Venice-based Crowdfunder is the leading equity crowdfunding platform that allows entrepreneurs to raise investment capital (debt or equity) from accredited investors.
After running a few of his own businesses, CEO Chance Barnett started advising & investing in early stage companies in 2009. Around 2011, Barnett saw an opportunity to work with people that wanted to change the laws that govern investing in the US, to make a simple change that would allow startups and small business owners to use the web to fundraise more public & openly.
Barnett wound up getting involved with these change agents, going to Washington DC and engaging in a grassroots campaign that become a portion of the JOBS Act, which was signed by Obama in April 2012 and went into effect in 2014.
Barnett took the long view and then spent that time between 2012 and 2014 launching and building Crowdfunder.com in order to help entrepreneurs. Says Barnett, “I wish that I had had Crowdfunder when I was a young entrepreneur — I hadn’t fund raised before, I didn’t have a great network for myself, but I had a good idea and some traction.”
To that effect, Crowdfunder creates a platform for investment-ready entrepreneurs to raise capital in a more social way. “We help transform the social capital they already have around them into actual financial capital.”
This has also created an opportunity for individual investors, who prior to this were not able to get any equity in exchange for their financial support, or were crowded out by venture capitalists. “What we’re doing oftentimes is allowing people to invest alongside VCs and experienced investors, and allow them to get into those deals for say $1000 or $5000 or $10,000 dollars, which, even three years ago wasn’t even a possibility for most people.”
$10 MILLION FOR PONOMUSIC
The biggest, most visible example of this model would be Crowdfunder’s role in helping fund Neil Young’s high fidelity PonoMusic player and its audio download store. Says Barnett, “Crowdfunder engaged with Neil Young after the Kickstarter campaign, where he pre-sold 15,000 devices of his PonoMusic player. He then needed an additional $5 million of financing to grow the business, to purchase more inventory, and to really get going.
“Neil didn’t quite want to spend six months going to Sand Hill Road [Silicon Valley’s hub of Venture Capital firms]. He also wanted to give that same community that helped start the company the opportunity to also get upside and buy shares in the company. They came to Crowdfunder after they’d built a community on Kickstarter and offered them, and a much larger community on Crowdfunder, the opportunity to invest. In about 12 days we were able to get about $10 million in investment reservations made from 46 countries in 6 continents.
“The success of the campaign was in part the lifelong reputation that Neil has built, and his vision for the company and the community he has built, and our amplifier of that and our existing community where those things came together and that brought the financing they needed to formally capitalize the company.”
2014 WAS A GREAT YEAR
“2014 was really the first year we had regulatory cover to start doing more open and live investment transactions on our platform. Prior to that, we couldn’t do that more publicly. We had a fantastic set of growth, we helped close 44 deals, the average size was about $1.6 million, generally those were Seed and Series A rounds, but sometimes a little bit later, and we are attracting an increasing set of deal flow that already have great lead investors in like Sequoia Capital, like TechStars, companies coming out that aren’t ones that are just raising crowdfunding because they don’t have anywhere else to find money, but also see this as an opportunity to build their brand, to get awareness, and to potentially find investors that are going to be value add.
“We’ve done roughly $60 million across those deals, I think that was a great year. And the market is growing so quickly, people are starting to understand the power.”
THE FUTURE — THE CROSS-SECTION OF TECHNOLOGY & ENTERTAINMENT
Continues Barnett, “One of the amazing things we find unique that’s happening to us is, and I think it’s unique to being here in LA, we’re at the cross-section of digital media, technology, and entertainment. We’ve been going to a lot of the influencers that already have a large set of followers, working with them on the companies that they own or are a part of, using those communities to help leverage the financing, and that’s really exciting. We’ll probably launch a few in the next month or two.”
PERSEVERANCE & TENACITY — ON STICKING WITH AN IDEA
Barnett has taken a pretty huge gamble by devoting so much time, resources, and money, on an idea that required legislation for it to exist, when he first started this journey. “One of my favorite qualities that I believe leads to success in entrepreneurs is perseverance and tenacity. I’d like to think I’m the most brilliant CEO, but what I probably have more in spades is an unflinching desire to achieve and to solve problems.
“I think a lot of people, and some ways rightfully so, shy away from businesses that deal with regulations, that deal with policy and legislation. But if you embrace that and you say, ‘I’m willing to have the fortitude to go out to help effect change and start a business in this space,’ it can become a real key advantage.
“For me it was not only a great experience personally, to learn more, to be a part of something that I believe is really impactful, but the knowledge I had, the ability to participate, helped me create thought leadership for myself and the company, and that has extended into our brand, our reputation, and that’s something you can’t just replace by saying, ‘I’ve built some great software now come and use it.'”
ON BUILDING CREDIBILITY & FINDING MENTORS
“I’ve had a string of successful companies, and several not. One of the things I’ve learned is that every serial entrepreneur has their failures; that’s one the things I like most about Richard Branson is that he talked really openly about his successes, and he doesn’t credit himself with all the reasons why it succeeded, but he also talks openly about his failures.
“For me, there’s nothing else I’d rather be doing than solving meaningful problems, creating value for people, and now I get to do it more around entrepreneurship and finance. I never felt like I needed to be told that I had the credibility to go out and do something. No one told me that I had enough credibility and knowledge and understanding to say that I can become an expert in securities law. But I knew enough people in finance, I knew enough people in that world, and I had various connections to say, ‘You know what, that person can be me if I just take the time to really think about it and align myself around existing thought leaders and really learn from them.’
“I would say the other big piece to that is, sometimes I’m not fearful enough, and that works out sometimes, and sometimes that gets you into trouble, which a lot of entrepreneurs can identify. As much as I have created opportunity for myself, I’ve suffered a lot of pain for the risk I am willing to tolerate. But the other side of that is, other people that are smarter and more experienced will recognize that and see you’re out there trying to do something new or disruptive and if you are lucky and you know how to approach them, they become mentors and advisors, or accidental mentors, and you can really learn a lot. So that’s been a big piece of development.
“Success for me is finding more people that are a lot smarter, a lot more experienced, doing something in that field for 20 years, and see if I can spend some time with them once a month and start to learn something.
“It’s incredible the amount of wisdom those people can impart. I love my role at Crowdfunder now because I get to do that in the world of financing and fundraising, whereas a lot of entrepreneurs are first time raising financing and they don’t know how a cap table plays out in five years, they don’t know what VCs are going to try to do later, and I see 500 companies, and exactly their strategy a month, if not more.
GOING WITH THE FLOW
The JOBS Acts that allow Crowdfunder to exist are here, but it’s not all of it here: Title II lifts a ban on general solicitation — those seeking funding may publicly advertise to fundraise to anyone and everyone, even people with which you did not have a pre-existing relationship, as long as you meet some minimum filing requirements with the Securities & Exchange Commission. Title III, when it passes, will allow non-accredited investors to invest.
While Title II took a while to go into effect, Crowdfunder spent two years working within the existing framework to find, build, and earn trust & credibility within the crowdfunding space, build community, fund entrepreneurs, and grow the business exponentially.
Barnett saw two really big problems they had to solve, which was “How do we develop trust, and how do we add value in order to grow our user base if we can’t execute on our core value proposition.” So Barnett asked himself, “Who is my most important customer, and what is deeply valuable to them,” and answered this by serving entrepreneurs fundraising and help them get money in the bank.
Barnett did all these over time first by connecting VC with entrepreneurs in person and online (without an “invest” button or disclosing how much they were looking to raise), promoting entrepreneurs via online competitions; now Crowdfunder helps entrepreneurs connect with accredited investors and amass huge amounts of publicity via the site’s own community.
“What we did at Crowdfunder to build trust & credibility AND to provide value proposition of how do you meet investors. We started off by opening our platform just as an online pitch solution that worked with existing funds and investors.” Crowdfunder first worked with several LA-based seed investors and funds, who then put up an investment fund on Crowdfunder to meet the best tech companies via a pitch contest.
This online competition encouraged startups to join Crowdfunder, get their pitch on the platform and to put it in front of those investors. From the online competition, the crowd and those investors picked the top 10, who then pitched at a live event in Santa Monica.
“That literally, virtually and in the real world, connected entrepreneurs and investors, and suddenly I had a fairly compelling value proposition, reason for entrepreneurs to be on Crowdfunder. There’s a lot of opportunities if you think really deeply about, ‘What is value to my customer?’ that you can come up with innovative ways.”
WORK / LIFE BALANCE
When asked about maintaining a work / life balance three years into a very long path, Barnett replies, “I have a very different point of view on work / life balance — I don’t. When I’m an entrepreneur in the first 3-5 years of startup life, my version of balance has a much longer wavelength. I love to go all-in on my startup because I know it requires that to get it to hockeystick. I do pay a big pschological and physical price, but I know that there’s oftentimes on the other side of that, a year, two years, three years, or an entire life of financial freedom, so I’m willing to sacrifice 3-7 years of my life where I dramatically change my day-to-day life, and I don’t expect to have any work / life balance.
“For the first 3 years of the business I work 7 days a week and there’s nothing else I’d want to be doing. But this is coming from a guy who’s done this several times. And I had the lucky opportunity to come out on the other side of that 3-7 years and then have the means to not work at all, invest in stuff, create new startups, and I moved out of the country, I surfed for a year.
“I’ve done a lot of different things with my life, and if you look at the net-net of the time I spent off for an entire year or two just surfing and traveling the world, and you have to get back into the 5 or 7 years I spend just being a maniac, that’s work / life balance to me and I really relish that time off, so I have a really different perspective on it.”
Crowdfunder Crunchbase (link)
JOBS Act Wiki (link)