Awareness among investors and skepticism among fundraisers are among the biggest challenges faced by Reg CF investment crowdfunding, but for Republic CEO and co-founder Ken Nguyen, those challenges are nothing new. Prior to founding Republic, Ken was general counsel at AngelList, one of the very first online fundraising platforms for startup investing, so Ken and the Republic team have been able to bring what they learned at AngelList to matching everyday investors with a curated collection of startups with a strong story to tell about why they’re raising capital.
Ken was gracious enough to chat about his journey to building Republic, his perspective on where the investment crowdfunding industry is headed (hint: bigger!) and what makes for successful Reg CF fundraising campaign. We’ve featured Republic before in 5 of the Best Equity Crowdfunding Sites for Beginning Investors, and you can check out our full profile and review of Republic from our database of investment crowdfunding and online alternative investment websites.
Republic CEO Ken Nguyen: It’s twofold. On the investor side, 90-plus percent of people have never made a private investment. Nowadays people’s attention span is so short, so it’s all about how to explain in a way that speaks to them within about 10 seconds so that they start paying attention. It’s about investor education and outreach. When talking to startups it’s different; they’re looking to fundraise, so they already want to pay attention and learn the details.
YieldTalk: Republic is enthusiastically courting those new to investing in startups, but for many people who haven’t done it before it’s likely an intimidating prospect. What advice do you have for someone making their first investment in a startup through a platform like Republic?
Ken Nguyen: Our advice has always been this: It’s a lot of fun, it’s very meaningful, but it’s also very high risk. Start small. Invest in 10 companies at $100, or 20 companies at $50 each. You’ll learn with each investment. We see people making small investments, and over time the average goes up as people learn and get more experience. Our typical investment size is $300-$400 (though it goes all the way up into tens of thousands).
YieldTalk: Before starting Republic you were General Counsel at AngelList. What did you learn from that experience that you brought to Republic?
Ken Nguyen: Both my co-founders and I spent a number of years building AngelList syndicates, so we took the approach that would enable us to scale even with millions of investors from the get go. The interface, the experience, just making it as easy as possible, not just for investors, but for companies raising as well. Reg CF is a complex process, we’ve productized to make it as cheap and easy as possible. It’s also about team building — do not hire and work with people you don’t want to spend time with socially! The Republic team is practically family to me.
YieldTalk: Republic seems to be focusing on underserved entrepreneur communities like women-founded companies. Was that the deliberate focus from the outset, or is that something that evolved along with the rollout of Reg CF?
Ken Nguyen: It was deliberate from the get go. Reg CF was just an add on for other platforms already doing online startup investing, but we saw Reg CF as an opportunity to really deliver on democratizing investments for investors and for entrepreneurs. That’s really close to my heart, and it will be part of the work I do for the rest of my life.
YieldTalk: It looks like you’re currently offering only Reg CF investments. Are there plans to also include any Reg A+ offerings?
Ken Nguyen: Yes, we’re looking at Reg A and secondary offerings. For year one — and possibly year 2— we want to make sure Reg A works, that it really is about everyday people putting small amounts of money in at scale. There’s also quite a bit of work to do to build the Reg CF ecosystem. Our focus right now is on making Reg CF and Republic work better.
YieldTalk: It’s now been a bit more than a year since Regulation Crowdfunding went live, and there’s still not much awareness among the general public about these kinds of investments. How long do you think it will take (if ever) for investing in startups to become more mainstream?
Ken Nguyen: In the UK we have a close parallel that’s useful. What we’re doing here has been legal there for about 5-6 years. At the outset of Reg CF last May a lot of people had these lofty expectations, but the first year for us actually met our expectations. It was 10X what the UK did in year 1, and the UK has about 1/10 population, so if you follow that traction, it will be 3-5 years to become a $1B industry.
YieldTalk: It’s obviously still early days, but two of the biggest clusters of investment crowdfunding sites are in Real Estate and Startup/Angel. In both categories, I’ve repeatedly heard incumbents dismiss crowdfunding offerings as “not good enough” for the traditional and incumbent funding sources like angel syndicates. How would you respond to a wary investor who’s hearing that?
Ken Nguyen: Well, our focus is on startups, so can only speak to that. Anything that’s new will take some time for people to get used to. First, a small investment in a pre-seed investment on our platform may actually be a much bigger return than a later-stage traditional VC investment. Second, the lens of what is hot or what is not hot, what is attractive or what is not — we believe that Reg CF will change that narrow myopic viewpoint. Perspective will be expanded to be companies that will do well and do good. Third, even companies that can fundraise easily from VCs may choose to do Reg CF to get something that other platforms cannot offer, which is marketing and branding. If you’re a consumer product company with 1,000 dedicated customers, if you manage to turn them into investors for $100, they will be brand ambassadors and will go out there and tell everyone about it. Usually you have to pay a lot for independent marketing to get that kind of value. I really think it’s a misconception this assumption of lower quality.
YieldTalk: It’s only been a year, but have you noticed any patterns in the companies that are successful in raising money through Reg CF on Republic?
Ken Nguyen: There’s three main traits of success, and it’s why our acceptance rate is well below 10%. First, companies that are mission driven or have a story to tell. It’s often a consumer good, but it definitely doesn’t have to be. Second, the strength of the founders or the team behind the company. Third, the readiness, the ability of that team and the founders to be willing to spend time and effort to really push a campaign. It’s not like you can just launch a campaign and people just invest. Fundraising is a lot of effort, and the right mindset is necessary.
YieldTalk: What do you provide to help the companies raising money on Republic?
Ken Nguyen: We provide two things. One, very hands-on support to help the company devise a marketing strategy. How they can more effectively leverage their network, leverage their investor and user base. Second, we have our own user base, our own customer base and media outreach. It’s really a 50/50 effort.
YieldTalk: Something I’ve heard from founders is that they’re reluctant to explore equity crowdfunding because they don’t want to overcomplicate their cap table, and/or they think a crowdfunding round will turn off future investors, especially traditional VC investors. How would you respond to a founder with those concerns?
Ken Nguyen: Cap Table messiness is surely a valid concern for companies looking for venture financing down the road. That’s why we came up with the CrowdSafe, giving economic upside to investors without converting them to shareholders. It helps alleviate administrative work. As far as signaling, somehow the thinking that it sends a signal, I don’t think that’s true. If you’re a consumer-facing startups and you get 5,000 people to believe in you and give you money, I think that speaks volumes about your abilities and your strength. If anything I think it’s going to be a positive signal. The network of VCs, their views have evolved over time. In the same way that when we first launched AngelList, there was a general hesitance in the VC community to recommend their portfolio companies to raise on AngelList, and that’s over.
YieldTalk: Many of the individual investors looking at investment crowdfunding aren’t professional investors — they’re doctors, lawyers, and executives from a range of industries. What are some of the most important fundamental concepts you thinks folks like that need to be familiar with before diving into alternative investments?
Ken Nguyen: For Reg CF it’s easy. The only thing we want people to understand is that this is high risk. Do not invest anything you cannot afford to lose completely. Beyond that it’s a learning process. It’s almost like MBA-lite: you read a story, ask a question of the founders, make your own decision. It’s highly individualized, and a lot of fun.
Our mission is not just to be an investment platform, we want to change people’s lifestyle just a little bit, increase their social engagement, just a little bit, by being part of the community. Compare it to 20 years ago with buying organic food, free-trade, or recycling. Fast-forward and that’s much more common. We want people to think of early-stage investing that way. It’s a chance to spend your money to help change the world into the way you want to see. If you care about environment, if you care about local businesses — it’s not just about return on investment. That’s where we think we’re very different. It’s about investing as vote in and ecosystem and in society.
YieldTalk: What’s the biggest limiting factor on dealflow for Republic? Is it the supply side with companies raising, or the investor side?
Ken Nguyen: Supply side is not a limiting factor. We’ve had close to 1,000 applications, and have gone forward with less than 2 dozen companies. While it will always be a focus on our end to pro-actively reach out to startups, in short, supply is a secondary concern. For us it’s about how to get a lot more people to know about it. How do you get 500,000 people every single month to know about equity crowdfunding? [Ed: tell them about YieldTalk!]
My sincere thanks to Republic CEO Ken Nguyen for taking the time to answer our questions. You can learn more about Republic from our database of crowdfunding investment websites, and you can read why we included Republic on our list of 5 of the best equity crowdfunding sites for beginning investors over on our blog.