The new way of raising capital: equity crowdfunding

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A while back we had a sponsor called StartEngine and I was really excited about it. The reason was because it was a new way to raise money.

But what really got my attention was the bio section of the founder. His background was fascinating.

I invited him here to talk about the revolutionary way his company is enabling entrepreneurs to raise money as well as his previous companies.

Howard Marks is the CEO and Co-Founder of StartEngine which is an equity crowdfunding platform, connecting investors with startups.

Howard Marks

Howard Marks

StartEngine

Howard Marks is the CEO and Co-Founder of StartEngine which is an equity crowdfunding platform, connecting investors with startups.

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Full Interview Transcript

Andrew: Hello, there freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy. Where I interview entrepreneurs about how they built their businesses and I attempt to speak a little too fast. I will slow it down. A while back we had this sponsor called StartEngine and I was really excited about it because it’s a new way to raise money.

Crowdfunding kind of like what we’ve seen with Kickstarter, but instead of just getting the product you actually get to participate in the ownership of the business. I thought that was really innovative. I was very proud that we had him as a sponsor.

But what kind of drew my eye was the section of the bio where I saw that the founder was a co-founder of Activision, and of Acclaim, was running Acclaim, bought Acclaim from bankruptcy. I thought his background was just really fascinating. I said how do we not get the founder of StartEngine to come on and talk about his background and also to talk about StartEngine.

And so here we have him. The team said let’s make it work. They made it work. We invited him to talk about how he did it. The part I’m most fascinated by is StartEngine. I think that they just are revolutionizing the way that companies are raising money at a critical point in the way that businesses are growing. And I invited him here to talk about it and I also want to find out about those past businesses. His name is Howard Marks. He is the founder of StartEngine as you heard me say. StartEngine is an equity crowdfunding platform that connects investors with startups.

This interview is sponsored by two companies the first will host your website. It’s called HostGator. And the second will help you hire your next great developer, Toptal. Howard, good to see you here.

Howard: Thank you.

Andrew: I know how you well you guys are doing with StartEngine as far . . . well, why don’t you say it. How many companies have you guys helped to raise money?

Howard: Well, so far we are past the 150 companies and this year we hope to add another 150 to that. We started out with the new rules that came out, it’s called the Jobs Act, and it was put in place in April 2012, and we started the first raise in 2000, end of 2015, beginning 2016. First year of 2016, we did about, I don’t know, 10 companies and that was hard because people didn’t know about it and didn’t understand it. And then 2017, we’re close to 100 companies and right now we’re over 80 and we probably we’re going to about 200 to 300 this year.

Andrew: And I’m noticing a bunch of them are car companies. Electric car companies are big on your platform, huh?

Howard: Well, it turns out they are great innovations but they’re not necessarily finding the traditional sources of capital from venture capitalists or angels investors. So for them, crowdfunding is a great alternative and it’s worked great. We’ve raised lots of money for cars.

Andrew: How much money are you guys taking in personally?

Howard: Well, it turns out it depends on the type of raise but in general, for the small raises, we are taking 6% as our fee.

Andrew: So overall in the last 12 months how much have you guys taken in yourselves?

Howard: Well, last year we generated $2 million in revenue, the year before we generate about $300,000 in revenue, and this first quarter we announce our numbers are over a million and some in the first quarter, so we’re growing.

Andrew: Okay, and that’s a part that you take in but obviously you’re collecting a whole lot more for the businesses that are raising money on your platform.

Howard: Right, we’ve raised over 60 million for companies so far. So if you think about it, it’s still the beginning of an incredible journey. It’s very early and we can see the progression and the growth based on the fact there’s a huge appetite for capital.

Andrew: So I told you that I was a little late to start the interview because I got lost in like old “InfoWorld” articles of out the old video game world. And the reason is that I’ve got in my bio and I see online another interview programs that you’re listed as the founder of Activision. But what I . . . as far as I can see from those old articles it says four Atari programmers who started Activision right?

Howard: Correct. So what happened was these four programmers were working in Atari in the late ’70s and early the ’80s and they got frustrated with the management and decided you know what? “I know Atari, is a game console company they make games as well. However, why don’t we make a software game company that is just making games, not the hardware just the cartridges, right?”

And that was an innovation in itself and it turns out Activision, was the first I would say publisher game publisher to be ever be created I think it was in ’79, somewhere around there. It turns out it was a big success at the beginning and then for whatever reason, there were some problems with management and then Atari, crashed completely crashed out of the marketplace. And then Nintendo came in and that was in the late ’80s and by then Activision was basically a failed company. And my partner and myself came in and we purchased control of the company and took it through bankruptcy and the end of ’91 and started all over.

Andrew: And this was an old friend of yours from college, right?

Howard: Yeah, he was my roommate in college. He is currently the CEO of Activision.

Andrew: Currently?

Howard: Yes.

Andrew: Bobby Kotick.

Howard:Kotick yes.

Andrew: And then you and other investors ended up owning I think about 30% of the business?

Howard: Correct.

Andrew:Okay, and then did you take on any management of the business?

Howard: We were the management.

Andrew: You were, so what was your role?

Howard: My role I was chairman of the studios. And he, my partner became CEO, I was chairman of the studio so I ran all the games, the development of the games, the publishing of the games.

Andrew: What that means that you were bringing in publishers? That you were bringing in creators and publishing games?

Howard: Yes. So we had to find a way to restart the company from scratch and so we moved it to Los Angeles, because we thought there was a lot of great talent here. Especially because we saw the market moving towards 3D graphics instead of just these little-pixilated things you saw on the screen in the old Atari games. And we decided that the CD-ROM, which is a DVD, was going to be the main format of choice and not the cartridge.

And in order to create that kind of content we wanted it to be in a place that was more conducive to it wish list Los Angeles was, so we moved the business down to Los Angeles. Basically, it was just 10 people and so it was myself, Bobby, another guy called Brian, another guy called Keith, and a few dev . . . you know, just a few people. So we had to find programmers so we were lucky in Los Angeles, you have some extraordinary talent, great engineers from some of the best schools in the country, so we started recruiting and building from scratch.

Andre: And what did you do that made it work?

Howard: Well, our vision was probably right. We believed that we should spend big budgets on games. It turns out the initial games were always built by one or two people, maybe three. One person would do the programming or and the graphics sometimes and sometimes the sound as well and the music and sometimes it was two people or three. And we said you know what? What if we spent a million dollars on a game? And that was a crazy idea, right? With video and graphics and 3D and we started building these larger budget games.

And you know, one of them was called Zork, Return to Zork, which became a huge hit on CD-ROM. Which was a new format for the PC and then became a format for the PlayStation and Nintendo to and all the other machines. And then we had another huge hit at the early stages called MechWarrior 3. And that became an enormous hit and all of that kind of got us back to prosperity but it took a huge amount of work, many years of restarting a business pretty much from scratch.

Andrew: And then you sold it or merged it with the Vivendi?

Howard: Right.

Andrew: The French company.

Howard: Correct.

Andrew: What did you buy it for and how much did you guys sell it for?

Howard: Well, it was well it’s hard to tell. We bought control for $400,000 but we had to put in a couple million . . .

Andrew: Four hundred thousand dollars for your 30%.

Howard: Thirty percent.

Andrew: Got it okay, and then.

Howard: And then we have to spend about a $2 million to buy out the banks because the banks controlled everything at that point. And then we took it through bankruptcy and then we found . . . we got $5 million from some of our investors, original investors. But ultimately how much did we pay for it? I would say $2.3 million.

Andrew: Okay.

Howard: It’s a pretty good deal.

Andrew: And then how did you do with the exit?

Howard: So well, the exit happened over time because we were publicly traded we relisted on the Nasdaq and by the time the merger happened if I remember right it was like a $6 billion merger or something like that. And now it has a $50 billion market cap or you know, depending on the day but pretty large.

Andrew: Okay. You know what? I don’t mean to be a jerk but does that make you a founder if you buy a company from bankruptcy?

Howard: Well, it depends how you look at it. It could it depends on you know, if you start from scratch. Even if you didn’t start from scratch. If you buy control of a company and you rebuild it, what is [inaudible 00:09:34]?

Andrew: You’re saying you basically had just a name and a history and a handful of people who turned it into a real company again?

Howard: Right, we had to refinance it completely. We had to start from scratch. But in reality, if the original founder or these four people that you mentioned and some of them are really talented people but in reality the Activision you see today, it’s not them. It’s a whole new business.

Andrew: And you did pretty much the same thing with Acclaim. Am I right?

Howard: Yeah, so I bought it out of bankruptcy and it was a liquidation bankruptcy which means they came with nobody. There were no more employees, no more. The only assets left was their name and a few things. Really, literally nothing. And so I rebuilt it as an online game company and we had about 17 million players the time that I sold it.

Andrew: All right, this is another jerky question but as entrepreneurs, I think we can talk like this. Where did you get the money to buy all these businesses? I was looking at your past and I don’t see much before 2005?

Howard: Okay, It’s very simple. So I started when I was in University of Michigan, we, me and my partner Bobby, started a first company didn’t do well. Another company that started doing well on paper, did $10 million in software for the Apple II machine which was one the precursor to the Macintosh. And we were failing at that even though we . . . you know, for college kids, we had a $10 million business. You would argue, “Well, that’s a great idea.” You know, even met . . . we met Steve Jobs. We met all sorts of great personalities but we failed it because the Mac came out and we were dead.

Everybody went out and bought a Mac and Apple II was dead. We couldn’t predict that. We were too young to figure it out. And then we started building software for other companies like Commodore and making money. So it was the old fashion of small business making money. We ended up building a business doing software for different computers.

Andrew: What kind of software?

Howard: Word processing software, productivity software, and small, little tools that we . . .

Andrew: The kind of stuff that you would find at Staples?

Howard: I would say at the early days in the ’80s the personal computers had their own market. It was not . . . there were two kinds of computers. The ones you put on a desk which are in an office. IBM being one of the leaders. And then you had those personal computers that you put at home and you can play games, you can program them, and you can also write things on a word processor. And we were the most popular at one point word processor but we . . .

Andrew: What was the name of it?

Howard: It was called Wordcraft.

Andrew: Wordcraft, okay.

Howard: But we knew it was going to go away. We kind of figured it out the Wordcraft will be going away and it turns out Commodore went bankrupt, the main computer we were working with. But in the meantime, we made a bunch of money. So we made about, we had about $10-$12 million dollars in revenue and we made about $2-$3 million dollars. We took the $2 million we made basically paying ourselves a small salary and we dumped it into the Activision deal. So two and a half million roughly. We took the money, put it in there, and that was it. We took a big bet. Took control of Activision, restructured it, and restarted it from scratch.

Andrew: Why go into games when you’re so experienced creating tools?

Howard: And the main reason was we didn’t believe what we were doing would have a future because we thought the personal computer business was going to go away. We were not a business software company, by the way. That was not our DNA. Our DNA was more consumer and games were very consumer. And it turns out we came in at a time where the game industry needed something new. It was going from the cartridge business to a non-cartridge business and it needed new talent, new ideas.

Andrew: Okay, this was . . . Was the name of the company Audiogenic?

Howard: No. So Audiogenic it turns out it was Mediagenic not Audiogenic. So it was Activision renamed itself to Mediagenic.

Andrew: I mean, I’m looking at an old Wordcraft 40 manual cover and it says manufactured and distributed by Audiogenic but I guess that might not be you. Maybe it’s a different product.

Howard: Well, it could be a different product. You know, maybe we didn’t do well in our copyright and trademark at that time. But, anyway, but if you looked under Amiga Wordcraft and there was another product called Kind Words. Our first product called Jane on the Apple II you can look it up. Jane was based on the “See Jane Run” book. So we made this very accessible for people to learn and it was basically a Windows product on the Apple II. It’s completely nuts but it worked on a 48K Apple II. I mean, who programs for 48K? I mean, that’s just not even a logo on a website, you know?

So going back to the history is basically we found a way in by making money on making software that in the end was not that valuable. You know, we wanted to build something for the long-term. And I think we saw the game industry as a long-term play.

Andrew: Okay, and then you got into it, you got out of it, and at that point from what I understand you said, “I want to do some angel investing.” And you were in LA, and how is angel investing going in Los Angeles for you?

Howard: It was not going well because what happened was when I decided I’m going to invest as an angel, it turns out there were no accelerators in Los Angeles. There were no community world the angels could get together. There was one called the Tech Coast Angels which was a group that was there for many, many years but it was not . . . I don’t think it was representing truly the talent.

Andrew: You’re not going to say this, so I will say it. I had gone to one of their events. It was basically a bunch of retirees who just wanted to talk shop all day long. They would talk and drain the entrepreneur or let the entrepreneurs talk and present until they got all their ideas out and they never . . . occasionally they pulled the trigger on some deals. And all of them would get together, like 100 of them, to invest in one company each investing like 20 bucks. I’m obviously exaggerating but that’s what it was like. And I saw some entrepreneurs say, “I want to do angel investing but there’s nothing here.”

Howard: Correct. So it was definitely the wrong platform. So then I said to myself, “You know, what? Let me start the first accelerator in Los Angeles.” Think about Los Angeles, we have 85 higher end institutions, education institutions like U.S.C, Caltech, UCLA, Harvey Mudd, let’s go on. It’s extraordinary. And yet there were no accelerator in LA, and there was one in Austin. There was one of Boulder, Techstars. There was, you know, Y Combinator but nothing in LA. And I was very frustrated and I said, “Look I’m going to invest and I’m going to do it.”

So I announced on November 2011 that I’m building an accelerator in LA. I went to an event, not Tech Coast Angel. I went to UCLA. And then the next thing I know I’m getting 100s of applications flooding in saying, “We need capital.” So guess what I did? I made appointments. Starting in January, I made appointments, 10 minutes. Someone had 10 minutes to meet with us and then I had 10 minutes questions and I made a decision the same day.

Andrew: Same day and it was you investing your money?

Howard: Yeah, and my friends, so we got to group together. We put a couple million dollars in a fund and basically same day. And so here’s what I told the entrepreneur, “You’re going to meet with us and if you like us and we like you, I’ll make you an offer but you have to give me an answer the same day. I’ll give you an answer the same day and you don’t have any extra time.” It’s a really stressful, very stressful thing and we did that and we were funding about 20 companies a year and doing these demo days and getting new investors. And the results were not great. Mainly because I made big mistakes in how I invested. People . . .

Andrew: What . . .

Howard: Yeah.

Andrew: Yeah, tell me about it.

Howard: Well, I invested in women. I invested in men of color, women of color. I invested in people who had ideas there were not in the mainstream. People who didn’t have Stanford education. They were graduates of mid-tier schools. I made all the mistakes that you’re not supposed to do which, you know, VCs only invest in people mostly white males from Stanford, I would as a model, and I didn’t do that. And you know, you could . . .

Andrew: You said these everyone’s investing in the same group of companies. The line was the guys who look like Mark Zuckerberg. Everyone is investing in entrepreneurs look like Mark Zuckerberg.

Howard: If you talk fast.

Andrew: Talk fast faster than me?

Howard: They talk fast. They look the part.

Andrew: Yes.

Howard: They’re white. They go to Harvard or Stanford . . .

Andrew: And you said, “I see an opportunity here to invest in underappreciated assets, which are these entrepreneurs. Why was that a problem?

Howard: Well, it turns out that and that’s probably normal. Out of the 60 investments I made 90%, you know, 50 of them went to zero very quickly. Now, it turns out my best investment is a woman-led company called Carbon38. There’s two women. They’re extraordinary. They made an apparel brand that is doing amazingly well. But the reality is I couldn’t predict. No one could predict but what I did is, I learned that the market for capital is very biased. There are huge amount of barriers and I needed to change it.

Andrew: And part of the issue was?

Howard: [crosstalk 00:19:18] impetus.

Andrew:Tell me if I’m wrong about this but it I thought I heard also that you might have invested in these people who others wouldn’t invest in and that’s fine. But at some point, you need the next round and you couldn’t get them there.

Howard: Correct.

Andrew: And so . . .

Howard: I was enthused, I was enthusiastic, I was the cheerleader, and I couldn’t get anyone else to invest. And if they did get investment, the terms were so awful and ridiculous that it demoralized investor . . . the entrepreneur. So the entrepreneur either got capital and was harshly treated, or didn’t get anything and they could meet with as many people as they wanted. They still didn’t get anything. So either I was wrong and they were right, or the system is wrong. And I decided the system is wrong.

Andrew: What about Trint [SP]? Isn’t Trint doing pretty well they’re still around?

Howard: Yes.

Andrew: But that’s not the big investment. That’s not the big win for you there?

Howard: Well, no.

Andrew: You invested in it. That’s why I bring it up.

Howard: I have some great ones. I mean, out of the 10 left, there’s some really great ones. I mean, Carbon38, you have Unplug, you have Tint. There’s several of them.

Andrew: Oh, Tint. I said Trint. Tint right.

Howard: Tint. But I have to tell you there are several they’re doing well but it’s still dawned on me that the other 50 that didn’t do well could have done well if they got the capital. So I decided we got to change because the status quo is just no longer acceptable.

Andrew: Okay, let me take a moment to talk about my first sponsor and then I’m going to come back and once you’ve discovered, “Look, this is not working. I’ve got to do something else.” I want to know how you adjusted.

My first sponsor is a company called HostGator. Let me ask you this, Howard. Do you started a bunch of businesses. You helped a bunch of people with their businesses. If you had nothing but a hosting package. Like you’re a guy who came to the U.S. from France, you have no connections, nothing but a hosting package. I say, “Howard, you got to build from scratch?” What business would you build? What website?

Howard: I think I would probably build an e-commerce website because I think it’s very accessible. It’s easy to understand and right now with all the tools that exist out there you can build one.

Andrew: And how would you get anyone to even come to your site considering that we’re all trying to go to Amazon?

Howard: That’s correct. I mean, I’m an Amazon family like most people around, so we don’t go out of our house anymore but I would say I would go for the specialty. In fact, it’s funny one of my sons is in high school. His buddy is doing a used sneaker business but high-end sneaker business and it’s doing great. And it’s an e-commerce business and you can see . . .

Andrew: Because people go seek that out and Amazon, does not feel like the right place for it.

Howard: Absolutely. Amazon is absolutely the wrong place because you can’t decide if it’s a real one. He can tell you if this is real, so he has now the expertise. But if you think about for people who need to build a business, the hosting solution is really the right way to go.

Andrew: All right, well, guys if you’re looking to start an e-commerce store, just go to hostgator.com/mixergy. When you go they are going to get up to 62% off. I always talk about how you can start a WordPress site there with one click install and get going. But I’ve got to tell you can easily one-click install software to allow you to create an e-commerce site. And frankly, even WordPress now allows you to do e-commerce really well. If you’re looking to get clients, one way to do it is to frankly create your own content marketing and HostGator will do that well too. Whatever it is that you’re looking to publish go to hostgator.com/mixergy. Get that big discount. I actually urge you guys to get that unlimited domain package so that you can experiment a little bit until you hit the idea that works just right for you in the market. And they will give you unlimited domains for what is this? Under four bucks a month. Just under four bucks a month.

Go give them a shot. Unmetered disk space, unmetered bandwidth, unlimited amount . . . I don’t need to tell you guys that. You know all that’s available to you and if you’re not happy, 45-day money back guarantee. The only thing I would suggest that you look at when you get to this page guys. Go to the bottom where you can see that they’re going to give you $100 AdWords offer. They’re going to make it easy for you to promote your site if you go to hostgator.com/mixergy.

All right, you saw that wasn’t going to work out and at that point, you saw the Jobs Act potentially coming up, right?

Howard: Right, so 2000, April 2012, Obama, signed the Jobs Act. What is that? No one cared. It was one of those things where you look at the Obamacare, everybody cared about it. It was so important and mind-boggling for people because it transformed health care. And yet it hasn’t done much. It just created more regulation.

But the Jobs Act is groundbreaking. It’s groundbreaking because it changes an 80-year-old rule because the SEC was created in 1933 after the crash of 1929. It was created as a response to regulate a marketplace that was crazy. I mean, you could buy shares, anybody could buy shares on margin up to 90% on margin and guess what happens next? If the market goes down, everybody loses all their money, right?

You could have been just an ordinary person, not a wealthy person. So they decided okay, we’re going to only let wealthy people invest in startups new businesses and unless you register a company to go public, the public can’t invest. So only the rich can invest in great ideas like Uber, or the original Apple, only the wealthy people not the ordinary person. If your neighbor started Apple, your neighbor Steve Jobs, you can’t invest legally.

And so it was very cruel but it happened . . . they did it because that was the rule they want to make things safe for investors. Guess what, the Jobs Act changes everything. It allows any company to raise up to a million dollars from anyone, the general public. Now, it limits how much someone can invest, so it protects the investors from any of it.

Andrew: An individual can invest up to how much? I didn’t know that.

Howard: Well, it’s 5% of their annual income or $2,000 whatever is greater, not bad.

Andrew: Whichever is greater?

Howard: Yeah.

Andrew: So the average person who has less than a million dollars in the bank can’t invest more than $2,000?

Howard: No, no whatever greater or no whatever is greater.

Andrew: Sorry, sorry yes, I see okay.

Howard: So if you make a $100,000, you can put $5,000 across many deals and if you make less than $40,000, you can still put $2,000.

Andrew: Okay. And the total amount that you can invest in all these companies has to be a 5%?

Howard: Five percent, yes.

Andrew: Okay.

Howard: And then there’s another deal called Regulation A Plus which is the gold standard which is starting to become huge. You can raise up to $50 million, not $1 million, $50 million from anyone again and an ordinary investor can only invest in that deal 10% of their annual income. So if you make $100,000, you can put in $10,000 at the most. And that deal, the reason I bring it up is you need to spend about $100,000-$200,000 to put it in place because it’s like a mini IPO. You have to go through registration, go . . . you have to submit it to SEC to review. The one for a million dollars, we can do that in a factory model. We can bring people, companies out overnight and within a week or two. That’s a lot easier.

Andrew: Okay, so you said, “Look, this is coming up. This is going to change everything.” This whole Kickstarter thing is kind of cute and interesting where somebody could put money up and get a watch or get a bike but getting a piece of the company, that’s the future. And you said, “I’m a gear up towards this,” you started going towards it and then it was stalling out, wasn’t it?

Howard: Well, look, you just mentioned Kickstarter. Oculus Rift, was my inspiration because I saw this is a great idea and they ended up getting 8,000 backers, 8,700 backers who put in three and a half million. And unbeknown to all those people Marc Andreessen and his group put in $80 million and they sold it to guess what? Facebook, where Marc Andreessen, is on the board for $2 billion and these people still didn’t get their Oculus Rift. But they built the brand. They did everything they could to build the community. They were the heroes but they end up with zeros, so you know what, that inspired me.

Andrew: Inspired you to say, “Look I think we can do this better.”

Howard: I think so we can and so, look, I can’t blame Oculus at the time because the rules were not in place but we can do better today. And so you said . . . okay, so we came out with our first deal was a car company . . .

Andrew: Was this Elio?

Howard: Elio Motors.

Andrew: Elio Motors.

Howard: We launched it the very day that Regulation A-Plus, you know, the one for big deals was available. And we got $70 million, close to $70 million for that company from 6,000 investors. It was unbelievable. However, how do you repeat that one, right?

Andrew: You know, before we let me just pause on this one. Because I’m looking at it. This is an electric car with three wheels, right?

Howard: It’s actually not electric. It’s a gas car but it’s very [crosstalk 00:28:24].

Andrew: Oh, 85 miles per gallon, excuse me.

Howard: Yeah, 85 miles per gallon. Tiny engine, beautiful but to think . . .

Andrew: And do people also get to buy the car at this point?

Howard: No. Well, it’s just an investment. You get shares in the company.

Andrew: Just an investment in this car being made and the understanding that its target is to sell for about $7,000 per car.

Howard: Well, it turns out the middle-class customer who loves cars wants to buy an economic, good looking, cool looking car that they can put aside their car and they were enthusiastic about it. And so it turns out they want to invest, so we help them raise the money but in reality, this showed me that there’s something special here. You know, it’s nice to start a company where the first product you have works you know.

Andrew: This is the first one you guys did?

Howard: Yeah.

Andrew: The first one. How did you get so many people to come in and invest?

Howard: Well, it turns out we didn’t. The car company Elio Motors had an installed base of fans because they were crowdfunding the company to pre-sell the car. And they got, I don’t know, 20,000 people to preorder it, you know, the same way you would preorder a new Tesla model 3. People were they were pre-ordering this car and through that, they brought in those investors.

Andrew: This is from their own website. They have a what is it? A preorder reserve page?

Howard: Right.

Andrew: The people who preordered they went back to and said, “Tell you what? We can now allow you to also buy a piece of the business. If you’re interested go do this.”

Howard: Correct.

Andrew: And that’s how they got. How did they get people . . . do you know how they got people to go to Elio Motors? I’m I pronouncing it right Elio Motors?

Howard: Elio Motors.

Andrew: Elio Motors. How did they get people to go to eliomotors.com to even know that this thing existed?

Howard:They had a mailing list, a very large mailing lists of fans of people who are interested in a car. So it’s good old marketing. They went from city to city showing the car, the prototype, getting people excited about it. I mean, this is the Paul Elio, the CEO, hard worker, brilliant engineer, brilliant entrepreneur but really went in and had nothing to lose basically. Had everything to gain.

Andrew: So his story is he went to show off this car. People who are interested got to get on the list. Some of them ended up buying. Some of them ended up buying a piece of the business.

Howard: Correct.

Andrew: Wow, yeah, I’m looking at his site. He gets a few 100,000 hits a month on the website. Let me see where he’s getting his traffic if I can tell. It’s an interesting success story. How did you meet up with him?

Howard:It turns out we were working with a marketing agency who said, “Hey, I got a guy for you. You got to meet this person.” Because there are probably one of the largest crowdfunded companies ever that no one has heard of. You know, they were not the Pebble Watch. They were not one of those famous Kickstarter stories. It turns out Kickstarter wouldn’t take them because Kickstarter doesn’t allow cars on their website. Interesting, Kickstarter has a lot of product and services they won’t permit. So, anyway, he was looking for a new idea to finance his company. He came over to meet with was us that was, listen to this, June, 1st, of 2015, June 19th he was live on our website the very first day the rule came out. Just shows you how hungry he was and we were.

Andrew: And how fast worked to get this going.

Howard: We worked overnight every day. And then when we launched it, it was apparent that something was going on. It was obvious. There was so much excitement. And so since then in the first year in 2016, we did 10 deals. Elio being the largest deal right? Ten deals. There are 5 million businesses in this country and we did 10 deals. That doesn’t work. That’s just not good.

Andrew: Wait, before we go into what you guys . . . I like that you’re not happy with that and you want to do more. Help me understand what you did for them though. Was it just filing the paperwork with the government? What else did you do?

Howard: Well, we put together a website. We connected the website to an escrow service company where you can deposit money, so we allowed the investors to use ACH wires to fund their investment. We tracked their investment. We gave them service in case they needed to understand if it closed, then it closed. And then when we issued the shares, when the company issued the shares, we sent them an e-mail. So we did all of the plumbing, the logistics, and we put together a beautiful page, so we did the marketing visuals, helped them build a page. They hired a company to do a great video and off we go. So in a way . . .

Andrew: And you guys also hold onto the shares for the investors?

Howard: No, we’re . . . it turns out we don’t. At that point we were a marketing company, a platform, so all the shares are held by the company, the corporation, and then they hired a transfer agent and the transfer agent ended up holding it.

Andrew: So I’m on the Wikipedia entry for Elio and it looks like they’ve said that they’re going to launch 2015 and still didn’t launch and they kept pushing off the launch date they still have not launched to date. How do you know that the money is actually going to be used properly? That they’re actually going to launch? What do you do to ensure that you don’t get ripped off? Or you’re users don’t get ripped off?

Howard: Well, yeah, exactly it turns out the SEC is supervising this because the deal was qualified meaning they submitted to the SEC. They have to submit two reports a year, a six months report and end of year report and an audit every year. So if there’s any misappropriation of money, it would be pretty obvious to the general consumer because everybody, not just investors everybody gets to read those reports and the press as well.

Andrew: Okay.

Howard: And you can read reports about us too because we’re also raising money online.

Andrew: So this is all kind of public like a publicly traded company without the overhead?

Howard: Yes, it’s publicly traded without the headaches and the overheads. It’s very light. It ends up costing maybe $30,000 a year to maintain a large Regulation A-Plus raise but if you do the million dollar raise, it ends up being hundreds of dollars a year to do the reports, so it’s very inexpensive.

Andrew: Wow. Okay. All right, did you do any of the smaller deals in that first year, in that first 10 batch?

Howard: Right, so we did. So we launched four of them in May 16 of 2016, and they all failed. They did terrible.

Andrew: Really, why?

Howard: I think we just maybe we didn’t have the right ones. They didn’t put the marketing effort and or maybe I don’t know. We were very concerned because the first four ones . . . the first one we launched was a hit. Then we launched an airplane call XTI that did well, then we launched a few other things that did well like Med-X. Which is a medical marijuana pesticide. It’s an organic pesticide for marijuana for plants and so on and so on. And they were the first four we launched is a disaster.

And so we did some soul searching and we realized that it didn’t matter. We have to keep going and just keep launching ore companies and one of them is going to do well. It turns out so a couple started doing okay and that was the year 2016, and we entered 2017 with a lot of momentum. And in 2017, we started launching roughly 5 to 10 companies a month that was a lot for us. We typically were launching one company a month. And now we are today launching around 30 to 40 a month so we’re growing and the demand seems to be there but . . .

Andrew: What did you learn about marketing for a company? Or did you decide we’re not going to be in the marketing business? We need people who have a big customer list?

Howard: Actually, we learned that we have to help them as marketing. In fact, we learned . . .

Andrew: You did, so you learned about helping entrepreneurs and businesses market themselves to investors?

Howard: Right, we initially we didn’t know how to do it and we didn’t offer that service and now we are offering that service. It’s called Promote and to the extent they’re interested, we even helped fund some of the marketing as well.

Andrew: So what do you do?

Howard: So we do is we have a team that goes and figures out the audience they need to reach and use Facebook, AdWords, and different out of marketing venues to promote. And then if it does well and gets a good return, then we started adding our own money in it to help out because we want them to be successful.

Andrew: So it’s basically like B2C marketing to get investors?

Howard: Absolutely.

Andrew:Because it’s such small amounts?

Howard: The average investment is just as over $1,000.

Andrew: Wow, wow, that’s really tiny. I mean, I think even like a standard broker wouldn’t want even work with you if you want to invest just $1,000.

Howard: No, the standard broker doesn’t want to work with us, doesn’t care about us, and don’t think we’re doing something anything great. Because they only want to work on the big IPOs, you know, blue chip companies that want to raise, you know, hundreds of millions of dollars.

Andrew: So that’s like an investment banker but I’m thinking about the broker who buys stock for me. I don’t think he’d want . . . I know he wouldn’t want to work with me if all I wanted to do was $1,000 trade.

Howard: No, he wouldn’t because you can make his living.

Andrew: No.

Howard: He can’t win. So broker is if you think about the broker business, what they’re doing now is the way the win is they manage a portfolio of money and they get a percentage every year. That’s called wrap fee account. But the idea of that selling your stock and making money on the commissions is over today and it’s not, you know, with pennies. So they can make a living and these brokers usually drive beautiful cars. They have boats, planes, everything you want. They can’t do that.

Andrew: They can’t work with a person who has just $ 100,000-year salary who’s going to trade $1,000 or $2,000 or whose going to buy stock for $1,000 or $2,000.

Howard: You know, we’ve been working with them on the E-Trades of the world and you know, Robin Hood, which is an app. They would be very happy. And you know what, the same way to use your analogy, the broker won’t work as a small investor but most investment banks won’t work as a small company ever.

Andrew: Right, right. All right, let me talk about my second sponsor which is a company called Toptal. By the way, speaking of my second sponsor who does the books to prepare the projections, the spreadsheets to prepare a company to raise money with you?

Howard: Well, it turns out most companies that we work with they don’t have an accountant of choice which is kind of strange. You would think that’s one of the first things you do. Well, you know, an entrepreneur is great at many things but not necessarily great at finance. So what we do when they need it is we have these consultants, some of them are just bookkeeper, some of them are CPAs and we have we provided them at no cost.

Andrew: Oh, really, wow wee. All right, I was going to say to anyone who needs it they can go to Toptal and find a really good finance person. That’s what I did. I wanted someone who was like CFO level to look at my books on at least a monthly basis to help me figure out where my making mistakes, where am I actually missing opportunities. So once a month Jack and I will get a call, he’ll go through everything that I’ve done, and he’ll help me find mistakes that I’m making, help me see things that I haven’t realized, help push me to make better financial decisions. And I connected with Jack because I went to Toptal.

I’ve talked forever about Toptal being a great place to hire developers and frankly you and everyone else who need to hire a developer should go to Toptal to find them. But what Toptal is telling me is that they have a really excellent finance department and any . . . And what they’re finding is a lot of people who are trying to raise money do not want to create projections themselves, don’t want to create the spreadsheets themselves, don’t want to create even the slides themselves, the pitch deck. They want someone who has experience either sitting on the other side of the investment decision-making process because they’ve worked for an investment company or someone who’s been in finance forever.

That’s why Toptal has them in their network and anyone who wants to hire them can go to this URL I’m about to give you and say, “Here’s what I need. I need a pitch back or I need a spreadsheet put together. I need some projections. I need somebody to look over my analysis or my assumptions.”

Whatever kind of financial input you want Toptal can find someone for you so that you can get started with them often right away and frankly pay them per hour. If you’re not happy, you don’t have to continue. If you are, you could do what I did and I continued with Jack now for almost a year now.

All right, so if you’re looking for a great finance person go to Toptal T-O-P-T-A-L. That’s top as the top of your head tal as talent toptal.com/mixergy. You’re going to see that they have a special offer to Mixergy listeners. I have said it a million times, I’m not going to read again, but I want you to be clear if you’re not 100% satisfied, you will not be billed. Go get the details at toptal.com/mixergy. A phenomenal company.

So I see now that you’re starting to find your stride. I wonder where the original people you were able to find, the original business you were able to find through your own personal connections. When you were starting to ramp things up, how did you find more businesses?

Howard: Well, that was our biggest concern was how we find entrepreneurs who get it. You know, most of them we talked to or we found were concerned that they were not doing the right thing. They were using a whole new way of raising capital.
Will they get sued by the investors? Will they get sued by the SEC?

I mean, you have to understand that at the beginning the idea of crowdfunding was just product. I’m going to crowdfund my company and sell a product, presell it, whether I deliver it or not, who cares? Well, this time you selling securities and I think your listeners will understand when you sell shares, you abide by certain laws and rules and it’s real important. It is meaningful. And so the beginning was hard to invest to convince entrepreneurs that they can find investors online using the Internet, using Facebook, and also their mailing list. It seems like science fiction to them.

Andrew: It’s kind of weird. What you’re saying as if I want to raise money can go to the Mixergy audience and say, “I’ve got this idea I’m going to raise money.” And get them to buy in but it makes sense.

Howard: It makes sense because they care about what you’re doing. They’re fans. And so to the extent that you have a reach and you don’t have to have a huge reach, you not only can raise money for the company, but they can help you market it down the road. Because let’s say you’re an investor in a car, next thing you do, you tell all of your friends about it.

Andrew: And they’re more likely to buy the car because they’re an investor in a business. They’re more likely to root for it, to talk about it online. That’s the idea behind crowdfunding.

Howard: Right, I think is an idea behind new social media phenomenon where everybody wants to know what everybody’s doing and if you’re recommending a new product to someone, that’s valuable. So not only you’re raising money from this crowd but they’re going to help you become successful and that is in a way a new form of financing with marketing.

Andrew: So I hear, I have here my notes, 2016 launch 10 companies most didn’t make it you learned a lot. 2017, you had a bunch of turnarounds. One thing that helped turn things around was this GolfBoard and the other was Sondors Electric Car. What’s the GolfBoard?

Howard: That’s really interesting. So you have this guy. I meet him in a meeting and he’s showing me his video of a board that looks like a surfboard on wheels that’s used on the golf course. So it’s not like a golf cart, you stand on it, and you put your golf cart . . . golf bag and you use it like a Segway. You press and it goes forward. You can turn and you surf. And he says, “You know, it’s amazing people use it. They can get a golf round in 40 minutes.” I said, “What are you talking about?”

Andrew: It’s because it can move so fast on the golf course.

Howard: It’s so fast and . . .

Andrew: You know, actually and I can see that he’s moved it beyond that. So yes, it’s still the GolfBoard but now it’s also a beach board. If you want to get around really fast on the beach, you can do it. If you want to get around in a resort. I can see these things taking over the streets of San Francisco, because they look a lot safer than those little . . .

Howard: Birds.

Andrew: Bird Razor scooters that everyone’s got around here. So he started out with that and he raised money. How did he raise money? Why was he a turnaround?

Howard: Well, it’s unbelievable. So he started out and the first two weeks I think the most he raised was $80,000 on the campaign, which the maximum you can raise is a million seventy. And I want to hide. I didn’t want to call him and say, “Hey, you know, didn’t work or whatever.” And so what he did instead he was like, “Okay, cool.”

Every time someone tries a GolfBoard, we get their e-mail address and we’ll e-mail them and say, “Hey, do you want to invest?” And guess what happens next? The thing goes through the roof. It funds in no time past a million dollars, way past, so we have to refund everybody else or anybody who can’t get in had to be put on a waitlist. And then he did another deal which is called Regulation D 506, which is only for a credit investors. And those wealthy investors got to put in the rest of the money. I think he raised a million and some, million close to $2 million dollars It was so successful and to us, it was important because we knew that what we’re doing is going to work if we can find the right companies . . .

Andrew: And the right companies are people who sell and ideally people who sell to people who have money. To the wealthy people.

Howard: Hustlers.

Andrew: Hustlers.

Howard: People who know how to hustle they know how to go out and sell an idea. And then you’ve got Sondors who is great because he is a bike entrepreneur electric bike entrepreneurs can turn . . .

Andrew: He’s kind of a weird guy the video. Like the he created for you looks a little weird, a little out there, but his numbers show has speak for themselves. He raised how much money on Indiegogo with that bicycle, electric bicycle that has giant wheels?

Howard: Seven, 8 million. He’s a brilliant marketer. So Storm Sondors is a brilliant marketer and you know, look last year these people defined our year. We had about a dozen companies that had over a million dollars. We funded close to 100 companies and we in our wildest dream didn’t think this would happen so a movement started. We felt the movement. The movement was there every time we found success, we got more entrepreneurs to come to see us and raise money.

Andrew: And it makes sense because you see that this guy from Sondors Electric Bike starts to raise a bunch of money for a car and you said, “Well, how do I do that?” And then you just start jumping in.

Howard: And you know what, here’s the thing, a true entrepreneur raising capital is a nightmare for them . It’s always hard. It’s always difficult but it’s a must do. You have two jobs an entrepreneur. You have to build a company but you have to also raise money and you have to do it at the same time. You have to keep building, keep raising, keep building. It never ends. We found a way to help entrepreneurs to keep raising money while building, so they don’t have to do 80 pitches to investors to have only one say yes. They just have to go and pitch the very people who want to use their product.

Andrew: So one of my team needs to get Sondors on here. He is so compelling to look at and so like interestingly weird I can’t stop. I got to close the tab. Is there anything like plan to just go back to Indiegogo and anyone who’s done well say, “Hey, guess what? Imagine if you were to raise money this way to from investors?”

Howard: It turns out we had these businesses problems. Where do we find these entrepreneurs? And how many are they out there? So what we did is we’d start doing research and we found that entrepreneurs who crowdfunded in the past. Who raised money on Indiegogo, or Kickstarter or any of those websites were actually very well suited for us a good match. Not only them, then to those who are usually older entrepreneurs, they’re not millennials. They’re in their 40s, 50s, their access to capital the ability to raise capital is pretty much nonexistent. Because they don’t fit the Mark Zuckerberg role anymore. I mean, they’re too old. It’s called ageism, by the way.

Andrew: I see Don Wildman from GolfBoard. He’s an older man what is he 70?

Howard: He was a founder of Bally’s. The . . .

Andrew: Oh, he is the inspiration for GolfBoard but it’s not his business.

Howard: He invented it and his son runs it.

Andrew: Got it.

Howard:So it’s a family business and I met Don, and he’s in his close to his 80s and what a fun person he actually was telling me that he was writing the GolfBoard on a golf course and crashed and how he survived it. I mean, he’s just amazing. He’s just a great person. And anyway the point was the people who do best with us are entrepreneurs who have no fears. They understand that raising capital is hard but it’s possible now. Because all the bias that existed, all the barriers have been removed, so what’s left? You the entrepreneurs is left and that’s fair. That’s a reasonable pitch, “Hey, you’re entrepreneurs. If you’re able to send your message whether your white, or your colored, or you’re older, or you’re not, or you’re a woman, or you’re a man, you have the same access.” That’s what I want to build. I want . . .

Andrew: You know, and one thing that stands out for me, Howard, is the companies that have done well have something that is it’s uniquely interesting. And I don’t see a lot of businesses here that just have another site that’s twice as fast as their competitor. I don’t see the kind of companies that would even see like YCombinator, software companies for example. Right?

Howard: Well, you’ll see some of them. Since then we’ve done ICOs, which is Initial Current Offerings, and they’re blockchain-based companies I think you’re going to see a little bit of everything. You know, I’ll give you an analogy that a lot of people me use to think about. When I started Acclaim and I bought it out of bankruptcy, I decided to make free to play games. These are games that you don’t have to pay 60 bucks to play or you don’t have to pay a subscription $15 a month. It’s called free to play.

Now, today we all know what that is but at in 2005, that was crazy. And I had people come to me and say, “Howard, I know you’re a game guy. You started Activision. No great game will ever be free to play ever.” Guess what? Over time it worked. League of Legends came out, biggest game in the world and now you Fortnite, one of the biggest games in the world, PUBG the biggest games in world CS:GO, Team Fortress. I mean you name it, all free to play. It took over the whole industry. Why? It’s obvious. It’s free, right?

Andrew: You know, the same thing is going to happen. All right, I have to tell you. I wasn’t sure what to make of you. It wasn’t until I talked with Andrew Thomas, the founder of SkyBell.

Howard: Yeah.

Andrew: And then I felt super comfortable. I said, “You know, I’ve got a sponsor. It’s called StartEngine. Does it . . . I’m going to run an ad for them.” I did my research because I know Howard. Tell him I said hi.” And then that gave me a lot more confidence in the platform. Well, I got it.

Howard:Well, I have to tell you what he’s done, he again SkyBell was also crowdfunded initially. A fantastic company. I turned out I’m an advisor for them. It happened to be helpful for them. But I have to tell you this, how many are those of those extraordinary entrepreneurs out there? There are hundreds of thousands, if not millions. Our country was built on the notion that you can have an American dream. This is something we sell that no one else sells. It’s our exclusive right and we should take advantage of it because today we need those entrepreneurs to create those new businesses but they need to be funded. I come in for the funding.

Andrew: I’m fascinated by ICOs. Let’s spend the rest of this time just talking a little bit about that. You guys have done ICOs, initial coin offerings already?

Howard: Yes. So one of them is called TZero its done over 100 million.

Andrew: T, the word TEE?

Howard: T-Z-E-R-O.

Andrew: Okay.

Howard: And it’s a division of Overstock. I don’t know if you’ve heard of Overstock?

Andrew: Your guys did them?

Howard: Yeah.

Andrew: Okay.

Howard: Them meaning they are revolutionizing how investments are going to be made because they are going to be trading those crypto security tokens, right?

Andrew: A quarter of a million dollars they raised?

Howard: TZero raised over 100 million.

Andrew: A quarter of a billion.

Howard: Over 100 million.

Andrew: Okay. And so you . . . I didn’t realize you guys were involved in that.

Howard: We’re involved in about a dozen ICOs. Now, why are we interested in ICOs? It turns out that last year the craze the ICO craze started around May, of last year. And these companies raise billions of dollars but not in stocks and securities, in utility tokens. And it turns out I predicted that those utility tokens are not legally sold. They need to be sold as securities but how do you do that? Well, guess what? We’re experts. We know the job we’ve done before.

Andrew: You know what, I see and now I have to tell you your sponsor and we did our research before you so I got . . . They needed special permission to allow you guys in as a sponsor because we don’t have any friends at the company. We don’t know if that works. So we did a bunch of research. I still didn’t read the ad, and then a friend of ours, Andrew, you know, talked me I go, “All right, we’re ready to read the ad.”

I challenged you in questions and beginning in the interview and even before we started we’re talking. Everything you say checks out as far as I could tell and still, you say we did the TZero. I go and I do research as it were to as you’re talking and I see it here. Apparently Overstock moved away from a company called a soft [SP] launch, migrated over to StartEngine and you guys help them with their ICO. I’m I right?

Howard: Correct.

Andrew: I don’t know what it is about me. I think this is what made me a really tough son for my dad. He could just say anything and I would have to have proof and this is before Google existed. And so you talking and you can see me, I’m focused on you and I’m researching everything I can. Anyway, okay, so you guys do ICOs. You were explaining what ICOs are.

Howard: Well, it’s very simple, so it’s called initial coin offering and what you’re doing is you create a blockchain application on an Ethereum or on any of the new blockchain applications. And you want to raise money for your application, so you create an initial coin offering and you create a cryptocurrency for your company. You mostly using an Ethereum and it’s a protocol called ERC20. It’s a smart contract and you issue those to people who give you Bitcoin or Ethereum in return.

So now you’re changing a token in something that is of value to for a bitcoin or an Ethereum which you can then convert into cash dollars. So these companies were doing it without any regulation, got into trouble with the SEC and that happened starting last fall. Where the SEC issued bulletins saying, “Watch out guys you can’t just raise money from the consumer was out registering with the SEC or using an exemption.” And when they mean by exemption the Jobs Act, which is use the Jobs Act and you can raise the money/

Well, we came into the marketplace last November, and said, “Guys, we’re going to help you do it. We have the expertise, we understand what you’re trying to achieve, but we have to do it the right way. They need to be securities.” So the message initially no one cared. Everybody was kind of like distracted. They didn’t want to work with us. Then the SEC in January, of this year February, January, sent subpoenas which is requests for information to all these companies. I mean literally everybody and froze the whole thing and guess what happened? They realize we have to use regulation and then we got a ton of business. So we were patient. We had a message. I was writing tons of articles about it. People were reading it. When the SEC came in strong with enforcement, that’s when the message came through. Unfortunately, that’s what it took.

Andrew: Give an example of utility coin.

Howard: Yeah, so one example of a utility coin would be, for example, I would say Civic. It’s a company. Started by a great entrepreneur and what it is is to use the blockchain to identify people. It basically is your, you know, like ID card on the blockchain. Which means it’s safe, secure, and immutable. And so he raised a bunch of money by issuing that same token you’ll use to buy your ID, he sold it to people and that’s how he got started with his company.

Andrew: So let’s suppose, I don’t want to do this. But let’s suppose I said I want to raise money using an initial coin offering. What I might do is have, let’s say, live, let’s say, sessions with entrepreneurs like you. But I would say, “You know what? The entrepreneur should get paid something. We’re going to create a Mixergy coin, anyone can buy the Mixergy coin, and then once they have it, the only way to participate in these live sessions is to pay using their coins.

Howard: Right.

Andrew: That’s it.

Howard: That works fine.

Andrew: That’s overly simplistic but that’s what an ICO would be for Mixergy.

Howard: Right, because think about Twitch, they do that on Twitch. You can tip, you can you know, you can pay your favorite people, but they don’t have their own coin. They just ask you to use a credit card.

Andrew: Right.

Howard: Well, that’s expensive. Every time you use a credit card? So here’s the thing if you . . .

Andrew: It means it’s expensive not so much for the person giving it, as for the person receiving it, or the person processing it because you have to pay the credit card company every time.

Howard: Everybody but if you use a coin a token, it’s instant and it’s virtually inexpensive. It cost virtually pennies, not even pennies. So if I want to . . . I am a Mixergy fan and I see you on there and I want to participate in one of your chats, I just need to press a button and take the Mixergy coins and let’s say I have a 1,000 of them. Give you 10 of them and I made the payment and it’s instant.

Andrew: And they don’t get to share the business. They just get the coins that they could use to buy the product which in this case would be access to the entrepreneurs.

Howard:That’s correct. Now, this is all good if you’ve created this service already. So you created the service, you issued the coins, no problem. But what companies were doing is they were issuing the coins without the service being available. That’s . . .

Andrew: Meaning we going to sell the coins and at some point in the future are going to create a service.

Howard: Right, well that’s called . . .

Andrew: And that’s a problem?

Howard: Yeah, that’s called risk capital. You’re asking someone to take a risk because you may never deliver it and that’s a security.

Andrew: Okay.

Howard: If it’s the security it needs to be sold, so what we came up was is look two coins your first point is going to be the equity in a company and that’s going to trade as equity like [crosstalk 00:59:59].

Andrew: It will actually be equity in the company?

Howard: Yeah.

Andrew: People own a piece of the business.

Howard: And the second coin that you receive because you bought the first coin is a Perk. If and when the blockchain is available, the service, the Mixergy service is available, we will give you the coin at that time.

Andrew: And then you can use that coin to like you get access got it. And if I already have the software set up.

Howard: Right, as you sell the company . . .

Andrew: If I had to start a company set up, then I could have just the utility coin without the security?

Howard: Right, at that point you’re just selling a utility. Which is legal because you have a service for them to offer and you know that people who buy it are going to use it because they want to be in your chats not to speculate.

Andrew: I see what’s the difference between then somebody who’s raising money through an ICO versus the other options that you mentioned earlier?

Howard: Well, I would say it’s sexy. The ICO is a much sexier kind of way to do it. And we’re now going to the world where shares, stocks are going to be tokenized. We call it tokenized securities.

Andrew: And that makes it easier to buy and sell them.

Howard: Correct. So it’s not like an ATM.

Andrew: I own shares in a startup called Assist. They create chatbots for big companies. I can’t sell it. It’s sitting in [inaudible 01:01:10] account and I can access it. Here if it was a token, I could sell it to someone else.

Howard: Correct. Let’s say it’s on our platform on StartEngine secondary and it’s trading and you say, “Hold a second it’s 50 bucks a share. I could sell some of my shares.” And you would post them on there and say, “I want to sell so many . . . ”

Andrew: And you guys do that now?

Howard: No, we’ve done a test. We did a prototype of it and it works. But we’re waiting for we’re trying . . . we’re going to become a . . . we’re in license to become a broker-dealer and once we become a broker-dealer, we’re going to launch to the platform. And this is going to be a revolution because here’s why. We’re going to be tokenizing all the securities and we’re going to allow private companies to become . . . to have a liquidity event instantly or right away or quickly. This is unprecedented. I mean, 99.99% of all the companies in the United States are privately held they’re not public and there’s no liquidity. What if you could provide liquidity for early companies or mid-size companies? Why not?

Andrew: And you guys handle both. You could do the security part and the utility token part?

Howard: Correct, because we want to be a modern financial firm. We just wouldn’t want to be . . .

Andrew: Would you want to do one or the other only?

Howard: No, you want to do both.

Andrew: Because you wouldn’t want to do just the utility token because anyone can set that up on their own.

Howard: No, because it can feed . . . issuing the utility . . . issuing the tokens security tokens doing the [inaudible 01:02:39] and then the trading, the issuance feeds the trading because now we have more companies on the trading platform. So we also do the clearing of the of the tokens. We are also a transfer agent so in a way and we have a blockchain application to manage the whole thing. So in a way we think about it we’re Berkeley [SP] integrated modern financial firm where we’re not just like an investment bank and stock market and a clearing firm. We’re all the same together all using technology.

Andrew: Right. You know, I mean, this I should keep offline and I know that you guys have like a chat session and you’ll even get on a call with me if I was curious about it. But I’m going to ask you now just because I’ve got you in front of me. What does someone have to do if they want to do an ICO with you? What do we need to set up?

Howard: It’s pretty simple. I mean, they can sign up on StartEngine and they’ll get a phone call from one of our team members and what they need to do is decide how they want to structure it. So they need to talk to us about how their blockchain applications going to work. Whether it’s a blockchain application or any company and they want to issue a tokenized security we can help them do it. We explain how it works, we show them the agreements. They can sign up if they want to do the million dollar raise for no money down or they pay us a fee of $5,000 and we set up the page and we do, we help them with the marketing as we discussed. But we removed the barrier as well for the entrepreneur. They don’t have to spend money if they want to raise money with us.

Andrew: And then what about the rest thinking through what the token would be used for, etc. Is that something you guys do?

Howard: You know, we don’t do that and the reason is because at the end of the day, it’s an entrepreneur who needs to have the imagination and the creativity to figure out what they want to offer to the marketplace. We’re not mentors. We’re not trying to guide entrepreneurs that like selling . . .

Andrew: Like anything that you started out doing this is not it.

Howard: Yeah, but you know what? Most of the people didn’t care about my advice. They only wanted the money.

Andrew: Okay.

Howard: I mean, let’s be honest.

Andrew: Yeah.

Howard: They were very respectful for me. You know, they say, “Look, Howard, you’re a great entrepreneur.” They were respectful but they didn’t that’s not what they wanted. They needed the money.

Andrew: And so what we do is we come and when I say we, it sounds like I’m looking for myself. If I was looking for myself, I would just call you guys up. What I would love it is if someone in my audience used anything that comes out of my interview and built up a successful company. That’s what do juices me. But they just come to you and say, “We’re raising money, here is the business, you take it from there.”

Howard: And you know, what the thing is as long as it’s a real business and these people are not bad actors. I mean, they’re great good people. Everybody is welcome. There’s no, no. I have people call me all the time and send me e-mails, “Hi, Howard, here’s my pitch deck. I want to pitch you.” Why pitch? Just do. They’re like, “What do are you talking about, Howard?”

Andrew: Just put up the network and then pitching their audiences and pitch the world to invest.

Howard: Correct. So the barrier of meeting Howard, and getting through to Howard, and getting an appointment with Howard, and seeing if Howard will put up the money is gone. You don’t need that anymore. You just go on StartEngine. You put your campaign up, your company and you raise money. And we give you tons of tools to raise money, ideas, and best practices. But we’re not mentoring you about the business because ultimately that’s up to the entrepreneur.

Andrew: All right, I’m going to leave it there. I’m glad that this interview went well because I was . . . you know what? Because I said you know what? I’m ready to lose them as a sponsor but nothing as a big sponsor. You just came in and you bought a little bit of ads. One of the smallest packages is totally fine. But I never want that to ever influence me an interview and I was thinking, well, maybe, in this case, it could. I can’t . . . screw it. I’m going to go in and ask my toughest question before we even start. That’s why I challenge you on everything I found about Activision. I like the way that it turned out. How did it feel for you?

Howard: Great. Look I think what you’re doing is fantastic. When you say what juices you is that these people who listen to you are going to be creating great businesses. And that’s going to happen, by the way. This is not an idea this is a reality. I have the same way. My mission is to help entrepreneurs achieve their dreams. I’m going to fight hard. I want to fight hard and hard to make it happen because this is really the legacy I want to leave behind.

Andrew: All right, if anyone wants to go check it out, they can actually go to startengine.com or I’m going to say this we had you as a sponsor. You get offered a bunch of stuff for anyone who listens and go sign up. I’m going to say I hope this doesn’t screw up your ad analysis go to the mixergy.startengine.com if you want to see that or just go to startengine.com.

And I want to thank my two sponsors. The company that will host your website right it’s called hostgator.com/mixergy. And the company where I hired a phenomenal finance guy Jack, thank you, so much and I hired a developer and a designer really the best of the best come from Toptal. Go check them out at toptal.com/mixergy. And finally, if you have a smart speaker, just yell its name you know, like Alexa or Siri, whatever it is and say, “Play Mixergy podcast.” That’s how you can get some of the best content into your new speaker. All right, Howard, thanks, so much for doing this interview.

Howard: Thank you. Nice to meet you.

Andrew: Thanks. Bye, everyone.


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