Vet Startup Investments on Online Investment Platforms with KingsCrowd

Roy Morejon:
Welcome, entrepreneurs and startups, to Art of the Kickstart, the podcast that every entrepreneur needs to listen to before you launch. I’m your host, Roy Morejon, President and Founder of Enventys Partners, the world’s only turnkey product launch company that has helped over 2,000 innovations successfully raise over $400 million in capital since 2010. Each week, I interview a crowdfunding success story, an inspirational entrepreneur, or a business expert in order to help you take your startup to the next level. This show would not be possible without our main sponsor, Product Hype, a 300,000 member crowdfunding media site and newsletter that’s generated millions of dollars in sales for over 1,000 top tier projects since 2017. Check out producthype.co to subscribe to the weekly newsletter. Now let’s get on with the show.

Roy Morejon:
Welcome to another edition of Art of the Kickstart. Today, I am super excited because I am talking with the one and only Chris Lustrino, the Founder and CEO of KingsCrowd. And if you haven’t heard of KingsCrowd yet, what have you been doing? If you’re in the crowdfunding space, these guys are the private market’s first and only data-driven ratings and analytics platform. So Chris, I’m super excited to have you on the show and talk about all of the cool things that you’re doing over there at KingsCrowd.

Chris Lustrino:
Hey, thanks so much. I think this is going to be a really fun conversation. I’m looking forward to it.

Roy Morejon:
Yeah, it better be fun, Chris. No. So let’s give a little bit of background to our audience because most of the folks that listen are usually in the reward based crowdfunding side, but you’ve really built out an amazing platform over at KingsCrowd on the equity crowdfunding side. So, if you will give our audience a little bit of background about KingsCrowd.

Chris Lustrino:
Yeah, absolutely. So if you’re into the rewards crowdfunding space, you already understand the idea of, hey, if we can engage potential customers and fans and ambassadors of our business early on, that can really be a catalyst to grow our business. Well, that concept, which is phenomenal, was taken back in 2012 by the government and they created something called the Jobs Act and they said, “Hey, let’s not just allow for rewards. What if we could actually enable individuals to be able to own actual equity in these companies in the earliest, earliest days of the organizations?” And so now you have an opportunity as of 2016 to begin raising capital from the general public, from your customers, your fans, your ambassadors, all the same people you were doing rewards crowdfunding with, but actually give them a stake in the business. And that’s the thing that really excited me.

Chris Lustrino:
I came from the world of private equity and venture capital. I was coming up through the ranks and I was seeing that the traditional challenges of venture and private equity and the things that I didn’t really like about it, and I saw this new avenue that we’ve called equity crowdfunding. We’re now moving to online private markets to define it. But I got really excited at this notion that you could actually get literally anyone in the world to be able to back you early on and own actual equity in your company. And so, in 2018, I started a company called KingsCrowd with the very simple idea of providing all of the data and research that people are used to utilizing in the public equity markets, so when you look at Google or Facebook or any one of those companies, you can find really good research on those organizations.

Chris Lustrino:
Well, there was no one covering this brand new space that was emerging and so we have built the tools to help individual investors be able to intelligently look into this market, do their diligence, and be able to execute smart investments and build a diversified portfolio of really cool startups that they’re backing. So, that’s what we’re up to.

Roy Morejon:
Let’s talk about your mission. I know you’ve come from the finance background side of things. Has your mission changed when you launched KingsCrowd to now in what you’re doing in the marketplace?

Chris Lustrino:
The mission has never changed. I think the ambition has grown. So when I talk about the mission, our mission is to empower everyone to be able to invest into the private markets with confidence. That’s what it all boils down to. And that comes through education, awareness, research, data, providing all of the tools institutional investors have at their hands, but now providing it to the mass public. So, that is still our goal in life. But our ambitions of what our company will look like over the next decade I think have grown tremendously just because we’ve seen the opportunity that’s in front of us.

Roy Morejon:
Amazing. So tell me, how did you guys come up with the name for your company?

Chris Lustrino:
Ah, that’s a great question. Basically, I was very fortunate to be connected very early on when I was running a FinTech blog with John Fanning, who was the Founding Chairman and CEO of Napster, and just a brilliant individual and one of those crazy people from the early 2000s who has bought up millions of URLs over the years. And he said, “I have the perfect URL for this business.” And so, anyway, that’s where the name came from, but the idea behind KingsCrowd is that anyone can invest like a rich person. And so that’s where it came from.

Roy Morejon:
Nice. So let’s talk about your motivation, because I think that’s something that founders wane on as they get into it. But I think you’re leaning so heavily into this as well. What has changed in terms of your motivation just seeing the overall ridiculous growth of equity crowdfunding over the last year?

Chris Lustrino:
I would say, from a motivation perspective, it’s just the intensity of my motivation has grown. When I got into this, I came from the traditional world of venture capital and private equity, and I remember sitting at my desk at my old job and just being so bothered by the fact that I would see these amazing companies come across my desk that I was doing all of the diligence on and I was running point on the research and talking to the management teams, building the market models, and doing all of this research. And yet I was still being told because I was non-accredited, AKA a non-millionaire, and I didn’t work at the actual private equity shop, because we were just consulting to them, that I wasn’t smart enough to be able to invest in these companies. And the absurdity of that just drove me through the wall.

Chris Lustrino:
The other thing that I saw during that time, and I worked with several venture backed companies and got to know all sorts of different organizations, the venture ecosystem, I started to see the things that break down a traditional venture. And I think more than anything, the thing that has bothered me is this notion that venture capital and private equity are the only way to build a company in this day and age. And that’s simply not true. We have left out so many individuals and we have left out so many founders that have not been able to access these markets, the private equity markets, the venture markets that have provided so much of the funding for companies that have been created over the past two or three decades. But if you’re a female founder, if you’re a minority founder, if you just live in the wrong state, the odds that you would get the resources you needed to be successful were next to zero.

Chris Lustrino:
And if you’re an individual, who’s not a millionaire, the odds that you could access this asset class and invest in startups, which is one of the highest growth asset classes, was next to zero. And I just believe that, that is completely and utterly wrong. There is nothing brilliant about any venture capitalist or private equity shop other than the fact that they have the money to deploy, which by the way, they’re taking from other folks anyway. And so I just thought there had to be a better way. And the more and more I’ve grown this business with our team, the more I’ve realized that there is a better way. Raising capital online allows for companies that would never get access to capital to actually raise capital, which by the way, might very well be better companies than the ones that are getting funded because they’re solving new problems that aren’t being solved today in places we didn’t even think of at better prices and more and more people are getting to access those deals. And by the way, they have real data that they can access to make informed decisions on investing in these companies.

Chris Lustrino:
So everything about that dynamic of what’s occurring today is simply better than what exists in traditional private equity and venture capital. And so, for me, I’m all in on this thing. I care about it so deeply and want to make sure we get this into the hands of as many Americans as possible.

Roy Morejon:
Love it, Chris. So let’s talk about your team and your structure. I know you guys just went through an acquisition last week. So congrats on acquiring Crowdwise, adding educational content and some new investor tools to your portfolio of already amazing tools that you guys have there. But give us an idea of how you guys have structured the business.

Chris Lustrino:
Yeah, great question. So there’s, basically, I would say, three key components to our business and then an overarching element to all of that. So, essentially, as a data and research business, what our team looks like is we have a technology team, which is led actually by our CTO, who is the CTO of the Dow Jones Business Intelligence Group, and we have several full-time developers under him. And so they’re building all of the algorithms, the technology, the support infrastructure that enables the products that we actually provide to our customers. Then we have our Investment Research Team. Our Investment Research Team, which is led by our SVP of Investment Research, who comes from Carta and worked for a decade in venture capital and is a data scientist, leads a team of eight or nine full-time investment analysts now that focus on actually conducting the investment research around all of these startups that are raising capital online.

Chris Lustrino:
And then the last component that we have is our Marketing and Sales Team, which is actually making sure that our product gets into the hands of our customers. And then overarching all of that is the administrative elements, our Chief Legal Officer, who was Chief Counsel at Bank of America, and myself, and some operations folks to help enable the business to chug along and make sure all of those business units are working together.

Roy Morejon:
So I know one of the biggest components that you guys have is this amazing algorithm built out in terms of really reviewing and refining the data. But how have you gone about accessing data from all of these platforms and aggregating it back to the individual investor so that they can make strategic decisions on their investing?

Chris Lustrino:
Here’s a really interesting thing about this market. So prior to the Jobs Act, most private companies will work as hard as they can to hide nearly all of their data. So they don’t really need to share very much, whether it be their financials or whatever it may be. They’re essentially hiding behind this veiled wall of the private markets. And so what that’s created is an environment where it’s really hard to make informed investment decisions because you have next to no data. And if you talk to any venture capitalist, what they’ll tell you is, “Well, you really can’t use data on early stage companies because it’s just not indicative of anything.” And I’ve corrected them to say, “No, you haven’t been able to use data on private companies because there’s been no good data on private companies, especially at scale.”

Chris Lustrino:
So for the first time ever, thanks to the Jobs Act, over 3,000 companies alone have raised under regulation crowdfunding over the past five years and the rate of number of companies that are raising on capital is just exploding. I think right now there’s almost 600 companies live and raising capital today. Each and every one of those organizations files their past two years financials, which are a light touch audit, meaning that you can’t commit fraud in those financials. Your income statement, your balance sheet, so on and so forth, you’re filing your valuation and the terms, how many shares are available, all of that type of information is actually being filed. And so we collect all of that from essentially the EDGAR Filing website where a lot of this information lives through the government.

Chris Lustrino:
We pull in all of that data, and then in addition, we go and we do our own research. So we’re pulling data from the offering pages. We’re pulling data from LinkedIn. We’re pulling data from other third-party resources. We have our own data sources that we ingest. We do our own market sizing efforts, so on and so forth. Essentially, we build up over 225 data points on each and every company that we’re looking at, and then all of that data fills into five or six key buckets about that business, and we use our benchmark rating algorithm to then score how that company performs along key dimensions of the business in relation to all of the other businesses that are available for investment.

Roy Morejon:
Amazing. So I know you guys have raised millions of dollars overall from the crowd. You guys have an active campaign right now on Republic with over 50 investors and you guys have raised over $119,000 over the last two weeks of just launching. Talk a little bit about the preparation for that equity crowd funding campaign that you guys have just launched.

Chris Lustrino:
It’s a process, absolutely. So there’s two regulations that enable you to raise capital online. Actually, there’s three. To date, we’ve used regulation crowdfunding, and that’s the most common. And regulation crowdfunding got a huge facelift this year when the cap on how much money a company could raise went from $1 million to $5 million a year, which is huge. I mean, suddenly you can actually do a Series A utilizing Reg CF. Reg CF will take you four to six weeks get up and running. As long as your financials are somewhat in order, then you essentially need to get an accountant who will put together the statements and do the light touch audit. You’ll have to find a platform that fits your profile and what you’re looking for. You have to create an offering page, a deck, make sure your operating agreements are in place. But all of these things are things that should already be done if you’re thinking about raising capital.

Chris Lustrino:
So, typically, it’s not that heavy lift unless you’re truly starting from zero. But on the Reg CF side, you’re typically talking about four to six weeks to get started. Now, on the Regulation A Plus side, you can raise up to $75 million a year. We are utilizing Regulation A Plus to raise 15 million in our Series a. And so under Reg A Plus, you could think of this almost as a mini-IPO. You’re going through a full SEC qualification, deep audits of your financials, putting together over 100 pages about your business model and all of the risk disclosures. It almost looks like an S1. It’s very, very, in-depth. You go through comment periods with the SEC, and you could expect that the process is going to take you anywhere from three to six months. So it’s a very intensive process.

Chris Lustrino:
That’s on the administrative side, but then what you really want to be working on as a founder is to be thinking about, okay, once I launched this raise, how am I going to actually raise the capital? This is not an exercise in, if you build it, they will come. This is an exercise in, if you build it and you plan, and then you execute on that plan, then they will come. And so you need to know, who’s going to be coming in first in the deal? How am I going to drive momentum into the deal? What type of press do I want to do? What type of marketing do I want to do? Do I maybe even want to work with a boutique investment bank? What networks am I not tapping into today that I’ll need to tap into?

Chris Lustrino:
And so this is a full stack effort by the founder to devise and develop a plan that they will be able to execute on when they go live with their raise in order to build out that momentum. And if you do a good job of that, if you’re showing progress, then other folks who you don’t even know will begin to come into the deal. And that’s where it gets really exciting. But it does take a lot of effort. Raising capital, no matter what channel you use, is a lot of effort and you can’t think that if you just put it online, you’ll suddenly raise all of this money.

Roy Morejon:
So let’s talk a little bit about that prep work that you guys did leading up to your Republic campaign. What did that look like for this launch?

Chris Lustrino:
Yeah, in terms of prep work on the administrative side, honestly, that was just a lot of coordinating with lawyers and accountants. Never the most fun, but required. That’s what that looked like, and if anyone has questions about it, I’m happy to dive in depth on that, but it’s maybe not the most exciting topic. What I did on the investor acquisition front, prior to launching these raises, you really can’t go to market in any way and tell people that you’re doing it. So what I did is I just started to put together my list of folks that I’d be reaching out to. And I have my running funnel where I have those who are really hot that I think can come in and deploy capital quickly, all the way to those that I think I have next to no chance of being able to reach. I built out several different lists. Our current investors, we have 2,100 investors who have backed us to date.

Chris Lustrino:
So we put together all sorts of materials to be able to make them aware as soon as the raise was live, “Hey, come join us.” We put together surveys that we were ready to deploy on day one to say, “Are you interested in this round? How much would you like to deploy? Would you like to be invited to webinars to learn more about this experience?” We actually had several running lists of people we were going to reach out to and try to engage them day one, and then provide them with information as quickly as possible to get them excited, engaged, and ready to invest. And then one of the other things I did was I just continually stayed engaged with our current investors. So it’s just like with any business, your best investor is that repeat investor.

Chris Lustrino:
Though I couldn’t tell them about our series A, I could have conversations with lots of these folks who were writing 50, 100, 250K checks and just talk with them along the months in which I was preparing for a Series A, telling them about our progress, how things were going with the business, so that they were really excited and engaged so when they heard there was a Series A that they could help with, they were immediately ready to go and able to put in money. And then I started planning, okay, what’s tier two? So that was tier one, the most urgent things we could do, but then tier two was, okay, how do we expand outside of our own current universe? And so that’s where we started thinking about, okay, customers that we don’t know. We have 400,000 subscribers now, so how do we access those 400,000 subscribers and really start to engage them and bring them through an investor funnel, through email marketing, retargeting on Facebook, so on and so forth?

Chris Lustrino:
I engaged an investment bank that we’re now working with that is really excited about the digital security space and started to build a relationship and get them to understand the story so that, again, on day one, we’re ready to start to go to market with this investment opportunity. I started talking to digital marketing agencies that we could potentially work with. You have to plan all of the different facets so that on day one you have the plan for the next four to eight weeks where you’re really going to drive a whole ton of momentum into the deal.

Roy Morejon:
Absolutely. No one usually wants to be the first person on the dance floor, but once that party is going on, everybody wants to join in.

Chris Lustrino:
Oh man, there’s never been a truer statement. No one wants to be the first one on the dance floor. It’s so funny. I remember in our last round of funding, I struggled for months to get people to commit because we were still really, really early on. So now we’re 20 full-time, hundreds of thousands of subscribers. At the time, we were three full-time and less than 100,000 subscribers. And I remember what a struggle it was to just get those first people, because everyone was worried, if I go in and no one else does, this thing’s just going to tank in the next three to five months. And we finally just hit lightning in a bottle sometime around the beginning of 2020. And then it was so funny, all those folks I’d been talking to you for six or eight months that I couldn’t get to go suddenly were rushing to get in, and in a three or four week period, we ended up selling out the round.

Chris Lustrino:
And I can’t tell you how many of them were then coming to me and saying, “Chris, why didn’t you tell me. I really wanted in.” And it’s like, “I have been telling you every week for the past six months, what are you talking about?” But it was just amazing, once that momentum got going, it was a really fun to watch.

Roy Morejon:
It’s crazy what a little bit of social proof will do, right?

Chris Lustrino:
Oh my gosh, absolutely.

Roy Morejon:
So, Chris, with all of the access to data that you guys have, I’m very interested to hear, what made you choose Republic over other platforms?

Chris Lustrino:
Great question. So at KingsCrowd, we have quantitative ratings and we have qualitative ratings. The quantitative is truly data-driven. We remove all of our emotions from the process and we’re trying to remove as many biases as possible and really do something at scale. And then the qualitative ratings are, “Hey, we recognize there are nuances that maybe data doesn’t capture. Maybe we’re wrong, but we at least want to provide this qualitative lens.” And so taking that and extrapolating it to the platforms, I was talking about the companies, but if I discuss the platforms, Republic, StartEngine, Wefunder, they are always the top three, and month to month they switch positions who’s in first and what have you. And so, for me, quantitatively, I knew they were in the top three. Sometimes they’re one. Sometimes they’re three. StartEngine is probably the leader. Wefunder is right there too.

Chris Lustrino:
But, for me, I really like the folks at Republic. I really love the way that they present deals on Republic. I think they do great visuals, great branding for your organization. And so it just, to me, felt like the platform I want it to be on because quantitatively I knew they were in the top three and qualitatively I just love the brand and image that they convey, even if they’re not always the largest. So that’s how I made that decision, but I’ll tell you, you really can’t go wrong. Wefunder, StartEngine, Republic, they’re all wonderful platforms. And in the past, I’ve used smaller ones and the nice thing about that is there’s a little more handholding too. So there’s multiple elements to think about. You want to find a place where you think they can help drive dollars, but you also want to think about, is this the right fit for the visual and brand of my business?

Roy Morejon:
Yeah. Kendrick’s definitely built an amazing team over there at Republic. So shout out to him and all the work that they’ve been putting in to build that platform up.

Chris Lustrino:
Absolutely.

Roy Morejon:
Well, Chris, this has been amazing. This is going to get us into our launch round where I’m going to rapid-fire a handful of questions at you. You good to go?

Chris Lustrino:
Let’s do it.

Roy Morejon:
All right. So what inspired you to be an entrepreneur?

Chris Lustrino:
I started a FinTech blog on the side while I was working in management consulting. I was getting this great paycheck and working really hard with super smart people, but I just didn’t feel like I was making a difference and I felt as though I was having to accept the status quo, and I just couldn’t do that. It drove me nuts. And when I started working on this FinTech blog and was literally meeting incredible founders every day on the phone, in person, going to events, I just realized that I connected so much more with those people. And even though it was incredibly scary, running this little blog was so much more rewarding than anything I was doing in my full-time job. And talking to these founders was so energizing that it eventually just compelled me to be like, “I have to do this. I don’t have another option. Even if I want there to be another option, I have to be a founder.” So I was really compelled to it through the blog and meeting all of those incredible founders along the way.

Roy Morejon:
Well, speaking about incredible founders, if you could meet with any of those or any entrepreneur throughout history, who would it be?

Chris Lustrino:
Wow. If I could meet with any entrepreneur throughout history, you know what, I will say, Richard Branson. He has an amazing book, and I’m blanking on the name at the moment. But I read his book and I was just so amazed at his story and so energized by his story. So think about a guy who started by building a records business and just having fun with that. And then the fact that he’s gone into airlines and transportation and space and everything he does, people would say the level of focus he has would never work, that you need to be a brand that’s focused on doing one thing really well. But what he’s done is created a brand that’s really good at uplifting any industry that it goes into. And it’s just unbelievable how he’s just continue to innovate and build greater and greater ambitious things. And I’m blown away by him and he’s still having a lot of fun, which is even better.

Roy Morejon:
Yeah, I think you’re talking about probably his most famous book, maybe, Losing My Virginity.

Chris Lustrino:
That might be it. Yep, I think that’s right.

Roy Morejon:
It’s either that or Screw It, Let’s Do It as another book that Richard Branson has published.

Chris Lustrino:
Yeah, I think it’s the Losing Virginity one, I think you’re right.

Roy Morejon:
Fair enough. Let’s see, in terms of resources, any people, websites, newsletters, podcasts that you should tell other startup founders to make sure that they’re following to stay up to date in the industry?

Chris Lustrino:
I’ll tell you specifically for our industry, if you’re trying to get up to date on what’s going on in the online private market ecosystem, obviously, check out kingscrowd.com. We have tons of educational resources. The organization that we just acquired that will now be a brand of KingsCrowd is crowdwise.org. There’s a ton of really amazing information on this industry there. Additionally, go check out the platforms, republic.co, wefunder.com, startengine.com, netcapital.com, microventures.com. There’s a great news website called crowdfundinsider.com. So go check out all of these resources and you’ll get a really good sense of what’s going on in this market.

Roy Morejon:
Absolutely. What advice, Chris, would you give to a new inventor or entrepreneur that’s looking to launch their company using equity crowdfunding?

Chris Lustrino:
So I’ll start with the best advice that I ever got before I started. And every founder I talked to, by the way, on my FinTech blog back in the day, I asked them the question, what piece of advice would you give to someone starting out? And it’s amazing. I’m pretty sure the predominant answer was, “Just do it. Just get started.” And I don’t think there’s any better truth than that. You really do just need to get going. Sitting on the sidelines, analysis paralysis, isn’t going to get you anywhere. Eventually, you just need to make it happen. And so that’s what I would say to an entrepreneur getting started. And then if you’re considering this route, going back to what we were just talking about, go check out all of these resources. Decide, is this for you?

Chris Lustrino:
And one piece of advice I would give is, a lot of people think it’s an either/or, “Oh, I have to do venture capital or I have to do equity crowdfunding.” And that’s simply not true. The capital stack is very deep. You have more resources than ever. Make sure you use them all for the right situation at the right time. There’s probably no better way to get started than raising capital online and getting validity from a community of investors saying, “I believe enough in this idea to put my own hard dollars to work in this organization.” And so, really consider it strongly as an option, do your homework, and start reaching out to the platforms.

Roy Morejon:
Amazing. Chris, last question. And because you have probably access to the most amount of data in the equity crowdfunding space, really interested to hear your take on what the future of crowdfunding looks like.

Chris Lustrino:
In my worldview, over the next decade, the private markets will be a ubiquitous part of each and every person’s investment portfolio in the United States and probably globally as well. People won’t think anything of it to have a 5% of their retirement portfolio or of just their brokerage account allocated to private equities, from pre-seed to pre-IPO. More and more, the regulatory environment is loosening to enable people to invest in the private markets and more and more technology is enabling the transaction into these private companies at all stages in life cycles. And so the opportunity presents itself for the biggest asset managers in the world to begin to offer these solutions to retail investors. We’re seeing that appetite from the big players, and I really do think over the next decade, it’ll just become something that’s very commonplace you won’t even think anything of it to say, “Oh yeah, I’m invested in these four startups,” doing X, Y, and Z in the clean tech space or in the ESG space. And it won’t even mean anything to you because you won’t realize that, that wasn’t possible 15 or 20 years before.

Roy Morejon:
Amazing. Well, Chris, this is your opportunity to give our audience your pitch. Tell people what you’re all about, where people should go, and why they should check out KingsCrowd.

Chris Lustrino:
If you’re interested at all in anything I’ve had to say today, definitely go check out kingscrowd.com. We are here to help enable your journey into startup investing. We know this as a new asset class. We know people need to be educated and there are so many unknowns, and that’s what we’re here to help answer. So if you’re looking for education and resources to just learn more about this space, come check us out. Check out our Crowd-epedia section, and we have all sorts of resources for you to use free. And then if you’re really getting into it and you’re starting to make those first investments, definitely check out our paid tiers, which will allow you to access all of our data and research on the thousands of companies that are raising capital online. And hopefully that will really enable you to make good investment decisions when it comes to making startup investments and have fun doing it.

Roy Morejon:
I think that’s a key point, Chris. So, again, Chris, amazing to have you on the show. Audience, thank you again for tuning in. Make sure to visit artofthekickstart.com for the notes, the transcript, links to all the campaigns, and everything else we talked about today. And, of course, I’ve got to thank our crowdfunding podcast sponsors, Gadget Flow and Product Type. Chris, thank you so much for joining us today on Art of the Kickstart.

Chris Lustrino:
Thank you. It’s been a pleasure. Take care, Roy.

Roy Morejon:
Thanks for tuning into another amazing 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, show us some love by giving us a great rating on your favorite listening station. And, of course, make sure to visit artofthekickstart.com for all the previous episodes. And if you need some help, that’s what we’re here for. Make sure to send me an email to info@artofthekickstart.com. Thanks for tuning in and I’ll see you on the next episode.