The Rise of Investment Crowdfunding: A Revolution in Venture Capital

(upbeat music) (upbeat music) - I'm Phil Delarman. - I'm Douglas Borthwick. - And this is Old Men New Money. And remember to like, subscribe, and share. You can find us on all major platforms like LinkedIn, Instagram, and all major podcast platforms like iHeart, Spotify, and YouTube. Speaking of LinkedIn, we have a weekly newsletter that goes out and we talk about all the best information, the powerful information that's going on every single week in Bitcoin, blockchain, crypto, and digital securities. But now we can jump into a very exciting interview with Yvonne Damank.

He is the investment crowdfunding expert and we are super excited to get your expertise in this space 'cause it's very timely. - Yvonne, I'm very, very excited to learn about investment crowdfunding. And you've been in this space, I think, for longer than anyone. So I think that I've sort of come from a background where I've dabbled in investment crowdfunding, at least for the last four or five years, but on the digital security side. But you've been doing it on the paper side and digital side. And please introduce yourself. I would love to hear all about your journey. - Sure, and thanks for having me here, guys.

Really, really exciting to be on. And going back a long time, actually 25 years ago, I arrived in the U.S. From Europe, actually for a European bank. I was running a broker dealer selling European equities to U.S. institutions. So I've done that about just over 10 years. And at the end of that period, I came in touch with, at a barbecue at one of my neighbors, the co-founder of Lending Club. John Donovan, I don't know if you know him, but he told me about this thing. And I said, yeah, working at this company is really cool. You should invest in these loans because it's a new thing and it's where everything is gonna go in the future, right?

And I said, okay, great, fantastic. I had no clue what he was talking about, we were talking about unsecured consumer credit, right? And I was in the equity business and I said, okay, fine. So I go home, I opened an accounts and I started investing in these loans, right? And it was Lending Club, it was before they were public. They just, they used to be Facebook app and I was really became a marketplace. And so I started buying these little pieces of loans because that was the whole spiel.

You don't buy one single loan, you buy an assortment of loans and a bit more risky, less risky, and then over time you have a blended return which is better than what you could get in any other sort of fixed income security at the time. And so as the story I always tell is that while I was losing sleep care and money in my day-to-day business on the equity side, I was making anywhere between 9 and 11% return in this fixed income security arrangement, unsecured consumer credit, right? It sounds very, very risky, but the way you did it gave you this blended return, which I thought was really cool, right?

Then I said, this is something I wanna find an opportunity to roll into that space, right? And so it's also important to know that that's basically one of the first iterations from what afterwards is being called crowdfunding. It's really bringing together these marketplaces, right? Lending Club or Prosper, these are marketplaces. They bring together buyers and sellers. In this case, it was borrowers who were looking to borrow money to borrow $10,000 to do my kitchen, for instance, right?

And on the other side, you had investors, retail investors most of the time also, they were looking for ways to get exposure to a new asset class that was highly yielding that whatever they could get at the time. And so they brought these together. And so that was the model. Started from a very low base. But then I was approached by a former client of mine who actually was starting a fund, the name was Eaglewood. And he heard that I was talking to Lending Club because we had some conversation. I was actually interested to go and work with Lending Club and with John to see what we could do because I was so excited about the opportunity.

And so he reached out to me and he says, "Well, I hear you're talking. Well, I'm talking to these guys as well because I'm working on an idea. Maybe we should sit together and think about this more closely." So I met with John and he told me about Eaglewood. He told me about his idea. And the thing was that he worked at the hedge fund. Again, he was one of my clients on the buy side. And he was personally investing in these loans as well already for some time. He liked the whole idea. And he wanted to buy some of these assets for the fund. But it was still pretty early after '08, right? So, you know, very esoteric.

And the guys at the funds said, "No, no, no, we're never gonna buy this for the fund. Not cool." So he says, "Okay, then I'm gonna do it myself." So the idea was to set up an institutional vehicle to attract an institutional capital to invest in this newly investable asset class at scale. And that was his idea. And I said, "This is a great idea." It's basically sort of way ahead of what I was thinking. So I joined him. I was one of the, I think, employee number one or two, basically heading up business development and investor relations. And so we're talking 2012 kind of period. And so I helped him base the initial 20 million for the fund.

And then the breakthrough over the summer, I think 2012 is when we got a leverage facility from Capital One, about $65 million in order to also put that work in that asset class. And so at the end of 2012, we wrote history. We launched what was then the first institutional fund that would invest institutional capital into this newly investable asset class. And from there, we opened up that market, right? From day one, we had $85 million, the 20 plus the 65 to invest in the lending coupons. We became one of the biggest buyers of these loans on day one. And so four times a day, we went on the platform.

We bought all these pieces of loans and whole loans as well. And actually became a great success. So first year that fund returned, I think 16.1 net return to the investor. And then year two was just north of 15%. And then the owner John sold the fund to Marshall Waste in the UK, one of the largest asset managers in Europe. And they turned it into a closed end fund that was listed on the LSE. And for now, I don't know if it still exists, but that was sort of the story there. So great, great ride. But that point being is it opened the industry. And so what at the time was very marginal, very small, 85 million was really nothing, right?

But it was very big for that industry. Today, it's a multi-trillion dollar business, right? The market share also, an unsecured consumer loan at the time, you had to go to your bank, right? If you wanted to have $15,000, you had to go to the bank, pain in the ass, right? I mean, you don't wanna go there, it takes forever, no decisions, they're gonna screen everything, whatever. Today, I just go online, right? He's like, I need $15,000 for my kitchen. There's no bank that's gonna show up. You're gonna have all these FinTech lenders, a lending club, a prosper, other kind of names, where literally in five minutes, you type your data, right?

SoFi's in there as well, you know, who's your name, social, and you're pre-screened literally in two minutes. And then you're accepted, you get a loan, that's the rate, that's the amount. And then once you're pre-approved, you type in all your data, obviously you will link up your bank accounts and all these kinds of stuff. It's literally done in minutes, right? So basically in five to 10 minutes, I can borrow right there $15,000 to do my kitchen and get an installment loan for three or five years or whatever, done. And money is in the bank the next day.

So really a revolution on how that works, which means that the market share from banks for that industry, basically at the time in 2010 was they had 95% market share, lending club maybe less than five. Today it's the other way around. I think the online lending industry now is primarily alternative lenders. They have like 56% of market share and banks continue to lose market share. So that's how that institutionalization drives actually the industry. As I said, the multi-trillion dollar industry today.

And so my whole premise before, you know, I'll talk a little bit about the other things I've done in the meantime, but my whole idea is that right now we're in a moment where with investment crowdfunding, I expect exactly the same thing to happen as we've seen with online lending. It's basically buying pieces instead of buying pieces of a small consumer loan, it's buying pieces of the equity of small businesses, right?

And as the industry grows, institutions are gonna come in, liquidity is gonna come in and it's gonna blow this industry from the current 2.8 billion to I think 10 billion plus within the current administration to 50 billion plus before, you know, 2035. And then you talk about real money and it's gonna go from there. - I've seen you somewhere you were talking about how you think investment crowdfunding is gonna replace VCs. - Yes. - So why do you see that happening? - Well, replace, I gotta qualify my statement there a little bit, as I said, we'd see clear with our data, right? You can be your own VC.

Everybody knows how VCs work, but for a retail investor, you know, you can only participate in VCs. Everybody knows it works, it's fantastic, you see the big stories and whatnot. You gotta be rich, right? You know, it's all the rich people who can, you know, allocate a lot of money to these VCs and it's only getting bigger and bigger and bigger, a very little smaller VCs. And even then you have to know where to go and you gotta be qualified and all this kind of stuff. So with this here, with this model, you can perfectly be, if you have the data, if you understand how the numbers work, you can get exposure to entrepreneurial America.

Today, build your own portfolio in no time and do exactly the same as VCs do today. And you don't need 100,000 or 100 million to do that. You can start with, you know, literally less than $1,000. - One of the proprietary, well, I'd say the advantages of some of the VCs is just deal flow and how soon they get to see good deals. So in this model, you're saying basically it's like the best ideas are gonna win and get eyeballs and should get funded. It's not necessarily where they have to go through a, you know, a 16Z type to get validated. - Well, I'm a data guy, right? So for me, it's all about the data.

If you have the data, you can beat anybody else out there who doesn't have the data. - Very simple, that's how we scored 15 years ago with these loans, same thing. Why were we better than everybody else who did this? Because we, and that was before AI, right? AI was not there, you know, computers were not at the same level as we are today. So the underwriting of these loans, we did it in quasi real time online, but we had a spreadsheet. It was an Excel macro spreadsheet that was running. We had a consumer credit specialist who basically knew where the mispricing was in these loans, right?

Lending Club On The Road did the first underwriting of these loans, but very rough. And so what we did as a fund, we said, look, you know, we can immediately see what loans are mispriced. And so we played that arbitrage. So we bought all the good stuff from the platform first before anybody else, hence our great returns. So what VCs do today, you know, it's a numbers game, right? But with the VCs, nobody knows the real numbers, only the people inside, right? People only see the headlines and the fantastic big unicorns and whatnot, but it's a numbers game. They buy a hundred companies all over the place and they know just the numbers, right?

50% are gonna do okay, but nothing really special. 10, 20% gonna go out of business. And then 10, 20% will do three X, four X, five X. But then it's 1% is gonna be the next Facebook, next Google, the next Amazon, the next Revolut, the next whatever. And that's how they get to their blended returns over time. You can do that now with investment crowdfunding as a retail person in exactly the same way. Now you mentioned cclear.ai, that's one of your products. Can you go into, how does that help you become a VC yourself? C Clear, and then I come back to the story of, you know, what happened after my time at Eaglewood, right?

So from there, I actually worked then with two young guys out of Lisbon, Portugal. They were developing a SaaS software company called James. And basically they were using, they were making what they call the first AI for credit. Again, in the consumer lending space, but also small business lending. They had a product that basically helped lenders, both classic lenders, but also FinTech lenders, better underwrite credit to increase volumes, decrease default rates. And again, it's all about the data, right? But there was AI coming in. So what I did there, work with these guys, put them on the map in the US. They had no presence here.

So I was, you know, employee number one, and I stayed employee number one for three years. And three years I've built out the business, you know, partnerships, some accelerators, built a pipeline. And by the time things were, you know, starting to roll, comes along big tech. Google in this case, and it buys out the business. Sounds great, wasn't great for me. It was really an acri-hire. They just bought out the 15 smart guys out of Lisbon, Portugal for cents on the dollar, and brought them to the office in New York. So that's further, that's where the AI component comes in on, you know, when you have AI, you combine it with the perfect data.

You have a combo that nobody can touch, right? And then after that, I did another three years with a larger company called Informa, listed in the UK, global company, 12,000 people. But I was in the business intelligence park, basically developing and launching a product, again, focused on consumer lending. What they did was competitive benchmarking. Again, it's something that's very important, coming into the picture with C Clear. Competitive benchmarking is what, it's a very profitable business.

What all the banks do in the US, they sell like, you want to know from day to day, how you're doing versus your competitors, especially in a larger competitive market. So this product, what Informa does, and already for like more than 20 years, is that they have this benchmarking model. They're working consortiums. So they bring like, for instance, 40 banks together, right? They ask all these 40 banks to every week, send all their data, all their raw transaction level data for a particular product, let's say mortgages, right? To Informa, right?

And then in 48 hours, what the company does, and still does today, is sort of they mask all these data, they aggregate it, then they work their magic. And then they come up with a dashboard where every single participant in the consortium can see how they stack up competitively versus everybody else. At a very granular scale. Again, extremely interesting, because there, you can see Bank of America say, look, I want to know how I'm doing in that zip code for these kind of credit profiles in that kind of product. How did my market share increase or decrease versus my three biggest competitors? Extremely valuable.

And then they can play around with their pricing and try to take market share or whatever. That's what I did there for three years. And again, it's all about the data. If you have the data, you put it in context and you can see it versus everybody else. It's a killer proposition. So every bank who has that runs out already for 20 years. I always say it's like Hotel California, right? You know, you can, what is it, go in, but never go out, something like this. It's extremely profitable business, nice business, but it's absolutely critical.

And so what, for the last two years, when I left Informa, I've teamed up with the guys from the Crowdfund Capital Advisor, I'm not sure familiar, but CCA is actually a consultancy out of Denver, Colorado. It's led by Yoshua Witteis, Witteis as they call him. And really Witteis sort of generally seen as the godfather of the industry. He's the guy who actually wrote the legislative framework for what became Title III in the Jobs Act in 2012. So basically he was part responsible for creating the investment crowdfunding industry in the first place. And I had contact with him then between 2012 and 2016.

The Jobs Act was voted, but it wasn't, you know, it took another four years with the SEC before it effectively became real, right? And it's only in May, 2016 at the first offering investment crowdfunding or rec CF specifically, regulation crowdfunding, it's for everything up until 5 million. At the time it was 1 million raises. Up until then nothing happened, but then things started to grow. And so now a year and a half, two years ago, I reconnected with Woody because I saw they were looking for someone to actually build a business of C-Clear. And C-Clear is actually a subsidiary of CCA.

And it's actually the 100% complete database on everything in regulation crowdfunding. So what Woody has done with his team is from day one that May, 2016 from the first offering, they monitor every single offering every single day and track everything every single day up until today. They have 150 different data points for every single offering. They put their own flags, their own sort of magic sauce on there. And so they've produced this data set, which is proprietary and also very predictive. And we can talk about that.

- So they're reaching out to platforms like Republic or any kind of crowdfunding platform and all of the data that they have, these are all the issuances that we have. These are the investments that we have coming in. - They don't go to the platform. They source everything directly from the regulators because it's a regulated industry. So everything goes through these FINRA platforms and through the SEC. So we don't need the platforms. So we're not a platform, we're a neutral data. - So when Republic has, let's say 20 issuances, all reg CFs, every time someone invests in that, that data goes to FINRA or to some regulated entity.

And then you're taking the data from that regulated entity. And so now you can see that there are folks raising money for software, folks raising money for hotels, folks raising money for whatever. - Exactly. - All across the nation. And from that, you can see what's successful, what's selling, what isn't selling. - Now that's where my competitive benchmarking comes in, right? - Okay. - And that's where it's very important. And so the two core products that we've developed so far that are on the website is basically one for each side of that marketplace. The most compelling one is capital pulse ratings.

Every week, we rate the top 15 deals that are available for investment right now, based on our own proprietary algorithm that we've developed on the basis of our data set. And as I said, it is quite predictive. If you have 100% of the data set, and you do the back testing, you can find out some very interesting things. So that's what we've done. So for now more than 8,000 offerings since 2016, we have a pretty good view of what actually the KPIs are of successful companies. What makes a company successful using regulation crowdfunding more than other companies. So we've put that all in an algorithm.

And that algorithm basically every week gives you 15, the 15 top names of what we believe are the ones with the most likelihood of success in the longer term with their current offering. And you gotta know on every single day, there are more than 500 open offerings that you can invest in, right? - All right, so if I'm in an industry or I have a company and I want to do a reg CF, I can essentially check to see if that's gonna be successful based upon past performance. Because I can see that-- - No, if, no, you're gonna, what are the KPIs? What are my factors of success, right? How can I improve?

What have been the success factors of past companies in my sector? - Can I also see where investors are coming from? For example, let's say pharmaceuticals are raising money in reg CF, but it's mostly coming from California, the investors. - On an aggregate basis, yes. We can't, on a personal basis, not because we don't track personal data, right? That's the PI, right? - Right, but aggregated-- - We're not talking about-- - We're able to say-- - Yes, absolutely. - California, very interested in investing in pharmaceuticals. - Oh, I have every single detail every single day.

So we publish reports that leverages all the data that's where you can see these and yes, absolutely. - So knowing that I'd then be able to do my marketing, my digital marketing, really base it upon the states where there's an interest, at least in current or past. - Okay, so I think a step, one step farther back, let's pretend I'm an entrepreneur preparing for a rate. What would I be looking at? What would I be coming in? Would I be looking at my company as this type of industry? Or like, how do I even determine if crowdfunding is a fit for me? Or if your data set is gonna be helpful to me?

Are there specific industry verticals that you are stronger in versus others? What would that look like as an entrepreneur coming in to see if this is right? - That's a perfect question. So the first report I talked about, Capital Pulse Ratings, is really for the investor side of the equation, right? I have a $50,000 that I wanna put at work in the industry. I'm a retail investor, or even a VC. I wanna get a portfolio of these companies. Where do I start? I know there are everyday 500 different opportunities that I can invest in. Look at my list every single week, simple. And then do the diligence on two, three, four the names.

That's it, right, that's from the investor side. Your question there refers to our other product that we're just launching. It's called Offering Insights. That is for the issuers. We basically do there, what I told you before, competitive benchmarking. You give us the data, right? Basically an online questionnaire, not very difficult, but all the data that you would give a platform anyway when you're gonna try and raise money. And then we're gonna run it through our system, and we're gonna publish a report, I think it's about 14 pages long, where it's gonna tell you exactly how do you fit within the space, right?

How is your competitive positioning within that space? One of the main things, for instance, is why some deals work, or don't work, is that in VC world, the big VC world, you as an issuer is the VC who's gonna tell you what you're worth. Why are they gonna say, well, we wanna take 5%, and we value you at 140 million dollars. That's it, take it or leave it, right? You have no say in that, right? Negotiation, but you have no say. VC tells you how much you're worth. Investment crowdfunding, you as an issuer, you're gonna tell the market how much you think you are worth, right?

And they say, well, I'm selling X amount of equity at this valuation cap, right? Now, companies, how do you know the valuation cap is the correct one, it's competitive? You don't know, you say, well, I think we're worth 50 million dollars, why? Well, you know, that's I think what I think. Okay, fine, great. If you run this data to our system, we're gonna tell you in this report, for instance, you may think you value that 50 million, but all the companies in that same sector that came before you with a successful REX EF offering, they were on average at 25 million or 35 billion.

Companies with the same profile, with the same revenue profile, with the same kind of structure, with the same industry, with the same kind of maturity, that's where they're at. Then you can ask yourself, okay, if I wanna position myself competitively within my offering, maybe I'm not 50, but maybe I'll put myself at 35. At least it gives you an idea and a clarity, not of what I think, but what the market has told you the last nine years from every single offering, this is what people bought, this is what companies will value that. This is what M&A bankers do on large offerings, obviously, you do a comparative test. Yeah.

That shows these are comparables, this is where the price should be. It hasn't really been there for very small companies. That's it. That's our company. If I'm here today and I do a REX EF, I would not dream not to take up such a report, right? How much does the report like this cost? It's $300, $400, depending on what kind of version. It's ridiculous. People are gonna pay. That's a-- Yeah, they're gonna pay in marketing cost, if you go through this, if you raise money on these platforms, you're gonna pay 10, 20, $30,000 in marketing costs anyway, right out of that.

Easily to get your thing going, that's assuming you're sort of even selected on any other platform. So this can be used whether you're actually putting a value to the company, if you're putting, if they're doing a safe, and they're doing a equation cap too. So they can use it from both scenarios. Oh, it's irrelevant. Yeah, it's irrelevant. But it's me as a company, as a potential issuer. Yeah, I mean, it's, again, I wouldn't dream do anything without that. This is like foundational. Before you even sign up for our REX EF platform, you should probably figure out if it's worth it for you. And that's why there are people who have bad offerings.

I'm not saying that's the only reason, but there you have the difference in incentive on the difference why we're doing what a platform does. A platform, and it's a very consolidated market, so basically there were like 10 platform, totally more than 100 regulated platforms, FINRA approved platforms, but the top 10 platforms, top 10% of the, or top 10 platforms rather, do like, I don't know, 80 or 90% of the business, right? So you may wanna know already, which platforms are better for that kind of companies or better for that kind of industry? You gotta know these, right? That's important as well.

But these platforms, quite frankly, what is their incentive? They take a commission, right? They're commission-based. They only get paid when the deal goes through. So obviously they have a first selection. They're only gonna list companies that they think are pretty good or can actually raise, get their funding done. But they just wanna get the deal done. They're not necessarily interested in the long-term survival of this company, right? Basically they couldn't care less. They said, let's get deals along, get our commission, right? So that's basically their incentive, right?

Now, if again, if you're an issuer, you wanna carefully look at that. My incentive is really sort of selling the data and that data is gonna be the difference between maybe being successful and not successful because you have quite a bit of offerings, 20 to 30% of these offerings are not successful. I yield the deal doesn't get done. It doesn't get funded. And then the platform doesn't get paid, right? - Right. So if these companies, is this a better fit or does it not matter if it's a B to B or a B to B to C or trying to do business with government, does it doesn't matter?

- It doesn't really matter although it tends to be more successful for a company that is very defined. It's a personality and community of clients. So Woody whom I obviously working very closely with just published a book called "Investimers" where basically it makes the argument that your investors increasingly become also your customers. So you see- - So we have a word for that. We call that in tumors. - No, he calls it, yeah. Well, some people try and claim different names. He calls it "Investimers". It's on Amazon, big book, very successful. I'm gonna interview pretty soon and do something with him. But it's the same thing, right?

It's like, increasingly everything is mediatized, socialized and so if you have a business whether it's B to B or B to C or somewhere in between draw your own base into becoming your champions, right? And that's why we see increasingly some very big exits and we can talk about so a couple of examples. But for instance, the one right now, which is a huge one comes out of the UK, Revolut Bank, right? Revolut, I mean, initially it's a crowdfunding story, right? They started, I have the numbers here. It started at a 40 million valuation in 2016. Gonna come to the market, 45 billion. It's a 400X, 400X for retail investors, okay?

Also institutions in the meantime. I have another example, Boxable, which is one one of the examples in RecCF, right? These guys are now going to do a reverse back kind of deal. The returns, I've looked at it. If it goes through, you're looking at an 8,000% return, right, in a couple of years time. So there are a lot of more and more examples and that's why also the exposure is gonna come. Finally, now you have examples of companies that are gonna go to market in a trade deal or in an IPO or even secondary or whatever. And people will say, wow, jeez, I could have bought this thing, you know, five years ago.

It's not that long ago and get massive. And that's that VC thing, right? If you have just one of these in your portfolio, well, you know, the rest may not do that well. And yes, you will have losses. But also there, the positive differential there of crowdfunding versus the rest of the VCs is not a stunning data point, right? And again, we have all the data, so we've done all these analysis, right? VC typically, well, it's basically startups, right? Startup failure rate, which is an interesting data point. Depending on what kind of numbers you look at, you know, people say 50% fail within the first five years.

I've seen some data that says up to 90% of startups are gonna fail within the first three or first five. Anyway, a big part of startups are gonna fail, right? What we've seen in our dataset, again, all the deals in RecCF, we've seen that the failure rate is just under 22%. Just under 22%. So you guys, one in five instead of one in two. Yeah, but failure rate just means I guess it's bankrupt. But let's say, you can still be alive in a zombie. Is that included in the 8% of success? Well, again, it just says we've done this with our own analysts within the team last year.

And again, it's not 100% waterproof for a number of reasons why the proxy for us of a company being in business, whether or not, for instance, the website is still up and running and still functional. So it's not that we did the analysis of every single company, but ballpark, the point being is that the survival rate for RecCF funded company is massively better compared to general VC survival numbers or general sort of startup survival numbers. When you were talking about kind of the right profile for the, you know, they have a personality, 'cause Box was a fantastic example, right?

'Cause Giancarlo and those guys, I mean, it's easy to understand what they do. They cut the costs, they can do it more efficiently. Do you think this is one of those where it has to be easy to understand for the masses? - No. - Okay. - Now, there are a lot of biotech companies actually that are very successful. Why are they very successful? They may do something that I have zero relationship with and zero understanding of, but they have a community of people that are very vested in the product or the service that that company does. Is it Medtech or Biotech or whatever?

And they are all gonna be raving investors in your offering because there is this personal connection. So the most successful offerings are coming from these companies that I have zero relationship with and zero understanding of what they do and zero sort of emotional connection with. - That links on something which is community, right? The reason why you can do some biotech thing for a disease that no one's really heard of is because that 2% of the population that has that disease will invest money in it to get it fixed. There's a community, a Boxable built a community as well. But there's some companies that come in with zero community.

How do they get the attention, right? Because crowdfunding, investment crowdfunding, relies upon people actually knowing who you are, what you're doing, and you're actually raising capital. So how do you get that attention in the first place? - Well, not all of the examples are gonna be successful, right? And again, some of them fail, but I think increasingly we're living in a world where that's what I'm working on as well, which is not easy, but it's all about if you're not visible, if you're not out there and you're not, like you guys are doing, right? Then nobody knows you exist. And I think my message is extremely important.

I think it's the next big thing that everybody should be invested in. Nobody cares, no, no, nobody knows. Nobody knows about it. Actually nobody knows about it. So that's my world, that's what I'm trying to do. So if you have a company that has something amazing, but nobody really knows about it, so what, are they gonna get a celebrity there? Or are they gonna find a way to get visibility? There are many ways to do that these days. Yes, you can buy advertising kind of stuff, but that's expensive, find another way. And yes, if you don't have all that, then that will become very difficult to be successful at an offering.

But then I would argue, you're not gonna be selected by any of these platforms anyway, because they're gonna see, look, you know, oh, this is something that's not really gonna work. Again, these platforms have all a vested interest to make sure that the odds of them for that offering being successful is actually as high as possible. There's a funnel there, right, there's a funnel. Every day you have thousands of companies that are trying to raise money through these platforms. There's only small selections that make it through these platforms in the first place, but it's still hundreds of them, right? But it's a small selection.

The platforms as well, like they're very careful in terms of marketing. So they'll market their own platform, but they won't really market the issuance. And the issuance in terms of the marketing, that's really up to the issuer. The issuer has to have-- They're totally right, there's a lot to do. Or else they're in big trouble. If you're relying upon-- No, but that's what a lot of people know. That'd be selling your product? No, that's sometimes what a lot of people think if they go to these platforms, so they're gonna bring me all the investors. That's a big mistake. Yeah, the platforms have three million investors. They're relevant.

No, they have three million email addresses. That's right. That's it. I have a subscription to all these platforms, right? So every week I get an email, oh, these are the 20 top offerings that we have this week. And this looks good, this looks great. Okay, with five or 10 different platforms, I get already 150 or 200 deals from these different platforms. They're all great, they're all fantastic. What do I know? They're all pitching their own deals, obviously. They're gonna push them. And I'm pretty sure there are a couple of good ones in there. What do I do? The only thing I look at? Every Tuesday, my Capital Pulse ratings list.

That's my neutral analysis of all the deals that are out there every single week, rated in five different categories. And it's a combination of my, our own algorithm that has proven to be predictive of future success, combined also with human interaction because we do a fine screening after, it's not just a machine that spits it out, right? We're gonna do these 15-- How do you define success though? Is this a success? They actually raise their five million or is success that they're going to be-- No, no, no, no. Ten times in the next five years. Well, we have a lot of metrics in our rating, right?

And again, there are different categories, depending on what type of company it is, but success is typically either there has been, typically it's the sub-sequence of different funding rounds. So what typically happens, we have some companies that already came back for RIC-CF and then larger rounds, RIC-Ds or RIG-A+, BINI IPOs, whatever, over time, more than nine or 10 times. So that's a feature of success.

It's a company that on a regular basis comes back at a higher valuation, raises more funds at a higher valuation, which basically says, look, you know, we said you guys were going to do this, we get your money, we're gonna use that money to do that. We performed, we delivered. Now we ask you for another 25 million or the five million on the task, whatever. Are you on board again? And you go from offering to offering. And so some of these companies again, we've seen companies nine times, 10 times, 11 times before liquidity event.

And so let's, for our listeners that maybe aren't familiar with this and guys correct me if I'm wrong, on RIG-CF you can do one RIG-CF up to five million per year, correct? - Exactly, yes. - Okay. - Yes. - Okay. So I think that that's a good grounding for RIG-CFs. I guess the next question is, I'm obviously very into tokenization. - Yes. - And I'm beginning to see like RIG-Ds and RIG-S's on a tokenized basis being shown now globally. Either in the US or a similar type thing in Europe. I think Stoker is doing a very good job with Bitcoin mining notes in Europe.

And then obviously in the United States, you've got folks like Republic that are raising capital. There's some guys on the West Coast as well that you could, who are the biggest sort of shops right now for investment crowdfunding? Can you tell us the names of them? - You mean the platforms? - Yeah, the platforms. - Well, yeah, Republic is obviously one of them. You have Dealmaker who's doing very successful these days, especially on the larger side. We have WeFunder, we have StartEngine. We also have specialized platforms like Honeycomb Credit, who only does credit.

So it's not only equity, although 90% of the offerings are equity related, but like a 5% or 10% is credit related. And again, very interesting race. You as an investor, you get like 12%, 13%, 14%, 15% return on pretty low risk assets. So these are the kind, some of the names of the platforms that are out there, yeah. - And so if I can get 15% on a low risk asset, and then if I can borrow it at close to 4% from my bank, that's a nice spread for me. - Well, that's exactly again, is in the online lending industry where it all started for me, right?

15 years ago, people who came to the platform who were borrowing money from, for instance, a lending club, and it's still the case today, the bulk of the use of these funds, it's unsecured consumer credit, right? You got it in your application, you can say, what are you gonna use it for? But that's basically pro forma, right? Because they don't know what you're gonna do with these funds afterwards, you just, but it's part of the AI, right? And approval kind of processed. But the bulk of these funds are used always for credit card consolidation. So that's the big arbitrage, right? And again, think back 15 years ago, right?

Rates were sort of, you know, consumer loans 14, 15% or something like this. No, the credit card, you know, credit card balances, right? People with revolving credit, they get their balance and they pay like 15%, right? Which was huge at the time. Today it's like 23, right? But at the time, 15%, we thought that was huge way back then, right? So they had these, you know, revolving credit 15, 15%. They had like three, four, five different credit cards. It was kind of amassing. And then they saw, look, I can swap that into an installment loan on three or five, four or five years, at sort of 9% or 10%. That became the model.

And that's still today, the biggest use of these funds is people who just want to swap very high, especially now, expensive revolving credit card debt into an installment loan at a substantially lower rate based on your credit score and whatnot. - So now we were talking about how people are getting, investing in companies are, and you also have data around real estate investing. Because right, we've got folks like Picasso that are doing fractional ownership of homes. People are doing real estate funds and trying, there's other experts out there trying to help people do that and do step-by-step.

- We have some, yeah, we have real estate companies who have raised funds through RecCF, absolutely, yes. Yes. And so the other thing that I think is important, one of these little metrics that always, you know, gets me absolutely excited about this is, you know, we talked about the difference in default rates, right? Between what RecCF funded companies are and then the general population. But it's also the way you get exposure to this, to this asset class that you were never able to do before.

I think, and it gives you a blended, if you look at the metrics for the longer term return, kind of numbers between the different asset classes, VC is still up there. You got private equities a little bit higher, it's on average like 15, 16% over three, five, 10 years. But as a retail investor, you can't get exposure to that, right? You can't. VC, until now, you couldn't either. But now you can. You can do exactly what VCs have been doing, but not paying the fee that they're gonna charge you for. Plus you can do it as a retail investor.

The thing that I wanted to mention is that people say, well, VCs don't touch these crowdfunding stuff because that's all two things actually, right? In the beginning of the industry, again, 15 years ago, a lot of these companies that went on these platforms was kind of questionable quality. Let me put it that way. And a lot of people then, you know, draw the conclusion still today, that a lot of companies are doing that. Our companies are actually not very good companies. These are companies that cannot get funded any other way. Now that's a complete mistake. In the beginning, that was, yeah, we had like, I think, 60% or so.

The companies were sort of kind of questionable. Today, it's like the bulk, the vast majority of direct CF funded companies are revenue generating companies, companies that have been around quite a while, companies who could get funded and, you know, somewhere else is not a problem. - I've even seen the ones where they've leopard in their kind of, in their pitch to the consumers that they are, parts of it are already backed by notable VCs. - That's my second point that I wanted to make. People say VCs are not involved here. That's a complete misnomer, as they say, right? VCs are actually investing in this asset class.

The thing is they can't do it in size because it is relatively small, right? But they do that on a regular basis. And it's one of these metrics that's in our rating systems as well. For instance, right? In our top 15 capital pulse ratings, one of the elements they say, is this company also VC backed or is there VC that participates in the round? Because that's potentially, if you think VCs are smart, that could potentially be a positive sign, right? So VCs participate in less than, I think the latest numbers, it's very volatile, but they're probably in less than 20% of the deals.

But the amount of money is like, again, depending on the timeframe, regularly between 30 and 40, 50% of the money that's being raised for the round. So saying that VCs not involved is a complete wrong statement. We have the numbers just to show it. So they are participating just in a very small side because they can't go any bigger. They can't put in, if you're raising five million, which is the max, they can't put in a half a million or a million because then they'll invest 100,000, right? Or 50,000. And the reason why they do is that because for us, it gives us a sign, it's, we don't have to do any work. We just put some money in there.

And then 18 months from now, these guys come back to the market and they can raise another reg FC round this time for three million instead of one million. We can do diligence is already done, right? They said, oh, these guys have delivered. We don't have to do that anymore because the market is there. They're already doing another round. And now we can come in and we can put in, you know, a couple of hundred thousand dollars instead of 50,000. - I would imagine, and maybe I'm wrong here, that an issuer would rather get VC funding through a reg CF than directly from the VC because sometimes the onerous obligations you have to the VC.

- Totally agree. - And a regular VC round, you know, VC, look, I'll give you a million dollars. However, I would need to three times minimum on any exit with the reg CF, you don't have that. - No. So there's a lot of these little things that I think, you know, just one light bulb after another. And if you put it in perspective, again, everybody and his dog should put some money at work here and build a portfolio. And again, it's all about, it's not short term, right? So, and that's the good part as well. Everybody's bitching about liquidity. And that's where we come to tokenization, right?

You need to have like, that's for three to five year counter portfolio kind of thing, right? That's your outlook. Yeah, but it's not liquid. Well, if you need something liquid, that's not for you. Very simple. - Yeah, anyway, it's a liquid for a year, right? You're locked up for a year. - But even then that's in theory. In practice, it's a liquid longer. I mean, it can be listed on ATS. - It could be tokenized and it could be listed on an ATS, but you're not seeing that yet. - But that's my whole point. Again, that's why I think it's gonna explode, right? And I'll send you the link to the chart later.

We're gonna see exponential growth because liquidity is gonna attract liquidity. Once we pass this sort of pedestrian level of half a billion to a billion a year, which we've seen for the last sort of, you know, nine years, and we had a peak obviously in 21, 22, and then VC went down like every else in VC, liquidity is gonna attract liquidity. We're gonna have some exits. We're gonna have media starting, you know, talk about it. People are gonna snoop around and then more companies are gonna come to market. This market's gonna broaden. We're gonna go from these 2.8 billion to like five billion, 10 billion, 50 billion. Then you talk real money.

Then you got institutions involved. And then we're much further ahead also with the whole tokenization team because that's just the other thing. We talk about liquidity, right? You can't tokenize. It doesn't change anything about the liquidity kind of issue because you still have the regulatory kind of thing, right? That needs to be taken care of. But I think with, you can talk about the Genius Act, where it was just signed into Senate yesterday, right, with the whole stable counting. So we now have an administration for the next four years.

It's very positive versus everything that's happening in crypto, everything that's happening on the, you know, stable coins kind of stuff. So everything that's related to business growth, small business growth, right? So all that is gonna move a lot of energy into this industry, I believe, and will again start this liquidity moment into this business and I will, before we know it, then within the next two to three years, I think we'll see that all come together in creating very desirable liquidity in early stage startup activity through RecCF with new platforms could be, you know, Republican with NIX, they're already all set up to do that.

Other companies will do that as well. And it would be very interesting for me, I already talked to Republic about it. So look, you know, isn't it an incentive, for instance, as a platform to be able to offer as an extra in your offering the immediate tokenization of your security. And then once you have that, we all know what we can do with tokenization, right? Then if people own a token that represents your share in that company, can you imagine the marketing things that can happen for people who own the token for that particular company rather than, you know, a book entry paper trail, but now we can do anything with just an email.

But then there is just so many fantastic things that you can do with your community of shareholders, right? Which I think is going to catapult his business higher. So it's very exciting. - I agree. And I've got something in the works in that in that ring. Well, this is great. Look, you've given us a lot to chew on and to think about and to discuss. Hopefully, you know, if our viewers have any questions, certainly leave questions in the comments. We're going to put a lot of links in the description on YouTube for our viewers to go to and to learn more. But I think that there's some tremendous information here.

Yvonne, thank you very much for sharing it with us. - Thank you. - I'm Phil Larmon. - I'm Douglas Borthwick. - And you've been listening to Only New Money.