Due Diligence for Equity Crowdfunding – AOTK179

Roy Morejon:

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Welcome to Art of the Kickstart, your source for crowdfunding campaign success. I’m your host Roy Morejon, President of Command Partners, the top full service crowdfunding marketing agency in the world. We have helped raise over $70 million for our clients since 2010. Each week I’ll interview a crowdfunding success story, an inspirational entrepreneur, or a business expert in order to help take your startup to the next level with crowdfunding. Art of the Kickstart is honored to be sponsored by the Gadget Flow, a product discovery platform that helps you discover, save and buy awesome products. The Gadget Flow is the ultimate buyer’s guide for cool luxury gadgets and creative gifts. To learn more visit thegadgetflow.com. Let’s get on with the show. Welcome to another edition of Art of the Kickstart. Today I am joined by Jake Fisher with Crowdfund Research. Jake, thank you so much for joining us.

Jake Fisher:

Thank you for having me, Roy.

Roy Morejon:

All right. Jake, so we’re going to take a little turn on this episode of Art of the Kickstart and talk about equity crowdfunding. I know a lot of our audience has been looking into it. It’s getting more publicity, more press here locally, especially in the United States. Talk to us a little bit about what Crowdfund Research is.

Jake Fisher:

Crowdfund Research is a site that me and a few colleagues, a combination of venture capitalists, angels, startup lawyers, we kind of came together and saw the opportunity in equity crowdfunding as it kind of has emerged over the last handful of months, ever since the JOBS effect went into place. We were seeing issues with crowdfunding and we were seeing opportunities with crowdfunding. As always, there’s always ways of doing things better and we were looking for how we can help and make crowdfunding better not only for startups, but for investors as well. We kind of focused on the investor side of looking at equity crowdfunding.

We do due diligence reviews, which a due diligence review is whenever a VC fund, or an investor is looking at making an angel investment, or a VC investment, they’re going to create kind of a report for in-house use, so “This is what we like about it. This is what we don’t like about this startup. These are the opportunities that we see. These are kind of the background information of the industry.” We do all these … We create the same style of report and we publicize it for all equity investors, all crowdfunding equity investors to take a look at and just kind of see how other investors are evaluating equity crowdfunding campaigns.

Roy Morejon:

Yeah, it’s impressive. Your mission is to provide crowdfunding investors with the same level of research as a VC fund would perform. Is that your background, Jake?

Jake Fisher:

I have a background as an entrepreneur. I’ve had a handful of startups myself. I originally started in the podcasting world back before iTunes had even adopted podcasting back in ’05 and got to work on a few different companies since, some of my own, some of others. Had the opportunity in the last couple of years to kind of start working heavily in the investing space working with startups, helping them get through the process, and kind of got to do some consultant work of my own and enjoyed getting to work with a handful of different startups, and something new and exciting every week. I’m a bit of an angel investor myself, as well.

Roy Morejon:

How did you end up getting into equity crowdfunding?

Jake Fisher:

I’ve seen it. I saw the news come across in the past, seen the legislation lead up to the JOBS Act when it was passed. It was kind of one of those things where this is a cool opportunity just for anyone to get involved. I’m from the Midwest, I’m from Minnesota and it’s not Silicon Valley up here. We try our best and we have a great startup scene here in Minneapolis, but it’s still not the same opportunities and resources that you have in some of the hotspots like Silicon Valley or New York City. It takes a little bit more legwork, and I saw crowdfunding as a way for all these startups that might not be on Sand Hill Road to have an opportunity to reach some new exciting crowd and spread the word of their startup. It’s just another opportunity that kind of makes it more of an even playing field, I think.

Roy Morejon:

Interesting. What do you think some of the biggest benefits equity crowdfunding offers to entrepreneurs these days?

Jake Fisher:

Equity crowdfunding opens up a whole new resource of investors. Before equity crowdfunding became legal to non-accredited investors, it was restricted to people that had the means to take the risks. There’s a lot more of the crowd out there, as your audience knows, that they want to invest in the next Facebook, Google, Microsoft or whatever exciting startup coming down through the pipeline. It opens up the opportunity to not just the select few.

Roy Morejon:

In all of your research, what do you believe makes a project a good fit for equity crowdfunding?

Jake Fisher:

Right now, having a big audience certainly helps. The equity crowdfunding is a great opportunity for startups to kind of capitalize on their own audience that they’ve already built, or their own network, or customers and create them as … Bring them in as shareholders, as well. Not just a customer, or a client.

Roy Morejon:

Outside of building the crowd before the campaign launches, what would you say the next most important task a company should do before launching their equity crowdfunding project?

Jake Fisher:

Making sure you have all your ducks in a line. Making sure that you have all of your accounting up to date. With equity crowdfunding you do have to have a bit of an accounting review done by a CPA to make sure that’s done. Having things checked over by your lawyer. Making sure you have your message clear. Just like in a Kickstarter or Indiegogo campaign, you got to be able to fully explain what your idea is and make sure that your audience and your target market is going to understand who you are, what you’re doing, and why you’re doing it.

Roy Morejon:

Absolutely. In all of your research, what do you think happens with those equity crowdfunding campaigns that are unsuccessful?

Jake Fisher:

A lot of times it could be they didn’t have a product idea that the mass consumer thought was interesting. There’s a lot of times where there could be, they may not have structured the deal terms in favor of the investors, or a fair offering. Happens quite a few times. Just making sure that you have everything that looks appealing to an investor, because at the end of the day you are selling something. You’re just selling your company to investors.

Roy Morejon:

Absolutely. Over the last few years you’ve been working on the equity crowdfunding, what have you seen change most over the last few years?

Jake Fisher:

Just the opening up the non-accredited investors. That’s the biggest change in the last year, but just the acceptance of new and alternative forms of investing. You see opportunities like Lending Club, Prosper, Realty Mogul, all these new interesting ways for people to invest their money in. You’re not just restricted to the stock market anymore, or working with your local investment advisor. There’s opportunities to really find investments that fit your profile and fit what you want to invest in. That can be socially responsible investing, whether you’re investing in green technology, investing in tech startups, investing in the housing market. There’s a whole new opportunity out there with crowdfunding and with how these other online platforms are developing to offer alternative investment solutions.

Roy Morejon:

Absolutely. In working with Crowdfund Research, what’s been the most rewarding aspect of what you’ve done thus far?

Jake Fisher:

Helping out investors. I kind of compare what we’re doing to the edmunds.com of crowdfunding. If you’re not familiar with looking at crowdfunding campaigns, or evaluating startups, it’s a daunting task and they … On these portals they present a lot of information. You can dig really deep into these and there’s opportunities to look at financial statements, dig deep into the crowdfund offering itself, which often times could be overwhelming. Kind of something that you’d usually think you’d have a lawyer look over. It’s just an overwhelming experience at first, but it’s definitely something that can be learned and something you can get comfortable with for anybody, I’d say. Just being able to help those investors and kind of show them how other investors that maybe have a little bit more experience are evaluating campaigns, and what they’re looking for, and what they’re not looking for.

Roy Morejon:

Yeah. That brings up a good point. On the investor side, what should investors look for in an equity crowdfunding project? What are some of the top things they should look at?

Jake Fisher:

It really depends on each individual preference. That’s the challenge is everybody has a different objective or goals that they’re looking for in an investment and it’s all a lot of personal preference and your risk profile. Things to look for is a solid founding team, knowing that there’s a solid CEO in place. That’s always a great start, looking at what their experience is. If they’re a first time founder, or if this isn’t their first rodeo always makes a difference. Look who their advisor board is, that’s another great opportunity. If they have some solid advisors in place, that means that they’re at least getting some good guidance and some good council to help them along the path of making a successful startup.

Seeing how they compare to their competition. Is this startup going to be selling a product that’s twice as expensive as you can buy on Amazon.com right now? Things like that are always good opportunities to look for. How are they making their money? Are they selling it in what’s commonly referred to as a SaaS, or a software as a service model? Which is a monthly subscription. Is it a one-time fee? How is this company making their money? Always a great step is, would you buy the product that they’re selling? That’s always … What’s fun about investing is you can invest in products that you love, just like you do on Kickstarter and Indiegogo, only now you’re investing in the companies and not just the products.

Roy Morejon:

Absolutely. On the investor side again, how can they use your website, Crowdfund Research, to get more of that info?

Jake Fisher:

What we do is we create a due diligence report and that kind of brings together all of the backend facts that typically investors are looking for. We follow a lot of the same format as the Kauffman Foundation, which is a foundation that works to help entrepreneurs, investors and startups in general. They kind of have put out a due diligence checklist, where it’s 20-some odd items and we cover a lot of those things of just kind of pulling out the key pieces of information. Some of it could be buried in an offering, or in financial statements and we try to bring it all together in one place, so that you kind of quickly get a feel for is this going in the right direction for me as an investment, and kind of gives you a starting step to start doing some more homework and some more due diligence on your own.

Roy Morejon:

Absolutely. On the company side then, what would be your biggest piece of advice for an entrepreneur or a company planning to launch their equity crowdfunding campaign this year?

Jake Fisher:

Talk to an investor. Find or go down to your local startup incubator, or your chamber of commerce. Look for somebody that would be potentially investing in startups. Even if it’s just a conversation, say, “What do you think is a fair offering?” A lot of times I see campaigns that are great companies, but bad deals. I think that’s a shame when just the wrong deal terms, because maybe they overpriced, or maybe they structured it that won’t be appealing to investors. Find somebody that has worked in the space and just have a conversation. Ask them, “What would you be willing to invest at?” If you have one person that would be potentially willing to invest at that price, there’s a good chance that somebody else might too.

Roy Morejon:

Awesome. This has been great, Jake. Let’s launch into our rapid fire question round. Are you good to go?

Jake Fisher:

Good to go.

Roy Morejon:

All right. What inspired you to be an entrepreneur?

Jake Fisher:

I started like many, many young entrepreneurs mowing lawns. I started mowing neighbor’s lawns, and that thrill of getting to work for myself, and make some money, and take pride in what you do, and I think that’s kind of the spirit of entrepreneurship.

Roy Morejon:

I figured you would’ve started shoveling snow up there in Minnesota.

Jake Fisher:

Oh, that was part of it. Yeah, it started with lawn mowing.

Roy Morejon:

Fair enough. If you could meet any entrepreneur throughout history, who would it be?

Jake Fisher:

Oo, that is a good question. Obviously, the fun ones to always think about are the guys on Shark Tank, Mark Cuban, Daymond John, those are always fun ones to just have met. I’m trying to think, top entrepreneurs? Paul Graham would be a fun one for me to meet. Paul Graham is the … Started Y Combinator in Silicon Valley, one of the top accelerators in the country. One of those guys where you can read his posts and really see kind of the knowledge of more than just this is how to run a business, but this is why business is successful.

Roy Morejon:

What would be your first question to him?

Jake Fisher:

What is the best book you could recommend?

Roy Morejon:

Fair enough. How about business books, what book are you reading right now, or would you recommend to our audience?

Jake Fisher:

Venture Deals by Brad Feld is always my top recommendation to any startup that’s looking to go in through the funding process. It’s a book that gives you amazing amounts of knowledge and the tagline on the book is, “Be smarter than your lawyer and your VC.” I think that’s just kind of that ultimate cheat sheet of being comfortable to have the conversation and not feeling overwhelm.

Roy Morejon:

What’s your favorite crowdfunding project?

Jake Fisher:

Favorite crowdfunding project? I think there’s a couple of them lately that have been breweries. It’s always exciting, because that’s a new space to look at. Every town right now has that, you can see there’s three new breweries opening right by your house, or right around the corner it seems like. It’s kind of an exciting new space as that develops.

Roy Morejon:

Yeah, I think Charlotte here locally is becoming the craft brewery central location of America.

Jake Fisher:

They seem to pop up everywhere.

Roy Morejon:

Absolutely. Where do you see yourself in five years, Jake?

Jake Fisher:

I see myself as probably five more startups down the line. It’s always fun for me to start, grow and look to the future at how I can expand a new startup and that’s what kind of keeps me excited is always having a new adventure.

Roy Morejon:

Awesome. Last question in the launch round, what does the future of crowdfunding look like?

Jake Fisher:

The future of crowdfunding is still unknown. That’s why it’s such an exciting space. Anybody can voice an opinion right now and laws are changing and adapting as we kind of figure out the space and what works best for everybody. That’s why I kind of enjoy crowdfunding, is there’s so much room to make an impression right now. To be that first company in your industry to launch a crowdfunding campaign. There’s still plenty of opportunity to be that and the press that can go along with that is an awesome opportunity. I’d like to see crowdfunding take on, or equity crowdfunding take on a similar model to a site like AngelList, where they have a syndicate lead system set up where you follow an established investor and you see the deals that they’re investing in and can participate in those deals.

Roy Morejon:

Absolutely. Jake, you’ve been awesome. Please give our audience your pitch, tell them what you’re all about, where people should go and why they should go check out Crowdfund Research.

Jake Fisher:

Crowdfund Research is due diligence for equity crowdfunding campaigns. We’re the guys out there looking out for investors and trying to help you learn how to evaluate startups. When you’re looking at investing with crowdfunding campaigns, we’re always open for questions if you need to talk to somebody, or your excited about the space, you want to get involved, we’d love to talk to you. Check out kind of the range of our contributors. We’re up to eight different contributors right now, so you get to see different opinions. Some of our contributors give opinions differently than others, so it’s exciting to see how others are looking at startups. You can check us out at cfresearch.co.

Roy Morejon:

Jake, awesome. Thank you so much. I know this is a new topic for a lot of our crowdfunders here on Art of the Kickstart, but obviously thank you everyone for tuning in. Make sure to visit artkick.wpengine.com for all the show notes, the full transcript, links to everything we talked about today. Again, thank you to our sponsors Gadget Flow and BackerKit. Jake, thank you so much for being on the show.

Jake Fisher:

Thank you, Roy.

Roy Morejon:

Thanks for tuning into another episode of Art of the Kickstart, the show about building a better business, world and life with crowdfunding. If you’ve enjoyed today’s episode be sure to visit artkick.wpengine.com and tell us about it. There you’ll find additional information about past episodes and our Kickstart Guide to Crushing It. If you loved this episode, leave us a review at artkick.wpengine.com/iTunes. It helps more inventors and entrepreneurs find the show and helps us get better guests on here to help build your business. If you need a more hands on crowdfunding strategy, please feel free to request a quote on commandpartners.com. Thanks again for tuning in, we’ll see you soon.