Equity Crowdfunding - What is it? With Anna Guenther from Pledgeme. - Learnico

What the fuck is equity crowdfunding? It's crowdfunding, but it's offering rewards to offer shares in your company. And the reason this is cool is because historically, if you wanted to go out to the public and offer shares of your company, you had to be big. You had to be a listed company, you had to go through that whole process. But now, early-stage companies can go out and offer shares. Beautiful. So it's like a mini-stock market. No. Because the stock market implies is liquidity. So liquidity being you can easily buy and sell shares. It is a stock market in that you can go out to the public and raise, but it doesn't have that second bit, which is the market bit, right?

Yeah. That makes sense.

So there's lots of different types of crowdfunding and people typically think of it like Kickstarter.

Yeah.

How is equity crowdfunding different? Yeah, well, it is that thing. So, you know, it is you go out to your crowd for funding, but instead of offering rewards to give a value exchange, you're offering ownership in your company. And so the relationship is longer term, right? You know, a rewards-based crowdfunding campaign, hopefully, is done in six months. You know, you raise the money, you deliver the thing, you have a crowd that loves you, but that's a relationship. Equity crowdfunding, they own shares of your company, which could be for the long term,

right?

So does it suit everybody?

I mean, technically it could.

I think the thing that we say, though, is that it's best for companies that have found it to have crowds, like people that they want to communicate with, they have a crowd, and they're really clear about how the money's going to help them grow. So not all companies want to grow, right? So it probably wouldn't work for them. It's harder, I find, for companies that don't have the ability to communicate effectively. Which not all companies need to do, right? Like as long as it can sell to that one buyer, that's what they do. But um, yeah, anyone could do it, but it might not work for everyone. Yep. You talk about crowd a lot. And this isn't actually pushing me very down, but I think it follows what is a crowd how many is a crowd because the teak didn't have any much I think everyone has a crowd and so people got to come to us and like oh no we're just starting we don't really have that many customers yet it's like yeah but you still have the people that have supported you get to this point you have your family you have friends you have advisors you have networks that you've gone around you that's your crowd your crowd can also be customers and I don't know like I remember with you in your first campaign,

there were a lot of people that invested.

Yeah, there was a lot that I didn't know were there.

Yeah. The key is you may have a crowd, you just don't know it.

Yeah. I mean, Palmer says it really interestingly, where she's like, she's a musician who's crowdfunded really effectively a few times. She talks about it as almost like a farming analogy, like you sow the seeds over years and you crowdfunding is when you have to harvest that. You might not even realize how many seeds there are or how much you've grown until you do that harvest. Everyone has a community, everyone has a crowd. It's just can you communicate with them and do they want what you're doing? So it's really interesting. It's a value exchange and I think you did a really great job with value exchange, right? It was not only discount on your product, but also shares in a company that you have a really clear plan to grow. Yeah, that's a good point because sometimes, and in fact most cases, a lot of equity crowdfunders also offer a reward at certain tiers for shareholding. So if I remember, and we'll talk about this in a subsequent video, if I recall, we offered a discount on $5000 underneath, and then anything over $5000 we offered a little bit more. I don't remember the details anymore.

We can open it up.

We can look at your IM. I do actually go back and look at it quite regularly.

I think people go and look at it all the time. It's such a useful resource.

So head over to pledgeme.co.nz and have a look at Sorbet/Ethique, first and second round, because it'll be useful. Yeah, I love it. That sort of stuff is still public, right? You can go back and see how someone did it because it's often people never tell you how they raised or what they raised or what the

valuation was.

You can see through them, they talk about the seed round and you're like, Series A and nobody knows what they mean!

It's definitely going in the data.

Yeah, the language that we use makes it exclusive, right? But also the fact that it's not transparent makes it exclusive. To the point where I was at a conference recently and I was trying to share stories of people who raised and I went to a friend and I was like, hey, can I share your story? And she's like, totally. And I was like, cool, can you just tell me a bit more? And she was telling me all the stuff like valuation and all that. And she's like, oh, wait, I should ask my co-founder if this is OK. She went to her co-founder and he's like, oh, actually, you know, the investors don't want to share in that information. Which is strange, but I also don't get, right? Like, it's just that sort of... Since I did that, there's a lot of things I used to share that they now rather I didn't. Just from a competitive other investors getting a beach mic if you were sitting in the top

there.

Interesting.

Yeah.

Yeah, it's funny, because I don't know, I just default transparent, right? So I'm sort of like, it's not the numbers that matter, it's the delivery and it's the

drive, I would agree.

But I think they are unusual. What do you have to do to do a crowdfunding round? I think this is the bit that people get stuck at, right? It's a terrifying big process. What the hell do I do? Particularly

with pledgeme

Yeah, so I think the thing is, if you're going out and doing a raise from anyone, you need to have a really clear plan, right? Of what you're going to do with money, what the opportunity is, all that sort of business planning. So there's something called an IAM, which you write for your raise. And then you also need to figure out how you're going to communicate that out to the world. So there's the IAM and the comms plan. Those are the two core documents.

And then you do it right.

Like you communicate that to your crowd, share your IAM, you do all of that. And we help with that. So some things you need to think about around not being specifically false misleading. So the language that you use is really important. And in business, I think we've been taught to like sell the dream and make big promises, but when you're raising investment, you shouldn't do that. No, you have to be incredibly down the line and conservative. Conservative, yes, but also just don't promise stuff because you don't know what's going to happen. So just being really clear about your aims and your goals, but not saying we will, stuff like that. But really, it's those two main documents. It's your commons plan, so you're communicating it out. That's where I am.

Yeah, okay.

Is there a legal process or is there a big, drawn-out D.D. process? I think that's what people sometimes have a fear of because certainly there is a little bit more of that with angels or if you go further up the investment food chain.

What do you have to do to jump through those hoops?

Yeah, so I think the thing is you've done all that work to launch the campaign. You've provided all the information, you've included some financial information, all of that, that you'd normally do through a DDE process. So really, once it's out there, people can ask you questions, but you're not going out and creating lots more documents or doing a lot more work. So that's sometimes why it's a bit scary, because you're frontloading the work to get it ready to launch into the world, because after that, it's not going to change. Whereas if you went to an angel or went through another process, my understanding, if we're actually done with those processes, is that's when you start delivering information, right? You do the pitch, they're interested, and then you give them more. With crowdfunding, you just give them more. Yep, that's the start. Cool. And there's not anything, I mean, I personally recommend people have their forecasts and financials viewed independently. I don't know if you've got anything else on the account. It gives you that layer of independent analysis. You don't have to. It's just what I did. I think it's really important to have conversations about your numbers with financial people. What we find is that often financial people are very risk averse and don't want to put their names to stuff. So like if you wanted them to put their name to it, it would cost thousands of dollars if not more. So yeah, definitely get your accounts on board and have conversations and get clear of your numbers. But we don't often see people go through a full process where it's like fully reviewed or approved. And it doesn't matter. So if you can't afford accounting or lawyers to that degree, beyond the initial discussion and making sure everything is okay, that doesn't matter. How much does it cost? Does it cost shitloads to run an equity crowdfunding campaign? So we often get asked this and it's really hard to respond because it depends on who you have in your team, right? Like if you have commerce people that can support you or a filmmaker that's a friend. Like, it can be really cheap to launch a campaign. If you don't have those networks, you might want to pay for that stuff. And so that's where it can start getting expensive depending on who you use. But we've seen people launch a campaign for $0, and we've seen people spend $20, $30K getting ready.

How much did you spend? Do you remember?

A videographer was $4,000. Probably paid $2,000, crossing lawyers and accountants, which was a lot to us at the time, but it really isn't.

I think that was it.

Yeah, yeah.

Sometimes people pay.

Yeah, yeah.

So lawyers and accountants. I do think it is good to have a lawyer in your business, right? Just to give you that soundboard and advice. What we have found is that some lawyers that are really supportive of crowdfunding and some that are just like, why would you do that? Yeah. Or don't even know what crowdfunding is still to this day. Okay. Yeah. I used to ask at every presentation who knew what crowdfunding was for the last, what, five years, and the number of hands now is infinitely higher. Yeah. Which is... Yeah. A better time. It's totally. But I have also heard bankers say, oh, it's a very mature way of raising money. I think it's so interesting because there's this sort of perspective that people are dumb and, you know, that like, oh, if you crowdfund, that's dumb money, and it's like, how do you know? Like, I'm half people thinking of VCs and PE funds know what they're doing.

Just then.

I know.

But it's also like, it's like, just because you have invested before or you're in the business of investment doesn't mean you're smarter. It means you might have some different questions

that you'd ask.

But you also don't know who's investing. There could be people in that crowd that are investors.

Like, you're usually an investor.

Yeah.

Do investors pay anything? No So well, okay investors don't pay anything. Obviously, I'm investing in the campaign There are fees that they want to use a credit card that they pay not the company's and all the campaigner have to cover someone's Transaction fees, but you pay by a direct debit. Yeah, and that's free. So but no, there's no no fees for investors the fee for the campaigner is 5% if you do a rewards-based campaign, 7.5% is equity, because there's additional costs for all of the stupid anti-money laundering requirements. I think the only one winning in all of this legislation are the companies providing these services. Yeah, so what do they have to do for anti-money laundering? Is that a concern for people? Basically what it means is that we have to verify the identity and the address of everyone who pledges to an equity campaign. And the reasoning for that is so people don't money launder, which I think would be the stupidest way to try to launder money is investing in an early stage company where there is limited ability to get that money back out again. But yeah, for an order to do that. How did he do it on breaky bed? Laundromat. Yeah, what's that about? Wetware is a good way of living supposedly. There's a lot of stores and malls that never have anybody in them.

I think. You were from Florida?

Yeah, yeah, one of our directors used to be a police officer and a hostage negotiator. Wow. Very cool name to fame. But yeah, he does sometimes talk about this. We're not going to launder money, but just to know. It's important to know these things just in case people do release it.

How do they do it?

That's now twice. It is 10.30 in the morning and it is now twice I've talked to them. Monday morning with two different people. Which is interesting. I swear to God I'm not running late.

It's the day today.

I would have had some courses if I was not running late.

What are some offensive marketing strategies?

Yeah, okay.

I think the big thing for me was that I was terrified that I would launch this thing and everyone would be like, well, great, but I'm not investing in the company I've never heard of. But also, mainly, whether it was right or wrong, I've never heard of it. It turned out that actually it was somewhat pointless. But how do people get the hang of it? Because if they've never heard of you, you'll get out of the crowdfunding campaign. Yeah, well, I mean, I'm interested in hearing your story on how you did it, I think that's the next video. But basically what we talk people through is, this is like marketing anything. So you need to think about your cost plan, how you're gonna communicate it, what the assets are, all of that. But break it down actually to a list of your first 50. Who are the 50 people that you think are gonna be stoked about this campaign and wanna support or invest in it?

And talk to them.

And just start building that sort of momentum around the people that you already know. So then it gets spread further. And it gets spread further if you have a really clear goal of what you're raising the money for and how it's gonna grow your company, right? And if you do it in an interesting way, do it your way, like show your personality. So like, for example, when Yeasty Boys went out to raise, instead of doing a normal pitch video where you talk to camera and tell people about your growth plans, they did an animation, which was the queen chugging a beer in a g-string because they were launching it to the UK and It went down so well with their crowd. It offended so many old women And when I told Stu that though, I was like, hey, dude, you know, like your video has offended some people down in Dunedin when I showed it in the presentation. He's like cool That's my filter like I only want people to invest in my company to get me and that is our sense of humor.

So fine.

That is what I keep telling people. Who you are not for is just as important as who you are for. And you don't want sales, you don't want customers, and you don't want amusement from everybody.

No.

Because they won't get what you don't. Yeah, and I think that's the thing is marketing. Market it your way. Like, share your story your way. And if you share it well, and if you have a cool idea, a cool plan, it'll resonate. And we often get people out there being like, oh, we're too scared to even, you know, go out there and try. And it's just like, just start talking to people. Like, if they don't like it, either they won't engage,

or they'll tell you.

Hopefully they'll tell you, right? If they do like it, they'll get excited.

If they're excited, that's when you should do it. So after, you know, you've raised hundreds of thousands of dollars, everyone's excited, it's the warm, rosy glow afterwards. What happens immediately after the campaign closes? Do you pick your minimum? You may or may not pick your maximum. What happens then? And to be clear, a minimum and a maximum, you set two goals for your campaign. Your minimum is what you must achieve for the campaign to go through if you can get any money at all. Your maximum is like the goals that you can go and do more stuff, but it's not mission critical for you to raise. Is that the way to describe it? Totally. Yeah, and the minimum, yeah, you need that because you want to do the thing. The maximum is typically you don't want to sell too much of your company. So that's the maximum you're willing to take in that round. And so what happens after the campaign closes is the platform gets busy verifying all the identities, processing all the money. And then they send through a list to the company saying, hey, here are all your new shareholders. You need to pass a resolution to issue those shares. You need to update your share register, update the company's office, and then we'll send you to the house minus our fees. And so that's the process. And then once you have those new shareholders and that money, you just get going. You do the thing that you said you wanted to do and hopefully nail it. And over time, you should be communicating with those investors. There's a legal requirement, right? Once a year to do an annual report. And the structure of that is set out in the legislation. It's an AGM. Yeah, AGM, an annual report. And then people do communicate a bit more often sometimes with their crowd because they want them to know what they're up to.

They want them to help.

You've got a big group of cheerleaders. Why wouldn't you talk to them? I wasn't very good at this because I was too busy doing everything that I sort of got wrapped up in, but I would recommend you do it more often. Yeah, I think you don't want to like over communicate with them, right? But there is something in them knowing what you're up to and feeling that sense of pride and supporting the company or even, you know, things are going tough, like knowing that they could help, right? Like, what is it that you need? And I think that's the thing, it's like, it is risky investing in a company at this stage. So you might go through hard times. So why not? I have that in mind.

Yeah, it's gonna suck.

It's horrible, right? Like the sucky bits and the great bits often happen in like the

same week.

Oh, totally.

And then the difference between the high and low, the wavelength, right, is breathtaking.

Yeah.

Now this question, my last question for you, it's not on the list, but it's the one that a lot of people come to me with, which is how the fuck do you manage your shareholders and will having an equity grafting campaign in your history preclude you from a VC or a paid deal? I know my answer is. Yeah, so I think the management is, you know, just communicate with them. You're required to once a year. You could do that through a MailChimp or a newsletter. Like it doesn't need to be fancy software, right? You can have a newsletter and you can manage your share register in a Google spreadsheet, but it's all we did. It's all you need. Don't need to get fancy on it. Whether it will affect your ability to raise in the future really depends on that investor that you're raising from in the future, right? If you do raise from any other investors. Typically it's non-voting shares, so it should be easier to pass any resolutions that you need. But the beautiful thing about crowdfunding, at least in my mind, is it's like the perfect example of crowdmarket fit. People want the thing that you're doing and they want it so much they've invested in it. So you would hope that later investors would be like, oh man, that's amazing, you know, they've managed to get this whole community around them that older people are going to start selling it because they love it. Exactly. I don't know why I don't look at it from that positive friend's mind. These people didn't just buy your product, they bought into your company. Yes. Community building aren't always legal. Yeah. I don't understand why people are so worried about that. And I'm actually going to make you film this portrait so I can put it on social media. It is something that I hear a lot and I feel like there is almost people out there going around saying, no, you shouldn't use equity crowdfunding because it will stop you from raising later. And I feel like it's people who have, what's the word?

Vested interests.

Thank you.

Vested interest in you not doing equity crowdfunding. And I know that sounds super conspiracy theory, but some places would prefer that you got money from them, not for equity crowdfunding, right? Yeah, totally. Totally. And I mean, I think your great example of it being fine can be seen in the three minutes later. We have a very good distribution company. That is terrifying. But it wasn't. And I mean, we've had a company recently that has gone through the process of selling and it was fine. You know, we also had another company, a few companies actually went later and listed. And actually having a crowd was a good thing because they had some spread that they needed to be able to go on lists. So, yeah, I got listing domain on the stock market, on the stock exchange. Yeah, yeah. So both here in New Zealand and also in Australia, we've had that happen as well. And so, you know, it is definitely possible to continue growing your company. I think there are going to be some investors who look down on it. And I mean, that's an interesting conversation, right? Like, if you wanted your crowd involved in your company, are they the right people to be investing in your company later? Right. Like, just feel like a value is mismatched. I think that's the thing, though, like, only do crowdfunding if you want a crowd in your company. Like, I think that there's people who think it's maybe the easy way to raise or, you know, like that, that don't really care about that crowd component. And I don't know if that's for them then, right? Yeah, your motivation's important.

Yeah.

I think a whole bunch of things. To me, including career and funding did look like the less scary, not easier, less scary

choice.

Interesting.

Why?

I suppose because back then, I didn't know any VCs or any real angels.

Really?

I didn't really know any angels.

And I just assumed they would be terrifying and obsessed with profit at all costs. And I had all these preconceived notions that were wrong a lot of the time. So equally, crowdfunding, because there were people I knew, there were customers, there were friends, there were family, there were whatever, just seemed as much as intimidating.

Not necessarily true.

One of the things I want to ask you about, and I don't know if it's in this video, the next one is like, for you, what were the benefits of crowdfunding apart from the money? Like were there any things that you saw as being...

Marketing.

And we'll definitely talk about that in the next one.

Yeah.

I did equity crowdfunding for multiple reasons. Money, obviously, but marketing was the other. I'll talk about it more in the subsequent video.

There's another one. Go and read that. Go and read that. Go and watch that. And so with my new startup, Incredibles, we don't need the money for a while. We will definitely be doing equity crowdfunding, pure marketing purposes.

Marketing.

Building a community and having people feel really invested in a company that helps us

build a community.

And I think the thing is, like, that's marketing, but it's almost more than that, right? It's engagement, it's community, it's people that care about the success of it. And for me, that's a benefit that I see. So not only have we supported these companies to crowdfund, we've equity crowdfunded ourselves

a few times.

And, you know, there are people in there that have skills and experiences that are super useful, but also places to stay when you're traveling the country or like, you know, there's just all these things that it's really hard to grow a company if you have a lot of people backing you and supporting you in different ways. In some ways, it is easier. So there's lots of different benefits. But I think the thing that I'm realizing is you have to want that crowd. Like, if you don't want that crown, then there's other ways to raise it. Yeah, if you want the quiet money for someone to shut up and go away in the corner, it's not for you. Would that be another...? Not that they're allowed, but your crown should be something you utilize.

Yeah, totally. Totally.

Not that they're there in your face, but if you just want to be least known and build something

in stealth mode, but not stealth mode, then maybe it's not the right one.

But I wonder if there's any money that's quiet money, right? Like, even...

I wouldn't have thought so.

Even in, like... Yeah, I don't know. I was going to say even the banks, you know, they want to be repaid, right? So they're not quiet, they're not getting what they want.

Yeah, and they definitely want the most info.

And your house, and preferably first born.

Yeah, first born, legal approval in multiple ways. Yeah, exactly. You don't like being banks either, do you?

She's getting off on the right foot.

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