Fundraising During a Pandemic

Josh Amster, VP of Sales @ StartEngine

Startup Grad School Stage
Ascent Conference 2020

[00:00:03] All right. Hello, everybody, my name is Josh Amster, I am the vice president of sales at Start Engine. And today we are going to be discussing fundraising during a pandemic and really shining a light on the equity crowdfunding space and how this is a fundraising avenue that has grown tremendously during the pandemic period and how companies are taking advantage of this space to raise capital for their business. The agenda today. First, we’re going to talk a little bit about fundraising during the pandemic, as I just mentioned. We’ll dove into a specific offering that was running during this period of time and how they perform. And then we’ll kind of shed a little bit of light on the future of fundraising and what we Astarte engine believe things are going to look like as we move forward here. My name again and Josh Amster on the vice president of sales at Start Engine, I’ve been with the business and pretty much the very beginning back. The company was founded in June of fifteen, twenty fifteen. I joined the company shortly thereafter, was the first salesperson on the team and have been responsible for building out the sales and service team at the company over the last five years. So what is start engine first start engine? What we do is we help entrepreneurs achieve their dreams by accessing the general public for investment. So the small businesses that we work with are utilizing our platform and raising money from the general public to help grow their own business. Since we launched in twenty fifteen, we have helped over three hundred and fifty companies raise over two hundred million dollars from more than two hundred and seventy five thousand investors. And the growth that we’ve seen, especially in this year of twenty twenty alone, has been quite staggering. And I’ll share that information with you in just a bit. So fundraising during a pandemic.

[00:02:14] I think this is a very important topic to dove into at this point. A lot of companies and small businesses are unsure how they can secure capital to grow. But what we’re seeing is actually that it can be done. And I’m going to talk a little bit about that. But but first, it’s important to understand how to venture capital firms behave during a recession.

[00:02:39] So if you look at this graph here, it shows you the number of investments made by venture capital firms and the total amount that was invested in it kind of covers the 2000 to 2010 period where there were two known risk recessions and the dotcom bubble and then the 2008 recession as well. And as you can see, during those periods, the total number of investment and the total dollars invested decreased significantly during recessionary periods. And obviously what that means is companies are still in need of capital. Where do they go to secure that capital?

[00:03:19] This chart here as well shows a little bit about venture capital. Firms were asked how they were behaving during the covid-19 pandemic and almost over half of the graph there, the VCs answer that they were taking fewer meetings and they were spending more time on their existing portfolio versus new opportunities. Another big chunk is they were slowing their investment pace. You know, that accounts for over 60 percent of the graph here. Over 70 percent of the graph are made up by those three sections. So clearly, venture capital companies are taking a more conservative approach during this period of time. How about over at Start Engine and what we’re seeing so this graph here shows the invested amount on a weekly basis and it starts at least nine of this year, which is basically the beginning of March, and it runs through a week, 30 of this year, which is towards the middle of July. And what you can see here is that in the beginning of March, we were raising around a million dollars a week for companies on our platform that has grown to over four million dollars a week in investment for companies on our platform. So a tremendous, staggering increase in investment during this pandemic period, which is proving that the general public is still eager to invest in companies, are still able to access capital in other ways than the traditional sources that the venture capital firms and angel investment.

[00:05:04] Kind of comparing a little bit between venture capital and equity crowdfunding devices from a scientific standpoint, 80 percent of their money goes to companies in the top five metropolitan area. That compared to equity crowdfunding, where forty two percent of the funding goes to the top five metro areas. So it’s much more spread out of where the money’s going and where these companies are from gender diversity. Obviously, this is a very big topic of conversation and there’s been a lot of issues and challenges in the venture capital space about, you know, who is getting the funding, women, men, whatever it might be. And in twenty, nineteen, eleven and a half percent of VC funding went to a team with a female or co-founder back compared to equity crowdfunding, where close to twenty eight percent of the funding went to a team with a female co-founder. So a lot more inclusion in the equity crowdfunding space, a lot more diversity in the equity crowdfunding space than what you’re seeing in the venture cap venture capital space. Venture capital, the traditional sort of road map, looks like the pristine round where it’s generally less than a million dollars. Many banks don’t even invest at that stage. They really start to come in at the seed round or the series day and beyond. The average seed round is around one point seven million dollars. The average series is at fifteen point six million.

[00:06:30] Equity crowdfunding can follow that road map as well. And what you can see here is regulation. Crowdfunding allows businesses to raise up to a million dollars and seventy thousand in one year. The average is on start engines platform is three hundred and fifty seven thousand. So that’s that pristine sort of round that companies are looking for. They can take advantage and access that capital to equity crowdfunding and regulation, crowdfunding specifically to seed round or the series days tend to go towards reggae’s. That’s the offering. The piece of legislation that allows businesses to raise up the 50 million dollars in a given year. And the average reggae raise on our platform is at two point seven million dollars. So companies will do their precede using Rexy, maybe even their seed round, using, reciept, and then they’ll move into reggae for their series A, B, C, whatever it might be, is that rule allows you to raise fifty million dollars every single year. And you can see here some of the rounds that we’ve seen of late on our platform nightscope at the company that raised over twenty four million dollars on start engine that raised close just a few months ago, Elio Motors was able to raise nearly 17 million dollars. And our platform and we’ve a company raising right now TerraCycle that has raised over 13 million dollars from the general public. So it is very clear that more and more companies are now raising from the crowd, especially as the more traditional sources of capital are becoming more conservative during this period of time. One interesting stat that people should be aware of is that 40 percent of the CEOs that are able to secure venture capital investment are gone, removed from their position within three rounds of investment. So that’s a pretty staggering stat. 40 percent of the founders of the CEOs are pushed out of their own company by their investors because they don’t like the way that business is being run. That just doesn’t happen in the equity crowdfunding space. And it’s because the entrepreneurs set their own terms. They are the ones in control of that process. They’re not giving away board seats. They’re not giving up anything they’re uncomfortable with. For the most part, the companies are selling common stock and their business that is non-voting to the general public for them to invest them at a valuation that they’ve determined themselves. So it’s very favorable and entrepreneurial terms for offerings that are conducted through equity crowdfunding. And if you’re successful in equity crowdfunding, there’s so many secondary benefits that you receive from it. Besides that, the capital that you secure one is that you’re going to build a large army of brand ambassadors. So successful companies generally have a few hundred, if not thousands of investors that come in there. Often those people are now your greatest ambassadors and can help you to increase your sales by buying products to open new doors to people that they may know and just go to bat for you and spread the word about your business to their community. You also, because this is something where marketing is such a big component of success to drive people into the raise your brand equity is going to be increasing dramatically during an equity crowdfunding campaign. And if you’re a consumer facing, there is a way for you to increase your sales at the same time. So not only when someone invests can they get the equity in the business, but they can also receive a perk that gives them a discount on product in the future. So people will invest, they’ll get the shares, then they’ll go on the company’s website and they’ll buy products to help the increase the sales and revenue that a company is earning. So, you know, those are many of the reasons why more and more companies are turning to the crowd for investment as opposed to going to the more traditional sources of capital. So I want to talk a little bit then about an example of a company that was able to do this extremely successfully, nightscope, as you can see here, they just closed their around at the end of July and they were able to raise over twenty three million dollars from the general public. Nightscope is a autonomous security robot company. So these robots that you can see here in this image, what they do is they patrol commercial areas, things like malls and hospitals and things like that. So instead of having a patrol guard on duty, you know, a 12 hour shift, you have this robot that is patrolling the area and picking up any suspicious activity that the robot may see. How do they do it? So first off, the founder of the company was extremely committed to making this a successful campaign. I don’t think this is any different than being able to secure more traditional financing from a viewer or an angel, but it’s going to take the focus from the founder to be successful. This isn’t something that you just post on the website and it builds up on its own. It does require companies attention. And the more committed the executive team is to the offering, the more successful the offering is likely to be. You really have to tell also a great story. The general public is interested in investing in companies that are making our world safer, cleaner, more efficient, whatever it may be. So the why of why you do what you do is so critical. And that message then gets distributed in all the marketing out to the general public that hopefully will capture their interest and get them to come to your offering and invest in the the offerings, optimize, optimize, optimize. So, you know, I can tell you firsthand, working with nightscope on this offering, it wasn’t something that necessarily we got right off the bat. The money didn’t pour in on day one. But after we kept kind of looking at what we were doing and optimizing and adjusting our messaging and our marketing efforts, we were able to fine tune things to get it to a point where it obviously clicked and the company was able to surge and raise the amount of money that they did. You’ve got to have a mindset that I may not be exactly right in the first messaging that I go out to the public with. Maybe it will be, but if it’s not, I need to be able to adjust on the fly and figure out a way to make this work. And that’s something that we have started to help tremendously with as the companies go through these offerings. Lastly, promote this offering everywhere you’re allowed. So these regulations that allow the public to invest in private companies, they allow for general solicitation. You can advertise on Facebook, on television, you can, you know, PR influencer marketing. There’s there’s so many ways to advertise the campaign that online that you are now allowed to do, which previously, before these regulations were in effect, companies were not able to do that to raise capital. So there’s very many ways that companies are able to promote themselves to the campaign and many different strategies that are working very effective. One of those being digital advertising. So a recap of what worked for the nightscope offering, first and foremost, we made many edits and adjustments to their campaign page. I think we went through about three or four different iterations of the campaign page before we found something that was converting at a rate that was really successful. The campaign page for those that are wondering if the landing page that tells it was like a website that is a pitch deck, if you will, talks about the company, what they do, who the team is, why this is a great investment opportunity. And every company that raises money on our platform has their own campaign page. So we made many updates to finally get it to a point where it was converting at a success rate. You know, creating fun graphics and video aspect is also a big part of this. We we worked closely with the company to, you know, create things that grabbed the general public’s interest. We were playing on the security aspect of things and making America the safest country in the United States. The robots themselves are obviously visually appealing. So doing things that can grab people’s attention is something that is very vital to success retargeting as well. So we did a lot of retargeting. You know, we were driving tons of traffic to the page from all different sources, whether it be TV, digital advertising and the people that landed on the page. We then retargeted those people and digital ads on Facebook and YouTube and Google and things like that. So that was a big, big part of the success comes of business update as well. So companies will post updates to their campaign page as things happen, as they land new contracts, they have a huge revenue month, whatever it might be. Sharing the you know, the updates around the business and how things are progressing makes the general public more excited about your company and gives you the sense that you are really growing and things are evolving. And this is an exciting opportunity to invest in. And lastly, the typical weekly breakdown that nightclub offering was raising around two hundred and twenty five thousand dollars a week. The twenty four million dollar campaign was run over a full year, but on average, we were raising around two hundred twenty five thousand a week. Towards the end of the campaign, the last week or so, we were raising as much as a million dollars a day for the company. And so that’s what really the urgency behind the campaign and been really converted. We had a lot of the people that were standing by deciding whether or not they wanted to invest to actually complete their investment and move forward. So the future of fundraising, what does this look like, first off, what is the start engine process? How does how does it work for companies? The way it works, if companies will come to start engine, they’re going to learn about equity crowdfunding and what this is all about. Once they learn and they decide and it’s right for their business, then they’re going to sign up with us and then they’re normally going to move forward. With a regulation fee for offering, WREX allows companies to raise up to a million dollars from the general public. Once they’ve raised a million, they then normally will move to reggae to do either a five or 10, 15, 20, 50 million dollar offering whatever it might be. So they normally do step one step step to reggae. They may also do another year. So they may go Rexy, first WCF again and then they move into reggae. All of those options are available. But these companies are buying into this always be raising philosophy that these crowdfunding regulations allow companies to take advantage of once they’ve raised a good amount of money and they’ve got a large shareholder base. The next step for them is to allow their shareholders to trade. And so Start Engine is releasing a secondary marketplace that is going to give investors access to liquidity. So all the people that purchase securities on our platform are then going to be able to go to the secondary market and trade those securities, which is a humongous innovation in the industry. And something that we’ve been working so diligently on for the last several years is to open up the liquidity for investment in this space. It’s not common where private equity, it has access to liquidity, but that’s what we’re doing and we’re bringing it down to the retail level. So the general public is going to be not only investing in private businesses, but they’re going to have access to liquidity as well, which is going to make your offering as a company that much more attractive. Because if somebody knows that they can actually invest and then get a return on their investment shortly thereafter, they’re more likely to put money in as opposed to investing in not being able to get any money out for five, seven, 10 years down the line. So this is something that we’re really excited about. We’re going to be launching our secondary platform within the next couple of weeks here on Start Engine So and start engine ourselves. They’re going to be the first company that’s listed on there for trading. We’ve raised money from the general public. We have an offering that’s currently live and over 17 million dollars in total. We’ve raised over twenty five million from the general public and we have over twenty thousand shareholders. And we’re going to give our shareholders the ability to get access to liquidity in just a couple of weeks here. So we’re very, very excited about this. And we really believe this is the future of financing. And there’s no need necessarily to, at least at an early stage, for companies to try to get to the Nasdaq or the New York Stock Exchange, where the quarterly reporting is so burdensome and it’s such a harsh reality in those public markets, companies are going to be able to raise money from the public, remain private and allow their investors to trade on the secondary platform, which is a really tremendous innovation for the marketplace. Fundraising is changing very, very quickly, this graph here shows a chart of the expected amount raised in crowd funding between the UK and the United States. The U.K. adopted equity crowdfunding before the United States. That’s why you can see there a little bit higher than the US line. But if you look at it, the it’s really that hockey stick kind of curve to it in that, you know, by the end of twenty twenty, it’s estimated that over eight billion dollars will be raised via equity crowdfunding platforms. So this type of financing is is coming. It’s here. And small businesses are certainly taking advantage of it to grow their business. Talking a little bit about start engines growth as well, so you can see in this graph the amount that was raised, millions of dollars and what we’ve seen specifically in twenty twenty is staggering. As I mentioned, we’ve raised over two hundred million dollars on our platform and we’ve actually raised over one hundred million dollars in twenty twenty alone. So the first few years took one hundred million dollars to get in in nine months of twenty twenty. We’ve already raised the second one hundred million dollars. You know some of the stats here that we saw in Q3. Three hundred sixteen percent growth in the number of new investors and two to three year over year. Three hundred and eighty percent growth in the dollars invested into three year over year. And those numbers were polled at the end of August, where we still had one full month of September to go. The numbers are only going to be stronger as we just end of September. Yesterday are now moving into the fourth quarter, so I can’t express it enough. But the the equity crowdfunding space right now is really booming and entrepreneurs are realizing this is a viable way for them to finance their business. Lastly, there are two big changes coming to the regulation that the FCC has put forth. So on March 4th of this year, the FCC proposed making a couple of changes to the equity crowdfunding regulations that are only going to make them better. The first one for regulation, crowdfunding, was to increase the cap that a company could raise from one point seven million, up to five million dollars per year. The other change was for regulation, a plus to increase the cap from 50 million dollars to seventy five million dollars per year. And that is just incredible news. I mean, to give companies the ability to raise up to five million dollars under every single year is going to make it so much more attractive to small businesses as opposed to the one million dollar bar that it has today. The, you know, the Jobs Act, which is the bill that was passed during the President Obama administration with a bipartisan bill that had full support from both sides of the aisle. And it is clear that they are fully supportive, that being Congress of the Jobs Act and these regulations, as they help inspire entrepreneurship and small businesses, which is creating jobs in our economy. So the regulations here are only going to be getting better and better as time goes on. And these are some of the changes that are coming in the very near future. So we’re looking for our next record breaking race. We hope that it could be your company next. And I just want to thank everybody for for tuning in today if you’re interested in exploring further and seeing if this is right for your business. There’s a couple of options here. You can either go to start engine dot com slash, get dash funding, and that will kind of lead you down a road and where you can start to understand more of how this works and provide us with some information about your business. You’re also welcome to reach out to me, Josh, at fundraising dot com. Our partner here in Yoky had started, you know, com. So is there any partnership opportunities that you’re looking for? Feel free to reach out. But I really want to thank everybody for for tuning in today. I hope this was informative and educational for you and I hope to be hearing from you guys very soon.

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