Recapping Mr. Wonderful’s Second StartEngine Webinar
A few weeks ago, world-famous entrepreneur and longtime Shark Tank investor, Kevin O’Leary aka “Mr. Wonderful”, sat down for a webinar with StartEngine CEO Howard Marks to discuss how startups can find investors amidst the challenges presented by COVID-19.
Last week, they sat down again to discuss the unique value proposition of equity crowdfunding. You can watch the webinar in full right here, or read our summary recap below:
What’s Happening in Venture Capital?
The chaos in the global markets caused by the pandemic has forced institutional investors to make a tough choice between putting more capital to work in new investments or deploying that capital across their portfolios to keep existing investments afloat.
“They claim that they are looking at lots of new deals, but that’s simply not the fact. I’ve got a huge portfolio of companies that’s always raising money on different platforms for different reasons,” Kevin said, “and you can’t even get a meeting right now.”
What Does This Mean for Equity Crowdfunding?
Kevin believes now is the time we will look back to in the future as the true birth of equity crowdfunding. While institutional investing erodes, we are seeing increased enthusiasm from non-professional investors. The fact that VCs often require a sizable portion of equity alongside preferential shares often puts pressure on startups to grow fast and gives VCs concentrated positions of ownership and authority. “A VC has a timeframe, a very concentrated position and very often an oversized say at the board level,” Mr. Wonderful explained. “Equity crowdfunding [usually] doesn’t have any of those attributes.”
Equity crowdfunding allows startups to always be raising, creating diverse communities of equity participants, bringing about a new definition of community – a capital community, which brings unique benefits when compared to a concentrated VC investment.
So, How Should Entrepreneurs Adapt?
Mr. Wonderful has seen many of his portfolio companies grow their direct-to-consumer business to make up for declines in physical retail sales by directly communicating with customers via digital channels.
When communicating with their existing customers, Kevin noted that their email response rates have increased from 2-3% to 15-17%. “We’re asking our customers to help us get through this period, to keep the DNA of the business intact [and] the product they love and use, and we are actually growing a business with them direct in a way that is replacing what we were doing with them in retail.”
The companies in Kevin’s portfolio have been reaching out to their existing customers with discounts and promotional offers. “We’ve been sending 2-3 of these emails a week, and the responses have been extraordinary because people care about the companies they were buying products or services from.”
In short, Kevin’s advice to his companies is communicate: communicate regularly with any employees that you have to let go and communicate regularly with your customers. Be transparent with them.
How Will Secondary Markets Benefit Equity Crowdfunding?
Addressing the common criticism that equity crowdfunding is the same as private equity because investors are unable to freely trade their assets, Kevin brought up the solution of alternative trading systems.
These trading systems have the potential to make equity crowdfunding even more attractive to startups who want to raise money because they could also be able to provide liquidity to their investors.
At this point, Howard reminded the audience that StartEngine will soon be introducing its own secondary market: “We’re planning to launch a secondary marketplace where you can actually trade those shares that we’ve issued.” No date has been announced yet, but when it launches, StartEngine’s secondary market aims to create a complete ecosystem where startups can raise capital when they need it and investors can get liquidity when they need it. “We’ve solved the entire problem,” Howard added.
A StartEngine Entrepreneur Shares His Opinion
Howard and Mr. Wonderful then spoke to TruBrain CEO Chris Thompson, who was initially resistant to equity crowdfunding. He now sees it as a healthier way for startups to raise money.
He compared the standard cycle of venture capital fundraising to the yoyo diet (in which an individual starts an over-aggressive diet and later regresses after seeing some results). He felt that companies dedicate massive amounts of time and resources to raising money, then have to immediately put that capital to use, losing focus on how to run the business effectively day-to-day during the fundraising process.
Instead, Chris suggested that – much like maintaining a healthy diet at all times, rather than in fits and starts – it’s better for startups to always be raising, creating a community of “investomers” that provide fast, honest, meaningful feedback.
“We’ve really put our investors to work – we got 1,500 investors involved … to give feedback” Chris noted. “You’re constantly socializing the parts of your business that keep you honest and close to the market.”