Raise money from your own users through equity crowdfunding instead of VC

Jelte Liebrand… a bunch of different ones across the world. And it's basically you're investing your money, and you get a share of the business. How the platform usually sits on the cap table and becomes your front of the investors effectively because you have a long tail. We have two and a half thousand investors like this by now. But yeah, anybody can invest, and so anybody can invest as little as 10 bucks or as much as hundreds of thousands if they want to.

Jelte LiebrandSo when we started, we weren't sure what was going to happen. We get 10,000 people using the app, and sure, I have a network of people that potentially have some spare capital, but I don't know. And we only needed a little bit of funding, and you're right. We needed the funding because we wanted to push it into marketing. At the end of the day, we're a B2C business predominantly, and so in order for us to get to the number of subscribers that we need to get it to cover our fixed costs, you're going to need capital. And so, we launched this campaign, did this video for it. No idea what to expect, and within 24 hours, we're like, "Oh, we're subscribed" We've blown past the target that we needed, and people are jumping on the bandwagon and mostly boaters, people going, "Yeah, I'm done with what I have. I want something new. I want something fresh."

Jelte LiebrandAnd so, within six days, we shut it down because it was triple of what we needed and since then have repeated that a number of times because we basically have this army of investors who, A, believe in what we do, B, can back us with money, but also back us with knowledge. We've had number of times throughout these years that you started business, there's so many aspects of the business you don't actually know about. You don't know what you don't …

Jelte Liebrand… the majority of cases, I would tell them raise half of what you're trying to raise because whatever you're trying to raise is... You know, that's the other thing. I actually hate the phrase raising money. Like you said, people think it's a, "Oh, I've made it if I raise money." You know, it's not some magic money tree that you put some water in and you're raising this magical free money. You're selling your business. That is what you're doing.

Jelte Liebrand… doing that, you're getting a lot of money in. You're selling a lot of the business. So yeah, back to crowdfunding. The better way to look at it when it's crowdfunding for equity is indeed angels. So the majority of your round will be funded by a handful of angels who put in a significant amount of money. Now, the long tail is everybody else who's putting in 100 bucks or 10 bucks or 500 bucks or a few grand or whatever else. And yes, it's a platform like Kickstarter or Indiegogo. You go on the platform. There's a video there that explains what this business is doing. There's some documentation and some financials and a pitch effect, whatever. And in most cases, there'll be some perks. I think in the first round, all of our investors got Savvy Navvy sailing jacket, a really cool jacket with Savvy Navvy in the back.

Jelte LiebrandIn one, we gave people three-year subscriptions because again, most of our investors are actually boaters, but the big reason you do it is to get equity into that business. And the ultimate aim is always, well, it's not always a trait, but there is an exit in mind so that you get your money back. And in most of these platforms, there's then a secondary market as well, and so actually, even though we're not a public company, our shares and stocks are being traded on this secondary market. And so, even if you invested and we haven't yet made an exit, you can still liquefy some of the money by selling it on the secondary market. So it's a really good platform. It's very founder friendly as well because again, you're not dealing with a VC who's trying to mold your business into their model and …

Jelte LiebrandAnd again, that's nothing wrong. If you're building a business that fits the VC model, go at it any day all day long. But in most cases, you're probably not. And there's also nothing to stop people from doing both. It's very common for people to say, "Okay. We're going to fund via crowdfunding initially, a couple of rounds or whatever, and now, we're going to get institutional money in to back us further."

David BarnardPreferred shares, yeah, yeah. So then, do they get their money back first before you get a profit? Walk me through the actual mechanics of that.

Jelte Liebrand… how much equity you give up, just like any funding round, you set a valuation. And usually, even if you're VCs or even you have maybe multiple VCs, there'll be a lead investor, and you basically negotiate the term sheet with the lead investor, which sets the valuation and therefore sets how much equity you're willing to give up. That's no different, really. Fundamentally, when you're thinking about crowdfunding, before that round goes live, you will be talking to a handful of select people that you have identified who might be interested. And so, you fundamentally, with them, agree the terms, in large part, agreeing the valuation of the company is and therefore how much equity you give up. Once you have that agreed, then everybody else jumps on the bandwagon at the same term sheet. And that term sheet, again, for most platforms and definitely one Seedrs/Republic that we do, it is very, very simple in the sense that there are no preferred shares. Everybody gets the same share.

Jelte LiebrandEven the guy that's putting in 10 bucks versus the guy that's putting in 200,000, they all get the same level of share, and nobody has a preferred share. And so, how do they get the money back? Yes, that is, generally speaking, via the exit, and that could be that we IPO. And so, okay, now, they can either sell, or dividends comes their way or whatever or trade sale. This is usually the most common, too. But yeah, I think the mechanics are not …