Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in ten years or less. My name is Joshua Sheets and I'm your host and today we have Nathan Rose on the line.

Nathan has recently completed a book called Equity Crowdfunding, the Complete Guide for Startups and Growing Companies. Nathan, welcome to the show. It's great to be here, Joshua, and thanks for having me. I'm excited about this topic because I love the world we live in where more and more money is not the limiting factor to the success of a product or of a company.

And crowdfunding has certainly presented one tremendous technology to be able to help entrepreneurs capitalize projects. So I'm very excited about talking to you and hearing about some of the ideas in your book. But start with a little bit of a personal introduction. How did you get interested in this subject?

So I began my career as an investment banker. Don't hold that against me. I was helping out startups and even past the startup phase, in fact, early stage companies do initial public offerings onto the stock market. And when I saw the emergence of equity crowdfunding as being a similar skill set, it's an offer of shares to the public, so you've got to do the same things about explaining business models and explaining why a company is a good idea to invest in.

And at the same time, I wanted to branch off away from my corporate career and start my own thing. It just seemed the perfect fit for my skill set and a really new interesting trend that I saw in the world of finance. So you work as a consultant or what's your actual business now?

Yeah, I'm an agency or a consultancy, I suppose you'd call it, where I will help startups and growing companies to fund through equity crowdfunding. So a typical client might come to me and say, hey, we need 500k or a million. And we've heard about this thing called equity crowdfunding, but they need to be stepped through it, whether it's really right for them.

And if they decided it is right for them, things like valuation, choosing a platform, coming up with a marketing strategy and what happens afterwards. So the book's really just an outgrowth of the services that I provide to clients one on one. Great. So it's a way of helping the marketplace with some information and also establishing your brand which will lead to personal services.

Awesome. So I'm going to lob you a softball here to start off with. I think everybody thinks that crowdfunding is easy and it's great. After all, you just come up with a great idea and make a video and then it gets shared a million times on Facebook and you raise $20 million and you're done.

I know from a little bit of study it's not quite that way. So who should consider using crowdfunding and who should stay away? So I'd like to take a step back before we even get into that and just explain the difference between the crowdfunding in general and equity crowdfunding.

So crowdfunding as most people think of it is the Kickstarters and Indiegogos where you're, if it's a business, pre-ordering a product or offering your customers the chance to pre-order a product. And most people are familiar with that. We've all heard the stories of Oculus Rift and these big success stories, which are not typical by the way, as you've already alluded to.

And then equity crowdfunding where instead of giving people a chance to pre-order a product, you're instead offering shares in that company. And this has some similarities with the other type of Kickstarter Indiegogo crowdfunding, but also some really important differences. Your question was about how easy or how difficult it is.

And it is difficult. There is time involved and the part that the public see where it just seems to be a video and a couple of pages of copy and the money just pouring on in, there's a lot of preparation that goes into that. You've got to connect with an existing crowd.

It's not the case that there's just all these people hanging out on the internet waiting to hand you this money. You've got to find them and you've got to convince them as to why your idea is worth funding. I appreciate you making the distinction because I didn't read the book prior to the interview and so I was heading us in completely the wrong direction, in the direction of crowdfunding instead of equity crowdfunding.

So that makes it even more important to clarify. So I'll just ask, now that you've clearly identified and appreciated that distinction, who then should be considering using the equity crowdfunding process? Well, it's an alternative to angel funding and venture funding. So the types of companies that that will suit are ones which are past the idea phase, so they've at least got some users and ideally revenue.

Not necessarily profitable, but they have a proven business that's got customers and money coming through the door. They're looking to raise at least 30 to 50 thousand US dollars, up to a maximum, which depends where you are, but if we're talking about America here, it's going to be capped at a million US dollars.

So in order to justify those sorts of numbers, raising a million dollars, your business has to have a justification, I suppose, for being worth a lot more than that, because if you're offering up a piece of your company for a million dollars, then your company, for you to retain some share in it, needs to be worth, say, at least three or four million.

So that should give you a bit of an idea about what your company's stage should be at before looking at doing this, and the types of businesses that it'll suit. Because it's an offer over the internet, it's going to suit much better companies that have some kind of reach beyond their own neighbourhood.

So it's not so useful for the corner store, very localised businesses who don't gain much benefit out of a nationwide or global audience. It's much more suitable for scalable businesses in the fintech or medtech area, and also for businesses with a broader reach with consumer items. So think food or drink, cosmetics, clothing, that kind of thing.

So you can think of it in two camps. The really scalable businesses on one hand, which some people think of as unicorns, a word in startup parlance which means a company with a chance of being worth a billion dollars one day, and the local businesses with a crowd, as I call them in the book, which have got a natural group of people around them, some existing users.

What's the benefit for the entrepreneur of going this route instead of working with individual private investors? I think the big one is being able to do two of the things at the same time, which are core to the mission, I suppose, of an early stage company. So early stage companies are often trying to get attention, marketing exposure, and also to raise funds.

And those two things have always been considered to be separate activities. But equity crowdfunding, because you're promoting your business in a very public forum, doing a lot of outreach effort at the same time, you're gaining both marketing exposure and equity money at the same time. Other reasons, there's some strings attached always when you take money from a VC or from an angel investor, they're probably going to have a say in the direction of your business, which a lot of entrepreneurs don't like.

If they are very much enamoured with the idea of retaining independence and full control of their culture, then bringing in this VC investor is going to screw with that. They're going to have their own way of doing things. But by getting money from lots of very small investors, none of whom have a very large say or much of a seat at the table, you can raise this money without really altering your culture too much.

Tell me your, I'm sure you've got one company or one experience that you go to, it's like this was a beautiful scenario. Tell me that story of the company. In the UK, and I use this as an example because the UK market is much more advanced than the US.

I'm going to interrupt you, is that because of the legislation changes that took so long in the US to make? That's exactly right. Okay, we'll come back to that later, I just wanted to clarify. In the UK, it's been going for about five years and it's now worth about 15% of the early stage angel VC seed investment market.

But this company, the specific company was Monzo, which is a challenger bank, which are doing banking without physical branches, doing everything through the smartphone and through internet technology. And they raised their one million pounds, which is about one and a half million US dollars in just 96, not hours, not minutes, but seconds, 96 seconds they raised that money.

And the reason they were able to do that, and it's a nice headline, but they put a lot of time and preparation into getting that result so that once they hit the go live button, people were already queuing up to invest in it. But the reason that they were so successful was having this community engagement at the core of everything they did and everything they do for the whole time that they were a business.

So this engaged community building that, it's why crowdfunding succeeds in both the rewards and in the equity side. That was a great manifestation of it. They had so many people who were fed up with banks. I don't know about you, but I don't know too many people who are big fans of the way that banks do things.

So when you can say that there's a better way and a more user friendly way of doing things, people were keen on that and they could see that the opportunity was there and they blew it out of the park right away. How long had they been in business before their equity crowdfunding approach?

At the time it was about a year. And what did they need the money for? So in their case, it was maybe even less about the money and more about the brand exposure. I think specifically they needed it for getting their proper banking license. They needed it for sales and marketing, which pretty much every startup has some need for, and continued programming and product development too.

But they could have easily tapped a VC on the shoulder and said, "Hey, we need a million pounds," and they would have gotten the check cut out for them. But for them, that wouldn't have been as beneficial because then only one person is engaged with driving the business forward.

And instead they got hundreds and thousands of people on board instead. And what immediately stuck out to me is I don't know what the financial terms were of the investors in that company, but if they wanted exposure, the headline that you just touted of, "We raised a million pounds in 96 seconds," that was probably worth untold multiples of a million pounds in terms of publicity and the business press, et cetera.

So it's almost a strategy, perhaps a radical strategy, for a company to offer terms that are too good to be true in exchange for building a story like that, 96 seconds to a million pounds. Yeah, yeah. I mean, it's a marketing exercise. A lot of the companies I talk to say that for them it's first and foremost a marketing exercise and not a funding exercise as much.

The funding is an interesting angle, and of course if you offer most early stage businesses a chance to fund, they're going to take it. But the marketing exposure can, as you say, Josh, be just as valuable, if not more so. I never would have thought of that. Amazing. So tell me a horror story.

A horror story, okay. So there's one example in my new book which has a company which did two campaigns, one successful and one later on that failed. The reason that the one failed was they just took on too much at the time. Their business was failing, their creditors were knocking on the door, and they needed to change a few other things around with their business.

So to try to get themselves out of their hole, they thought they'd try another equity crowdfunding round. I think the lesson is that for one thing it's going to be really hard when your business is in trouble to tell a positive story. Businesses like to see the money used for things like marketing and product development, not repaying creditors.

But the other problem that this company had was they were trying to do a major product relaunch at the same time, and because their focus was split between the product relaunch and the funding campaign, they were able to do neither really successfully. It was a tough spot they were in because they couldn't delay the funding round because they needed the money, and they couldn't delay the product relaunch because that needed to happen at the same time.

So they found themselves just too stretched on resources to do either exercise properly, and as a result the company went out of business. It doesn't get much more horrible than that. I don't want to say anything because I'm so guilty of splitting my attention. I know I'm not supposed to, but stories like that are just a warning bell for me myself with my propensity to want to do everything all at once.

Chase some shiny objects. Indeed. I have an international audience, but the majority of the audience is based in the United States. I know that there have been major frustrations among many investors with how long it took to make some legislative changes and how equity crowdfunding seemed to be accepted in many other places, but it was only within a year ago, 2015 sometime, I think.

So tell us what happened and what the current situation is in the United States, please. You're right that there was frustration for a lot of time because the law was actually changed back in 2012, but it took the Securities and Exchange Commission until November last year before they decided how they were going to implement this change in the law.

And the rules came into force allowing retail equity crowdfunding, and I'll explain what that means in a minute, but these rules came into force in May of this year, 2016, and it allows any company to raise up to a million US dollars in any 12-month period, marketing to the general public.

When I said retail equity crowdfunding before, this is the big change because it's always been possible for a startup to seek funding from an accredited or a high net worth investor, people who meet a certain wealth test, which is out of reach for most people. But equity crowdfunding in its purest sense means being able to market to any adult resident who has money in the bank and willing to invest.

So that came into force in May, and already since then, in the six months as we're recording this show, we've seen portals spring up offering this service. These equity crowdfunding deals are displayed on portals, on websites, so you can actually see these startups and look at their video, look at their business plan before deciding to invest in them.

And to give you a couple of concrete examples of ones that your listeners can check out, the largest is WeFunder, W-E, Funder, and they've done a few pretty interesting deals so far, and they're the largest. And another one that I always draw people's attention to is Republic, and Republic has actually spun out of AngelList, which is a company that a lot of people are familiar with for early stage funding, but AngelList was restricted to sophisticated and high net worth investors, but this new arm of theirs, Republic, is doing equity crowdfunding to anyone.

So check those two out if you want to see a bit of a sense of what this is all about and the types of companies that are using it. And do you have any measure of the numbers as far as now that, as we record this in November 2016, in the last six months, do you have any guess of how many companies have been funded and what the dollars are?

It's really difficult to say because there are so many platforms and tracking all of them, well, that's probably another book in itself. But what we have seen is a few companies now raise that maximum of a million dollars. So there was some concern before the rules came into force that it was going to be too onerous for startups to afford, but that's proven not to be the case, that we've actually seen quite a few deals being done now without being able to put an actual dollar number on it.

It's working, startups are using it, and investors are investing in it. Are you seeing new investors go, like for example, do you have any sense of people who have never invested in a private company before are going and starting to play around here? Is it filled with more experienced investors?

Do you have any sense of who's participating at this point? Sure. Yeah, I mean, both are participating. You'll have larger angel type investors who hang out on these platforms and are screening through the companies that come on. But there's also, if a company is bringing their own crowd to a raise, then some of those crowd will naturally and inevitably be people who have invested in these types of companies for the first time.

And because of that, I think the platforms are taking the investor education side of things very seriously. This is a whole new asset class that people haven't been able to invest in before. So you've got to, I think you've got to do more than just state the risks in a very legalistic disclaimer that's at the bottom of the page in the fine print that no one reads.

But you've actually got to do things like run seminars, education sessions about what's involved in this early stage investing. Be clear about the opportunities, but be clear about the risks too. What's the median investment size that you would guess? I would say about a thousand dollars would be median, with a range from down to a hundred dollars in the US, all the way up to tens of thousands or even hundreds of thousands in some cases.

But I'd say a thousand or maybe up to five thousand could be typical. My audience has a lot of people who are committed investors in various ways, some very mainstream, some very non-mainstream. But probably the primary interest of my audience would be as investors to start looking at companies and start looking at some of these platforms to see if they can get exposure to new and interesting opportunities.

If you're going to lay out the landscape for an investor and make the case, the benefits, and also talk about some of the challenges, how would you approach this as an investor? So you've got to look at it as a high-risk asset class in most cases. The reality is that most of these companies are going to lose all the money that gets put into them.

But like the math that goes into venture capitalists, they are hoping that the winners are going to make up for all the losers. And for a lot of people who are not from this venture capital background, this type of math where you go in expecting that nine out of ten companies to fail, but for that tenth one to make up for it, it's very different from most investors' approach to things.

They're all about safety and getting that secure five percent return in the bank or in property or what have you, or in the stock market. So you should approach it with money that you can afford to lose. So it should be a small part of your portfolio, but nonetheless an interesting one.

Because let's just use some numbers here, let's use some figures so we can get our teeth stuck into it. Let's say you've got a net worth of 500K. So you own your own house, you are looking around for things to invest in, and you put five percent of your net worth into this new asset class, these VC-like investments.

So that would be $25,000. For that, at that median I talked about of $1,000 each, you could invest in 25 of these equity crowdfunded companies and see where it takes you. If you lose on all 25 of them, then it's not a complete disaster, and I would never tell or advise anyone to put all of their savings into these companies.

But at the same time, it does add a new flavour to a portfolio. But I also think that this idea of the way it should work needs to be battle-tested and needs to be thought through. It's a nice idea in theory, but does the math actually add up? You get more winners to make up for all these losers.

So I think you should look at the reputation of the platform itself and what track record have they got for providing a place where high-quality companies are to be found. Because like in any marketplace, especially one like this where there's a lot of change and a lot of new players sprouting up, there are going to be platforms where there's a larger investor audience, and those will probably be where the higher-quality companies tend to congregate.

So there are all kinds of things which I can get into more, if you like, about how to look at these companies and test whether they at least have a chance of being scalable and providing the good math that I'm talking about here. But don't just assume that because there's this idea that one in 20 will succeed that that's necessarily going to be the case.

Yeah, this is brand new to me. I was aware of the term, and I didn't connect it. I'm aware that this exists, but you're the first person I've ever spoken to who is involved in equity crowdfunding. It's been one of those things that is on my radar screen, but I've never looked into.

So I'm thinking about it in terms of my audience. OK, maybe this is a great new opportunity. And I think it is, because one of my frustrations has been the accreditor investing rules, where I've often wondered, are these rules actually helpful in protecting the general public? Because Joe Q Public is a horrible investor.

Or are these accredited investor rules in the United States a way of preserving the juiciest and most profitable of investment opportunities for the well-connected wealthy elite? I've never fully satisfied that question in my mind. I'm curious. I'll interrupt myself. Do you have an opinion on that question? Well, I will say this, that we don't really regulate people's ability to walk into a casino with their whole life savings and put the entire sum of their wealth on the spin of a roulette ball.

So when you look at these companies that are providing real jobs and producing real products and services, and we regulate that more than a genuine chance or a genuine gamble, that seems to me to be wrong. Especially at a time where we've got unprecedented disruption happening in the world, where startups are a much hotter thing than they used to be 15 years ago.

The ability for startups to quickly get into new markets and challenge existing incumbents. The idea is more important than scale these days. So I mean, I think it is a good change. As you say, it's not going to be for everyone. But I don't think the idea of a blanket ban just to keep everyone out of it is the right way to go.

So that's the approach that governments around the world have been taking, too. That we should be encouraging innovation and we should allow people the option, if they want to, to invest in this new asset class alongside the angels and the wealthy elite, as you call them. Right. Yeah, I'm presuppositionally committed to liberty.

So anything I can do to remove regulation and expose anything to the market, I'll do that. And it's only, and I, instead of starting with saying, well, liberty is dangerous, I start with saying, well, let's start with liberty. And we need very compelling, overwhelming evidence to start imposing restrictions.

So I'm happy about this change. But it also is going to be meeting a marketplace of people who are relatively ill-equipped. I come from a background of working as a professional financial advisor, and I've seen firsthand just how ill-equipped the average person is to deal in well-regulated, well-researched, very efficient financial markets.

Now we move into something like this, and immediately I think, how on earth would I advise somebody to do it? Let me give a few examples from my audience. I pulled up the front page of wefunder.com, and here would be just some examples of the companies that are listed right on the front page.

Vet Pronto, which does on-demand house call veterinarians. Great idea. I just think, how would I know even how to approach that as an investor? How would I know how to work that out? I'd love to see that, but how would we test the market, et cetera? Liquid Piston, the first wholly new combustion engine or cycle in 85 plus years.

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I won't keep reading, but monkey rum? I guess alcohol. I'm sensing a theme here of who's working well right now. Right. Yeah. Yeah. I mean, those sorts of, well, yeah, alcohol. Everyone knows what alcohol is and they understand the business. So I guess when you're weighing that up against some new combustion engine, then it's a little easier for the average person to understand.

Yeah. I just wonder where to start because generally as an investor, you want to invest in what you know, but I don't know how you get there here. Well, I mean, take a step back, though. What is the average person's 401k invested in? It's in stocks and bonds. Agreed.

I bet that most people don't have a clue about all these companies and their portfolios either. So yeah, we sort of look at this new asset class and we say we don't really understand these companies. But the status quo in many cases, we don't really understand either. So I think you've got to take a diversified approach to it like you do with all asset classes that you kind of acknowledge your ignorance in a way and you say, well, I'm going to take a portion, not all, of my portfolio and put it into these companies that seem like they might have potential, do my background on each of them.

But, you know, there's no products out there or easy way to invest, for example, in an ETF or through a financial advisor who's going to do this for you. It's direct investing. So, you know, really it's making people more responsible for their own financial education. You can't really, if you want to play in this space, you can't just turn this over to somebody.

You've got to make your own choices. And that in itself, I think, is a pretty interesting development because you have this seen as a force for people increasing their financial education and taking more responsibility for the companies in which their own money is being put. What are the financial disclosure methodology?

I'm sitting here as we're talking. So here's one I clicked on called Invest in Tampon Tribe. Company here is manufacturing organic 100% cotton tampon and pad subscription services. So this is like a fascinating type of business model to me because among the crunchy people, of which my wife and I are crunchy people in some ways, among the crunchy people, the use of cloth related feminine hygiene products is much more, is well known and most people are aware of it.

But yet this faces all the same problems in the marketplace. Cloth diapers have been around forever and yet pampers and huggies and whatnot still have a much bigger market share. So I've thought about this marketplace. I'm aware of it. I have, weirdly enough, I have information on how this works because I know the people.

But I immediately come and think, "Okay, what's going to be different about this company? How am I going to prove that they're going to be able to execute?" I'm looking at all their sales material here. It's not about the product. It's going to be about the execution because the product, anybody could rip off this product and create something exactly similar.

So how would, what do they have to submit and how do I assess that as a potential investor in order to know if this is a good investment for me? Well, they'll need to prepare a business plan. So you'll be reading through that and when you're reading business plans, there's no other way to do it than to read it and see if it makes sense to you.

And look at the valuation they're asking for and look at what similar companies have been funded for. So again, when you're making these direct investments, this is your job. It's not the job of the ETF manager and it's not the job of your financial advisor. You've actually got to engage your own brain to decide whether it's a good company to invest in or not.

And for these small amounts, it's hard work. And you've got to choose between this one and the dozen or so others that you've already mentioned that are on their site. So how do you do that in an efficient way? And I think one way to do that is look at who the other investors are in the offer.

So in many cases, and on many crowdfunding sites, you can see if they've got a, what they call a lead investor. So this is someone who has invested in these types of businesses before. They've worked with this company to decide on what the valuation should be. And they've put their own money behind that.

So you as a member of the crowd can follow along and invest with the angels. I mean, I think in investing there's always a certain degree of outsourcing of the mental work that we end up doing. And this has some negative implications, but I think it can also have some positive ones that if you can look at a company and say, hey, this company is being backed by this really smart guy or woman who has got in there, got their hands dirty on the business model and decided to back it with their own funds, then the crowd is then following a more rational decision than would be otherwise the case.

So look, the other disclosure requirements, they will be required, I think, in the US to disclose what they ultimately do spend the money on. So they'll be saying in their business plan as a forecast, we think we'll spend it on X, Y, and Z. Well, in 12 months time, they'll need to report back on whether they have spent it on X, Y, and Z.

So there's some accountability there as well. What is the secondary market like? Major benefit to investing in publicly traded stocks is, yeah, I might not have a great inside advantage, but this is a healthy market where at any point in time I can click sell and you can sell any publicly traded stock with a click of the mouse at some price.

What's the secondary market like for an investment that I make in a company like this? In a word, there's not one. People are looking to invest at the same terms as angel investors do, which is that your money is going to be locked up for three, five, maybe even seven or so years until there's what they call a liquidity event where the company is sold or ends up being big enough to justify listing on the public market.

There have been some attempts to set up a secondary market for equity crowdfunded companies, but the problem you get is that there's no market that develops. And in fact, even some companies that do full scale IPOs at the low end end up suffering from this low liquidity problem that even though ostensibly they're on the market, if your company is only worth $20 million or something, there's just not going to be that amount of people who are willing to meet to buy and sell frequently for a reasonable price to be discovered.

And it would be even more so the case for equity crowdfunding, which is an even earlier stage of development. So you'd end up, if there was one, a price which is very one off and not really a true reflection of the company. If there was a transaction, it would probably be someone who invested their money and then needs to get out for some reason.

They're selling under duress and then that makes all the other investors panic and that's just not a good thing for the company that's raising. So yeah, really there's no secondary market. Every asset class has different characteristics. One benefit of the stock market is it's highly liquid. There are disadvantages to the stock market as well.

And one disadvantage of equity crowdfunding and to these private companies is you don't really get liquidity. Which goes back to the question of looking for a unicorn and the one out of ten or one out of twenty expectation of success. It's just a completely different mindset where you recognize that the vast majority of my investments are going to become worthless.

It's much more akin to taking an educated gamble than it is to making an educated investment. Of course, I don't want to completely mischaracterize it, but there are so many forces that can play and many of these companies are going to lack what they call a moat. When I'm reading this, I'm just looking at these companies that are here.

There's nothing particularly unique about having an award-winning barrel-aged rum company or there's nothing particularly unique about this farm fresh liqueur. It just simply has a brand and it's all a matter of the skill of even this tampon tribe company. This is all going to be a matter of branding and the ability to negotiate the channels of sales to go quickly and make substantial increases through applying marketing expertise.

It's not product related in other words. At least with many of these companies, it's going to be based upon the experience and ability of the company founders to generate PR and buzz for their product. Exactly right. For those types of companies you've just mentioned, you do as an investor have the option to find such a company on the stock market if liquidity is important to you and buy that type of more advanced company.

But you're not getting in at that really early stage where there is the potential for that much more upside. You could go ahead and buy stock in Empire Bush or in InBev, but you're going to face the problem that it's going to be very hard for that company to increase in value by two times or ten times or twenty times because they're already all over the world.

But yeah, it's just a different game you're playing for sure. Because in a larger market, if you're trying to play a trend, there are many ways to play a trend, but generally if you're playing a trend, you're investing in such a way that you want to follow the trend and then sell out.

Well, you can't really do that here. So yes, I'm looking at this Tampon Tribe one just as an example. The trend is towards natural and organic. The trend is toward subscription services. That's one of the things they're trying to pursue. So yes, there are these trends, but that trend isn't going to connect over to my investment because all I care about is how many are we actually moving and I want to be able to sell out at the end of the trend.

So fascinating. One question, Nathan, where my mind immediately went, are you aware of anybody who is building platforms for geographic localities with this type of approach yet? So you mean a region specific crowdfunding platform? Right. Because that's a huge, that to me seems like a better fit. I'm involved here in West Palm Beach, Florida where I live.

I'm involved very loosely with a couple of the startup, with some of the local startup community and I see it as much more valuable to be able to use digital technology to connect people in a location because I don't have any trust or any real ability to personally vet somebody on WeFunder who's on the other side of the country.

I'm stuck limited to their pretty pictures and their very carefully composed text. But if somebody were in my town and this were built upon some of that, whether it's Thousand Cups or some of the local startup communities, et cetera, this type of approach to me seems to have huge benefit in the local area because now we could take some businesses that need funding but because those businesses are based upon the local economy, which we can measure the pulse of based upon our local connections, to me that would seem to be a really powerful way to pull this together and I as an investor would love to see something like this.

Am I off base or does that seem helpful to you? I think what you're saying is definitely an approach that some platforms are taking. Every platform has a different philosophy on a number of things, but one of those is geography. So some of them are trying to be global.

Very difficult to do global given that you have to deal with the different securities regulation in every single country, which is why we don't have a Kickstarter or an Indiegogo with equity crowdfunding yet. We've just got lots of different nationwide markets. But yeah, as well, some of them are taking more of a community finance approach where it's more about funding things that are specific to the region and the US is a big place, so there's room to do that where you can connect more closely with the local startup incubators, with the chambers of commerce in the different cities that you're around.

I mean, in Europe we see actually that the platforms which have been more successful have been the ones that have integrated themselves very tightly into the local area. Each country in Europe is a lot smaller and in total Europe is about the size of the US. So what there probably is an opportunity for are for platforms to develop in each of San Francisco or New York or in Florida or in Texas or all these places where entrepreneurialism is strong, but because if you're more on the ground and more able to plug into those existing networks it can work.

But there will be also some who try to be nationwide. So yeah, it's one approach, but it's not the only approach. I think it's got exciting opportunities and of course somebody can swindle you face to face just as well as somebody can swindle you on the internet, but we still tend to trust more those who we can see and measure and touch with our hands and speak to with our voices and observe and kind of test the mettle of the man.

So wow, how interesting. Nathan, what kind of questions should I be asking you that I haven't thought of? Oh, gee. You should, because your listeners are mostly interested in the investing side of it rather than the start-up side of it, maybe I can talk a little about how to look at an individual investment and decide some of the basics as to whether they've got the basics covered.

So you should be looking for businesses which have scalability potential. I mean, it can be used to fund these very – like you called out, I think, the alcohol companies which don't really have a moat around them. So for me, I think equity crowdfunding is a very good way for those companies to fund, but it might not be such a good way for investors to invest.

So I'd be looking for companies that do at least have some chance of 10x, 25x, 100x return. Because if they don't have that, then the math is never going to work, even if you're successful. And you should be looking for a platform with the investor protections in place. So there are things in the VC community called anti-dilution rights, where if you're an investor early on in a company, you want the ability to participate in follow-on funding rounds so that someone in the future doesn't come along and put more money in, reducing your stake from – to use round numbers.

Let's say you put in a stake early that gave you 5%, and then two years later you think you've made a lot of money, but one of the company founder's mates just comes in and puts in a whole lot of money with you not being allowed to participate, which reduces your stake down to 1%.

So you want to definitely be aware of that, and most of the platforms are very strong on that, but some are less strong than others. And I think as well you should be doing what you said in terms of trying to get beyond just the computer screen and the online aspect of it.

Just because crowdfunding is done online doesn't mean you can't pick up the phone and talk to these founders who are asking for your money. After all, it's your money and they need to convince you of whether they're worthy of it or not. So definitely ask for business plans, ask lots of questions, ask the hard questions that you think they're not going to be comfortable with, and through that way you'll gain more confidence in the team that you're ultimately looking to back.

I think people often underestimate how accessible and available entrepreneurs are. I worked closely with one company that was going through the rounds of VC funding, and what was remarkable, it was a bootstrap story. The founder started it off just kind of as a fun project, all of a sudden realized the market potential, bootstrapped his way through it.

It was a digital technology company. And systematically worked, worked, worked, and then they came to that point where they needed funding, and they had worked their way through investments from friends and family, etc. But it was at a stage where the company had huge potential. It had potential of tens of millions of dollars of revenue.

But what the founder needed was $5,000 so that he could make his personal rent payments for the next two months and keep things going. And working with them and kind of watching that, I learned how impactful a few thousand dollar investment can be at the right stage of a company, where you see a company where there is a market potential, and particularly with this one, because it was based around digital technology, it was very expandable.

And the heavy work was up front in building the infrastructure, in setting and doing the coding, and then the profit was on the back end. The few thousand dollars spoke very, very heavily for just an ordinary person. And the few thousand dollars is what was enabling the founder to systematically go and meet with the VCs and the VC firms and bring in the six and seven figure checks, which ultimately happened.

And in that case, the company has gone on to do extraordinarily well, and it has been a winner for all of the investors. There was a way for an investor to be involved at every stage. In hindsight, I was too young and green at the time to be confident in kicking in any money.

But I learned from that experience, I'm so grateful for it, and I realized that I should be more proactive, and that I always wanted to keep some money on the side that was ready to invest into risky, high risk of loss, but potential of return investments. And I had to change my mindset, but the founder was available, and the opportunities were there.

I've heard other stories from listeners in my audience who similar things, they didn't realize how much a few thousand dollar or $5,000 investment would have meant to somebody at that right point in time. They never picked up the phone, made the phone call, and in hindsight, they kicked themselves.

Because then later, they came in too late, where the person needed a few million dollars to hire 10 people, now all of a sudden it was too late. So picking up the phone can be a good way to figure out the life cycle of a company, and don't be scared to research it.

Yeah, yeah, you're right. Founders are very accessible when they're asking for money, and wouldn't we all have liked to have been the person who gave Mark Zuckerberg his first $5,000 when he needed it? Indeed, indeed. But it did convince me that there is a way to invest at just about any scale, and maybe this is one of those scales.

Of course, you need to know that the company can make that transition, because, well, you need to know that there are opportunities. Nathan, coming back as we wrap up here, coming back to the entrepreneur, I didn't mean to discount the value, because I actually could see a lot of benefit for an entrepreneur of using an equity crown funding site, because they can avoid, as I understand it, and tell me if this is right or wrong, but one of the major benefits would be if I've got a company that has been doing well, and I need funding, but I don't want to take some of the control, I don't need the benefits of working with a VC who's going to help me, or a partner who's going to help me with connections, I'm not trying to get those benefits, I just need funding, and I don't want to do it with loans, because I don't want the payback terms, I don't want to be saddled with the obligation.

But I'm not big enough to go and hire an investment bank to do a public offering, or to work with accredited investors who can't wake up in the morning. For many people, if they were to invest less than a million dollars, it's not worth their time, because they've got such a huge portfolio they're trying to handle.

But this does seem to be a very possibly effective way, especially for somebody in the local market, to use a website, but then use the excitement in the local market where people are going to have a connection with their brand. Because even though I, sitting here in West Palm Beach, have no interest in investing in this Austin, or the only craft microbrewery in Mobile, Alabama, if I were with the Haint Blue Brewing Company in Mobile, Alabama, I know without a question that I could take that and go in my local market, and I could do my rounds of marketing, and I could use this as a simple way for me to attract, at a $100 minimum investment, these people have raised $200,000 here from 190 investors, I can go around and in my local community, I can solicit the investors at a small level, and connect and just simply use these crowdfunding sources as a way for me to facilitate the sale of some of my company in exchange for equity.

So I don't want to diminish how, as a local business person, how valuable I think this can be. Yeah, you're absolutely right. I think the great thing about it is that it fills this funding gap between startups and entrepreneurs who have grown beyond the scale that they can fund with their own personal resources, or those of friends and family around them, but are still too small for the IPO market, or for venture capital, who, as you say, tend to want to invest much larger amounts in fewer companies.

And the ability to get people to pay attention to you, there needs to be some reason for that, and having a funding round going on which is open to them is a great way to get media involved, to get the community of customers and suppliers around you on board, and to expand your network too by exposing yourself through these online platforms to a whole new audience.

So it's a really interesting way for startups and growing companies to raise funding, absolutely. I can see it, even in some of my own project ideas and business ideas. I'm happy to be thinking about this and filtering this in. For those who are looking at investment, here are the ideas, and I'll give you the last word in terms of closing advice, and then I want you to talk about your company and your book and any services that you have.

But for those who are looking to invest, it would seem to me, if I were an investor and I wanted to factor this in, I would try to do two things. I would try to be focused on an area of expertise and be somewhat agnostic about the platform I'm choosing to invest.

So if I'm investing in beer companies, I'm going to be paying attention to Anheuser-Busch, and I'm going to be paying attention to the local guy down the street who I went ahead and just privately made an investment deal with him, and I'm just going to be looking at a website like this and factoring in the ability for me to reach new companies and new investment opportunities through this platform.

The idea is I'm not going to a platform like this and saying, "Well, this is my plan." No, my plan is that I'm investing in a sector of the market, and I'm doing that on whatever platform I find to do that, S&P 500, my own business, or a platform like this.

And so I think this should be something that we keep in mind when we're interested and we have an investment idea, a thesis, as they say, that we want to follow through or an approach, something that we're trying to pursue. Or I think that if you are looking for a way to supplement it, that you would want to use this and just simply filter very carefully based upon your criteria and use it as a way to learn some of the skills of being a VC or angel investor.

And so there's where you're going to be looking and saying, "Okay, I'm going to walk away from this brewery because this brewery doesn't have any opportunity to 30X my money in the coming years. But over here, there's this little interesting technology idea that somebody has put on here, and let me go ahead and research that and use this as a way for me to learn the business, perhaps even a cheap way for me to learn the business and learn the emotions of it while preparing for my bigger role in angel investing or working in my local investment club." So those are just two ideas that I think would have a lot of value on this.

Does those seem reasonable approaches to you? Yeah, I think investing in things that you already understand well is definitely a good approach to be taking. So if you're from a beer background, we keep coming back to this beer example. Everyone, you can relate to it. We all get the beer business.

I think so. If that's your background, then you're much better equipped to evaluate markets and risks and business plans in that sector. So that's a great place to start. And yeah, in terms of education, I think it's a great point you make too. When people have kids or they're trying to get their own family more interested in investing and more responsible for their own money, a great thing to do is to get them to buy a couple of stocks just so they can see how it's working.

So if you're looking at becoming more involved in angel investing yourself, then getting a couple of crowdfunding offers as investments under your belt is a great way to get started. And so especially if you're in a place where one of these companies is, it's great to say for kids, and I think it's fantastic and I intend to do it with my kids, "Oh, look, we're buying you this share of stock." It's great to be able to do that.

A lot of people say, "Oh, I'm going to choose Disney," or, "My wife's grandparents bought them all the share of Coca-Cola stock." But I feel like that lesson, because it's often restricted to the annual investment report, the annual reports, and it's very immaterial to a kid. But when you have something that is local, perhaps a local business, if there's something here, and this is this Austin company, well, for a hundred bucks, I'll buy into that just to be able to say, "Hey, let's go down and look at that company and let's use this as a way of actually being able to see it." Kids will relate to it from a tangible perspective.

I'm going to be searching some of these websites for things in my area for that benefit in and of itself. I'm most intrigued, Nathan, as we wrap up, with your business, because to me it seems like you've got the one selling shovels to gold diggers, which I think is great.

That's always the business that I want to be in. I don't want to be a part of the gold rush in terms of out searching for gold. I want to be the person selling shovels to the prospectors. So tell us about your business and tell my audience any follow-up that you'd like them to take, information, who would be a good fit for you from a client perspective, and who would be a good fit for reading your book?

Well, I think the good fit for a client and for reading the book are pretty much the same person. I've written this book, Equity Crowdfunding, The Complete Guide for Startups and Growing Companies. I'm not too creative with the title, I have to say, but it's aimed at companies that are looking for more than 50 grand, less than a million in the US, but less than 5 million euros in the European Union, because there's different limits at play there, who have a business that they need funding for and they want to know more about equity crowdfunding.

So I can step them through the process with one-on-one coaching calls. We can work out which platform is going to be right for them based on their specific objectives, work out a valuation that's going to be reasonable and accepted by the investment community, form a marketing plan that they can go away and execute on to ultimately drive people to their offer page and invest, and to be well prepared for life as a company with all these new investors in.

So it's helping, it's hand-holding along the way, and the book is a great place to start if you want to know more. It's available on Amazon now. And if you're looking at investing in these companies, another thing that I'd encourage your readers to do would be to go to my site and you can actually download a free chapter from my webpage.

If you sign up to the email list, I'll send that to you. And I think that free chapter actually has a bit of a word on what investors' motivations are for investing in this new equity crowdfunding phenomenon, because it's interesting and I think it's important even as a company too to understand what investors' motivations are because they're ultimately going to be along with you for a long time on your ride.

And the webpage that you want my listeners to go to is assembleadvisory.com? Yeah, and assembleadvisory.com/book. We'll talk all about the book and show you how to opt in for that free sample chapter too. Great. Well Nathan, this has been exciting. I apologize to you that even at the beginning I wasn't steering us in the right direction, but you got my creative juices going and I will be watching this intensely.

I'm embarrassed that I'm behind the eight ball already where I haven't been paying attention to this market, but you definitely got me excited in today's interview. And I hope that many of my listeners, I know many of my listeners will benefit both as investors and as entrepreneurs. Thank you for coming on the show.

It's been my pleasure and thanks for having me.