, if you want to raise more than a million dollars, the company needs to file a, you know, audited financial statement, which is done with an auditor under GAAP. So, you know, if someone’s going to commit fraud, you have to get a lawyer involved and auditor, and there’s a lot of pieces. And there’s a new player now, that has emerged in the crowdfunding space. That in the early days, they dismissed it, and they were the same, they didn’t help the industry because of them dismissing it. As you know, it’s small kiddies, it’s like, you know. Who wants to do that crowdfunding stuff where people give away products? And that’s the broker-dealer, the FINRA broker-dealer has woken up. And you know, I, my favorite scene for 2021 to everyone is, you know, be careful what you wish for. 

 

So, you know, everybody wanted the increase in reg CF, from 1 million to five, now you got it. And people go, that’s hooray. All right, but you just woke up someone that you weren’t ready for. And that is, you woke up the broker-dealer because now you’re going after their turf, and now they’re coming in. And their value proposition is even stronger than the funding platforms. Because they are a broker-dealer, they can pay commissions, they can provide advice. And so now we got another advocate to the table that we didn’t have before. And so when you start adding, when the ecosystem keeps expanding, it just keeps reinforcing the entire sector. And I believe that, because of that, the same way venture capitalists take on investment, and they have an ecosystem of participants that are going to help nurture the company. It’s going to happen the same way here. Not every company is going to take it up, I’d be fooling you, if I told you if that was going to be the case. But I believe the ones that want to grow and expand will be definitely open to it. Because if you heard my earlier comment today. I mentioned that this opportunity comes with a greater responsibility. You get the opportunity to sell to that 95% of the market, on your terms, that means you get your valuation. So you don’t have to cry, you don’t have to complain, you own your company. Fantastic. You control it and now that you control it, your responsibilities are even greater. Because now you have, you didn’t want to give that up before and let them do it. Now you have to do it. And so for that, then you’re going to need to learn to be transparent. You know, companies are transparent when they’re raising their capital. Well, you’re going to need to be transparent right after you’re done raising your cap. 

 

It doesn’t end there. It’s a continuation. So this is part of the evolution of our market. Do you know if you go back in the early days of venture capital, it was the same way, you know, they were making investment? And they took a hands off, no, no, no, that’s not working, we got to get in. And now some VCs, they got an HR team, they got a sales team, they got a tech team. You feel like, so what am I bringing to the table? So, but I think it’s you know, I just think it’s because we are evolving at such a great pace right now. And under crowdfund, the industry itself is getting such tremendous support from a larger audience now that wasn’t there before. And that’s a positive, that’s reinforcing the sector. And we’re, and we’re going to need more than ever, we’re going to need great accelerators. We’re gonna need accelerators. We’re going to need incubators. To help that company that wants to raise $10,000, 50,000, whatever it is, or a million. So it’s a, it’s the next level that I see coming in then this actor

 

William Stringer: 20:08

Len, question for you. So as you’re working with these, you know, pre-revenue companies or very early companies, how do you help them think about which avenue to raise capital? You know, venture versus crowdfunding versus alternative.

 

Len Lanzi: 20:24

So, some of it has to do with the industry and the type of company that it is. I think crowdfunding is suited well, for products and widgets and things. Maybe less suited for ethereal selling bits or, or service industry type things. It really comes down to is that founder, that entrepreneur, a passionate communicator. That can communicate a message to inspire people to want to invest in them. And that’s in front of a venture capital partner, as much as it is doing a video and putting it out on a platform and asking people to invest money. And so it really depends on their ability to communicate their message. What that problem is, is it big enough? Does it touch enough people? I, one of the things I love about crowdfunding is it’s a true market validation of what people are trying to do. And you know, we talked about doing market validation, and making sure that there’s a market for what you’re selling. And when you go out to the crowd with that message, you’ll find very quickly whether people believe that what you have is actually a solution to a problem. And so that’s one of the considerations that we take, or I take working with portfolio companies. On, okay, when we start capital mapping for you, these are the opportunities, these are the things that can help you grow your company. Let’s consider all of them and move forward. 

 

We’ve done a couple of CF programs here at the Preccelerator this year. Because the portfolio companies are interested in and there they are frustrated by the many hoops that angel groups are putting them through. Or that venture partners are putting them through in order to even get in front of them. By raising the bar every time they go back, well, you need this traction, now you need this traction. You don’t have to do that. You go out once, and the crowd is going to tell you whether you have a good enough program that they want to fund. So I think that that’s true market validation. And that’s one of the reasons why I like it. 

 

I think one of the cautions I’ll throw out there is that founders, that CEO of a startup prepared. Once they raised that money for those 4000 investors, and now what do they do with them? How do they communicate with them? What is their fiduciary responsibility back to them? And are we training people to be ready for that? It’s easy to train them to be ready for two or three VCs that may come onto their board. But all of a sudden, when your cap table shows four or 5000 people, now you need it, you need someone in charge of investor relations. And is a startup ready for that? So I think that’s one of the things that I caution people about, is to make sure you have the infrastructure, once you do raise the money because you have to have a big enough boat to catch the fish. And if you’re in a rowboat, and you land a whale, you’re gonna sink. So, you know, I think that analogy suits this discussion. So, thoughts.

 

Oscar Jofre 23:50

I was just gonna go there. I was listening to you earlier now saying, let’s not forget the part what happens when you raise your money, which you will. And, and a lot of them are not ready. So it goes way back a few years, I’m rewriting the book, but it’s called equity crowdfunding 101. I wrote two chapters in there about, and I got called on it by the VC community where I said, turn shareholders, think of them as customers and turn them into ambassadors. And, you know, I put it back because they were saying who on Earth would want 5000 shareholders. And I say, well, when I come to your door looking for money, the first thing you asked me is how many customers I have. So what if I brought 5000? I mean, what is the difference, right? I think, so that’s the value proposition. Everybody gets that part. But what they tend to forget, this is where right now we need to hurry on this. What a lot of companies are forgetting. 

 

You didn’t create a plan after you raised your money. Because now you have those 5000 customers or ambassadors. So there’s some great companies that have adopted the framework that I introduced, like BrewDog Breweries, companies like Legion M, and a few others. They don’t call them shareholders. One calls them equity punks, another one calls them legionnaires. I, you know, our company we call them gladiators. You know, they’re there, they’re coming on board with us to embrace the market where they’re part of the journey. They’re going to live and breathe my pain. No longer, this shareholders over here and the company over there. If we do that, we’re going back to the 2008 financial crisis, because that’s exactly what happened. Investors were put in one bucket and the guys where the money was set out, you know what, we’ll just take our money, and we’ll come right back again, while everybody else lost their homes and all that. The JOBS Act was created to make sure that that wouldn’t happen again. So I don’t know where we’re going to get that, you know. I’ve been looking for companies who specialize.

 

I don’t know if we’re going to call it investor relations, because the only thing I don’t like about that term, it’s come from the connotation of the publicly traded world. Which in their world. I become an IR person, I’m compensated, if I take the stock from 10 cents to 50 cents, and I get options. And they don’t know the shareholders by name. You know, I described that earlier. In another call, I said, the difference between a private company and a public company is very simple. In a public company, the CEO and Management Board of Directors look at the cap table, and they see a number 88,700,000 shares outstanding, that’s a public. A private, they see 88 million and all that, but they see John, Linda, Harry, Smith. They see every single shareholder by line item, who owns the equity in their company. So that that responsibility, you can’t say you don’t know who they are, so you need to have a plan. 

 

And people need to start looking at these individuals, there’s a great opportunity out there. And I’m calling people out on this. If you have the mindset, you have the mindset of helping community development. You have the mindset of what it means to take care, this is what companies need. And make no mistake companies, anybody who’s raising money, 100 shareholders or more, you need to bring a person like that in. Even on a part time basis to give you a strategy to your point, Len. If we don’t do that, you need money the next time around to, we didn’t hear from you for the last six months. What’s been going on? That’s right, why would it give you more?

 

Len Lanzi:  27:19

And why would I give you more, exactly. And I think it really does start, you know, CF funding, venture capital funding, those are all tactics. You need to have a strategy before you build your tactics. And so having a strategy that takes you out from beginning to end, and having that vision is very, very important as you set that table. So, I’ll use the setting of the table and feeding a dinner, right? You have your appetizer, you have your main course, you have your pasta course, you have your salad, and you have your dessert. And you plan a menu. And when you’re building your company, and you’re building your capital strategy, you have to plan your menu. And you have to know at each point when you’re going to deliver that and how you’re going to respond to those people to make that next course as appetizing as the first course was. 

 

So that ,that is really the magic of how this all works. But you need to go in with a strategy. Because once you raise that money, yes, you have a responsibility back to those people that made an investment into you. And that that responsibility is communication, to treat them as customers, not just investors. I really believe that’s important Oscar, and it goes back to pre-equity crowdfunding and just going back to the Kickstarter campaigns. Going back to the basics. Yeah. And you know, there’s no difference. There’s no difference other than one is equity and one is not equity. But Kickstarter campaigns are great for market validation, building customer bases. And same thing with CF funding. So don’t don’t forget that. I think that’s a big piece of it. William, we’re dominating the conversation over you. So speak up. 

 

William Stringer: 29:07

No, it’s a good conversation. Just wanted to kind of give an example of what we’re doing. So you know, right now, like I said, we’re wrapping up our crowdfunding next week, we’ve got over 400 investors. And for us, a big reason why we did the crowdfund was to get those 400 500 and investors in our ecosystem, financially incentivized, you know, bought into our company to help us succeed. And for us specifically to help our portfolio companies succeed. And so what we’ve set up is a number of different databases, where investors in our crowd campaign can go in and say, hey, I’m an investor. I’m a service provider. I’m a mentor, I’m an advisor, and I’m interested in helping your portfolio companies. And so that’s been a great tool for us to activate our investors and get them involved in what we’re doing. as well as help our portfolio companies. 

 

So one example I gave earlier in the week was, you know, we had a portfolio company that came to us and said, hey, trying to find a UX UI designer. We went out, blasted it to our network and said, which includes our investors in a crowdfunding campaign and said, hey, portfolio company looking for this. You know, a week later, we got 5,6,7 different options back that we presented to the portfolio company, and then they made a hire. That couldn’t have happened without that army of investors that were willing and able to help us and help our portfolio companies. So that’s just one example of what we’re doing. And then the other piece on kind of activating and getting your investors involved. I mentioned this early in the week as well. But I think the CF world and any founders that raise using CF can take a page out of the playbook from what’s going on in the crypto world right now. 

 

So the NFT craze is, you know, got some flaws and things going on that, you know, will work itself out. But what they’re doing really well is building these communities where people go in, they buy an NFT, and then they’re like, they’re part of the community. And that community is building games. It’s building, you know, Metaverse, experiences, it’s they’re all working together to create value. And I think there’s some parallels there between, you know, the reg CF investors, and, you know, having fun with the only 100 people on your cap table. And, and working together to create value versus just being passive on the cap table.

 

Oscar Jofre 31:42

Agree, but with the only cautionary tale that we just, just for the sake of for your protection and all ours. We have to indicate that, you know, there is a large portion of NFT’s today that are proceeding in the market, with the wrong assumption that what they’re doing is not a security, it is a security. So when you’re talking about a registered regulated and NFT security, I agree with you 100%.

 

William Stringer:  32:11

Lots of securities laws being broken in that world.

 

Oscar Jofre 32:14

Oh, I know, I just mentioned, there’s a lot of chatter about NFT’s right now, it’s supposed to be the game changer. And it’s you know, it’s not. It’s just a very different variation of digital securities, just the same thing. But I understand it, but I caution people thinking that it you know, it’s funny. I’m an entrepreneur, but I also respect compliance. And we have a new commissioner, as we all know, right. And he’s the type of person if you saw it, there was a picture, there’s a gentleman not ringing the bell of the New York Stock Exchange, and this individual server subpoena right there. That’s the kind of Commissioner we have today. He is not going to allow, which we do need the market to clean up. But it’s like any market. There’s always going to be those individuals that are going to try to utilize it non compliantly. So

 

Len Lanzi: 33:14

It reminds me of what crowdfunding looked like back in 2012 to 2015, just before the JOBS Act was fully enacted. There were platforms out there trying to do this. And you know, there were a lot of lessons learned. And, and actually, I applaud those efforts, because without people trying different things up front. When it actually became law, those people that were then well positioned on their platform with broker-dealer licenses. With built in bait databases of investors that they could bring to the retail environment through crowdfunding was very, very helpful.  

 

Oscar Jofre 33:57

It was, you know, most of you probably didn’t even might not know this, but that’s a really great point Len. And the people that started in 2012, there were some mistakes, and we don’t talk about it much. But I will tell you, there was one fraud between 2012 and 2015. One, and it was caught early enough by the SEC, it was caught so fast. This fraud occurred on AngelList and equity net. So I just want to make sure it is really clear, it did not happen on a register funding platform or a broker-dealer funding platform because there’s no way and the fraud was beautiful. The only thing that was real was the company. That was it, the name of the company. He faked everything else, you know, and the SEC was able to get about 98, 90% of the money. So it taught us a lot at that moment. The SEC was kind of saying yes you know, equitynet will let you operate without a license. And now after that, all of them got their letters pulled. So from then on, it was a registered funding portal or a registered broker-dealer, there was no more gray. That’s what happens with gray. Gray means that if nobody’s watching out for the investor. 

 

I hear this a lot. This is what we’re doing for companies, this what we’re doing for companies. We need to stop that narrative. I’m sorry, I, I think this is really important that I think that narrative is we’re all saying that. But we should really be seen as what can I do to that investor, we need to help them. Remember, they’re putting in $500, maybe $1,000, that may not be a lot, but that’s all they got, and they’re willing to participate. So we really need to be focused on how can we get that money they put in to make sure they get a return, you know why? Because if they do that, they’ll come back again, and again and again. And that’s, we need to start having that. The equation today that I see in the market. And we are, our team, we brought in a research team to analyze all the content out there today, outside of Kings crowd, which Chris and the team are doing a great job, thank you. And hopefully, more like Chris will do the same. 

 

You know, they’re, they’re bringing a highlight, and they’re doing some, you know, report utilizing the First Amendment, not as a registered, regulated entity. But nevertheless, at least it’s for the investor, but we need a voice by the platform’s in the industry to start talking about the investor. Because make no mistake, if we don’t start putting our voice to them, or bring in education, that we’re there for them. Like any other sector, they know how big their crowd is the same way you got them, they’re going to turn that around and utilize it coming back. And we are so close, I kid you not I, I was only a week away from publishing an article. And I know the title of the article is so like, it looks like doomsday. It’s not meant to be, it’s to try to get your attention, it’s time to wake up. And that is the, we are, we’re putting retail investors. And I forget, I’m not gonna use the word retail, we’re taking everyday people that have not been given a chance to invest before. We’re telling them in the advertising come here, you will be able to participate directly. I mean, not you listen to those words, words are everything directly into my company, and you will be a shareholder. 

 

And then they put their $100 and or $200 in. And then a few days later, or a couple of emails later, they get an email, they sign a sub-agreement. And then they’re wondering, they’re wondering, and then they find out that wait a minute, how come I’m not a shareholder of that company. I’m a shareholder in this company. I don’t get it. So we are already making some early mistakes by putting them under SPVs and custodial, which some people said, well, Oscar, we want, the company needs to have one shareholder in their line. Okay, so Len said it best if your strategy to the market is to go after Angel, sorry, venture capital, and you’ve not raised any money before, I will give you 70%, that’s a good strategy for you. I think it’s a well, you, you narrowed it, but you gotta understand what you’re walking into, you’re walking into with a new vehicle, they’re not going to go away, you’re still going to be responsive. Now you got two legal entities, plus you got K one returns and all that to do but just know what you’re going into. So that’s one model. 

 

But if the company has already raised seed capital from other investors, or you’ve used the regulation before, and these investors are already being managed by one transfer agent, or some form. And then all of a sudden, you bring another round of financing, which here’s the part you’re gonna love. 30% of investors reinvest again. 30%. Now that is great. Not when you do this to them, in one way, they’re being managed over here. And as soon as you stick this vehicle, they’re being managed over there. And now you’re trying to tell them you’re what’s going on here. So I’m an advocate for the investor, 2021 and 2022, our entire thesis is about how do we get them educated, what they’re investing in to start asking the questions. Our company has spent years educating people on what a safe is, what a warrant is, and people go, but it’s simple. Yes, it is when you do investing every day, but it’s not when there people think a safe is shares in a company. It’s not. And we, the transfer agent, have the bad news to tell them and of course, we’re simple. We understand why it’s done. Don’t get me wrong. It’s not like it’s not done illegal. Nobody’s doing anything illegal. But my point is, it’s hard to explain to them that they thought they invested this way and then they get to sell it. That’s called bait and switch right. So I’m you know, the retail investor is a volatile investor. The general crowd is volatile, it can turn on us at any moment. 

 

Len Lanzi: 40:07

I want to add while it’s volatile, they’re also not educated, unsophisticated investors, right. And the simpler we can keep this process for the investor, the better off everybody is. Once you start complicating it, and you mentioned a couple of words like safe and warrants, those, those tend to be more sophisticated, you know, opportunities or instruments to finance. And in the retail market, there’s no, there’s no place for that, because it’s too hard to communicate to them what a special purpose vehicle is, and what that means. And you know, and like you said, in some cases, that’s a great strategy to use. But you need to know what it is. And you need to know what type of investors you want to go after to be part of that investment portfolio. Because that may not be your retail investor going into an SPV, it might be more of a wholesale investor, someone who’s been investing in the, in the past and understands what they’re getting into. And what the advantages are for them from doing that. And what the advantages are for the company. 

 

Oscar Jofre 41:18

Sorry, William might just, this is a really dear subject to me, because I’m dealing with, yeah, quite a bit. And I, I sympathize, we’re actually doing a little booklet right now, for investors to tell them that even though in the safe, if you’re not a shareholder, you’re going to be converted into shares. And why it’s an advantage for you because, so you have to give them examples, right? You have shown that if it was worth, you know, $10, you’re gonna get a discount to x. And if the valuation is here, so you there’s a lot of things, but you’re right, it’s education. We just don’t, we can’t move too quickly, that we’re like we’re getting high or mighty. That’s the word I’m using high and mighty that, hey, we’re getting so big with yeah, don’t worry, they’ll just buy it. You keep doing that. This is what’s going to happen. It’s going to fall right back at us. One thing I like about Regulation A, this is what I like about Reg A, versus Reg CF. Reg A is what I call beautiful vanilla. Why? Because there’s vanilla, and French Vanilla. Vanilla is shares, French Vanilla is equity. And that’s it. There’s, you know, you can do bonus shares, you can do perks, you can do all those things that you can, but what it doesn’t allow you to do is put the investors in an SPV, or custodial or any of those things. And the companies are even raising greater amounts, like 75 million, so you can get the idea that the numbers are even greater. So, I, I’m, this is the part of the education piece that I’m spending quite a bit of time. And it’s good to see both your companies like, William, in particular, is that you’re you’re advocating for that. Right? You’re advocating for that direct. And it’s an interesting model that I have to admit I’ve been spending time on your site just to get because we’ve only been looking at it. I first I thought you were an ILO, have you heard of that?

 

William Stringer: 43:23

I’ve not, no. 

 

Oscar Jofre 43:25

Oh, my goodness. So I love the acronyms right. So a while back about a year to do some research. Yeah, I got approached by a group and say, Oscar, we’re going to come up with this new model, where investors can invest on ILOs. And go, what the heck is that? Initial licensing offering. So basically, the company is selling its revenue. And I’m going okay, and then they were talking about where that revenue could trade. And I go, Okay, I say good. It’s a security. No, no, no, no, no, it’s not a security. Guess its revenue. Yeah. But you mentioned trading.

 

William Stringer: 44:05

Well, I mean, similar to what Pipe’s doing right? I mean, they’re taking revenue streams and financing them and then facilitating a bit of a market. So I, I mean, this stuff is happening. You’re right, it is, you know, they are

 

Len Lanzi: 44:19

And there’s lots of different instruments out there that really cloud up or gunk up, what retail investors are looking at and how they get involved. And again, I’ll go back to simplicity. So believe it or not our 45 minutes allotted to us is up if you can believe that. So before we say goodbye, Oscar, how do we get in touch with you and what could you offer?

 

Oscar Jofre 44:47

What could I offer? Hey, all thank you for that. My name is Oscar Jofre. You can find me on LinkedIn, Twitter, Facebook, I’m there easy, just my name. And what I offer is I’m here to provide education. We have the largest library and regulation CF and A, and I’m here to support the initiatives. What William and others are doing, including Len. I, that’s what we’re here to do. By supporting them. We have a healthy ecosystem.

 

Len Lanzi: 45:12

Thank you very much, William.

 

William Stringer: 45:14

Yep. William Stringer, LinkedIn, Twitter, Chisos. Chisos Capital LinkedIn Twitter website, Chisos.io. If you’re an entrepreneur, obviously we have one offering, one way to provide capital. You can learn more on our website. I’m also happy to chat about raising via reg CF. I’m a Republic venture partner. I’m currently raising on Wefunder and so I know the landscape from ƒthe founder point of view. So always happy to chat and provide any advice or provide intros where I can be helpful.

 

Len Lanzi: 45:50

Super, thank you. And I’m Len Lanzi, i’m the managing director of the Preccelerator program at Stubbs, Alden, and Marklies. I can be found on LinkedIn at Leonard Lanzi. I can be found on Twitter. I can be found at Preccelerator or Stubbs, Alden, and Marklies. We are a pre-revenue, early-stage tech accelerator located here in Santa Monica. We focus on the Southern California market. And we’re looking for good tech founders that are looking to accelerate and take advantage of some fantastic legal services that we offer as part of our program. And with that, gentlemen, thank you all for participating today. And I look forward to working with both of you in the future.

 

All: 46:33

Likewise, thank you likewise.

 

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