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Show Transcript:
Welcome back to another episode of the Private Capital Mastery podcast and community. I’m your host Brian Franco and today I’m joined by Bruce Virga with Title 3 Funds. It’s going to be a fun episode because we’re going to be talking about crowdfunding, what it is, what it isn’t and when you should consider it. Bruce, thanks for being here with me. How you doing? Brian, I’m doing well.
It’s always a pleasure to see you. Thank you for inviting me. Yes. This is cool. Nice setup. Yeah, it’s nice. I was we were just saying, you know, could be here we are in the middle of July and it’s this gloomy, but I guess we can’t complain too much with the view. beautiful view. Yeah. Yeah. So Title three funds. I mean, how did you get involved? What is it? You know.
Really because because the private capital master podcast is there for founders entrepreneurs and CEOs. They’re looking for answers. They’re looking for resources They’re looking for options to raise capital and deploy that capital for purposes of growth scale in and mostly at some point an exit, right? so how do they interact with you and title three funds and and Give us the background. Okay. I’ll start out with how I got into it was a neighbor of mine believe it
who’s a finance professional, put his stake in the ground back in 2016 when equity crowdfunding or when non -accredited investors can also invest in private companies. And he asked me to operate the company. So I joined the company a few years later as I was in the middle of selling another company at the time. But in 2019, I joined Title III Funds as the CEO and hired a team. We built it, we built a platform, we built deal
we talk to founders every day and we all love what we’re doing. We have the same founding team. That’s awesome. From day one. Yeah. And so what’s a typical, you know, A founder comes to you,
they’re looking for a raise, what’s a typical raise amount that’s on the platform, or does it vary? It does vary. it It Depends on how much a founder really needs. The maximum you could raise per year is $5 million dollars per year. So You can raise capital from the general public, meaning accredited and non-accredited investors, up to $5 million dollars per year. If you don’t need $5 million dollars, you can raise a million dollars.
even it doesn’t have to be the same amount every year for your one could be a million two million and your two could be three or four sure yeah okay so the rule is you can raise five million per year or up to five million per year so that’s the ceiling right and If you reach $5 million before the year’s up and you want to go again, you just have to wait for time to expire. and if you don’t reach a million or If you don’t reach five million then you can just renew and go year after year. but no rollover
If you raise three this year, you can’t raise seven next year. I’m being very clear on this because We’ve worked together and I just want those that are tuning in to be clear on how this works because $5 million, that’s a meaningful amount of capital that can be deployed into a company. And correct me if wrong, but most of these companies are early stage startup or early stage.
in their cycles, right? Or I would say most of them are, but not always. So for instance, we have a company on our platform now that’s doing very well. 40 year old company, they make back country aircraft where they could fly anywhere and anywhere. And they’re raising five million. They’re going to do it again and again and again. But it’s a 40 year old company. It’s not a startup. This is the one I think we saw the video where
was a Red Bull sponsored event where he landed in Dubai on what was like a 50 foot pad or I mean maybe I’m exaggerating but it was a small pad a helicopter pad right? So it’s CubCrafters did a collaboration with Red Bull where they landed one of their aircraft on a helipad 56 floors outside of a hotel in Dubai with Red Bull and I’m hearing they have 1.8 billion views. so
Yeah, very crowd -fundable. Yeah, that is crowd -fundable.
So That’s a great example. Here they have a viral video, 1.8 billion views. They’ve certainly created some interest in addition to their 40 years of history as a company. But, what if the company is smaller and they don’t have a follower base? Does that work against them? Would you say they’re too soon or too early for you guys? What would you say to that? I think founders should think about crowdfunding as part of a continuum of how to raise capital.
Yeah. so if When they’re ready for crowdfunding that’s the time to crowdfund and it takes there’s certain things that it takes to become ready. You know, for instance Most founders bootstrap, they get money from their friends and family, they pitch angels and angel groups, and VCs that they try to get notice from VCs. and in Crowdfunding is is new. it’s something where
Every founder should learn about it to have this tool in their tool belt so when it comes time for when they have a following when they have
a large customer base. A lot of people where they can reach out and say, hey, we’re about to raise capital. We want to include you in the so you can become part of our growth. And if they don’t have anybody to reach out to at this point, I say to them, you know how you build a spreadsheet where you list all your angels that you’re going to contact, all the VCs who might be interested in your business? Open up another tab and put everybody you can possibly think of with their email address who might
be interested in investing in you. And when you have a lot, and I don’t know what a lot is, because the founders know better than I know. Yeah. It is really quality. It’s more quality. But when you do have a significant list and you feel good about your list, get in touch. Let’s test it. Because with crowdfunding, with equity crowdfunding, you have to file paperwork at the SEC. You to have an independent CPA review your financials, things that are time consuming and expensive. So if you go about crowdfunding before you
have a big enough community, you just wasted a lot of time and energy. But what we can do is test it first. Under the regulations, there’s something called test the waters. So we can put you up on the platform saying indications of interest. Now you can mail out to that list and see if it’s really going to work. And if you’re getting traction on that, let’s crowdfund. If you’re not, go back. Build it more. Test different marketing and things like that. That’s what I would like to. I like that. And so when you talk to
You talked a lot about a lot about you know regulation and and compliance in my understanding is you do all of that in -house or you have third parties that participate in that in that compliance process, right? Right founders should think about title three funds and crowdfunding platforms as Compliance making sure that your offering is going to be compliant with the rules from of the SEC. We answer to FINRA We we make sure that you file
We have a review by a securities attorney. You have to have a financial review from an independent CPA or if you’re raising a lot of money you need a financial audit. We make sure all of that’s in place before we put you on our platform.
And so think about us as we’re making sure everything all the money you’re taking from investors Yes goes through us into escrow and all of that money is compliant and when you want to draw money out of that escrow We give that money to you Compliantly meaning that we have to notify those investors that you’re gonna be doing it into mediary close You know, I don’t want to get too technical or too deep Yeah, but it’s it’s not as simple as an ATM where they just show up and take the draws out right? Yeah, there’s a process there. Yeah, think that’s Kickstarter
That’s a different type that’s a different approach in a different type of platform It is it is it just really depends, you know What what’s your what your intentions are how you’re deploying that capital when you need that capital? But you know, I always remind founders and entrepreneurs that you never stop raising the question is what are you raising for? Are you raising for startup? Are you raising for scale up? Are you raising for? &A or even an exit your own &A, know transaction where you and
Those on the cap table will eventually exit this opportunity, but you never stop raising don’t you agree you never stop raising? yeah, yeah, so in that in that in that vein and in that theme You know you see a variety of companies. I’m sure you see hundreds of leads a month You know and I’m sure there’s you know anywhere from
Gosh, I mean, I’m guessing here, but help me fill in the blank here. What industries, are you guys industry agnostic? Does it really matter?
We are industry agnostic and most people would think that a consumer product would do better than a B2B product for instance. However, I have seen B2B products with big customer bases telling their customers, hey, we’re raising capital, we know you like what we’re doing, if you want to get in, this is the time to own shares in our company. And they’ve successfully raised capital. So it’s not It’s not not B2B. It could be
anything. B2B, B2C. But Regardless of the industry, you really have to focus on do you have a significant crowd that’s going to be interested in your offering. So make sure that the offering is attractive. So One of the advantages of crowdfunding is that you as a founder get to set the terms of the deal. So If you’re going to offer equity,
have a sane valuation, something that a professional or a smart investor is gonna be attracted to. If they’re not gonna be attracted to it, then you’re just gonna get lucky if somebody emotionally invests in you. And you’re not gonna get that lucky. So it’s not gonna be that good of a deal for anybody. No, it’s not. And you said emotional investment. And I think about…
the emotional decisions I’ve made over the years and not usually the best. You want to stay in your logical part of your mind, right? When you’re you look at these opportunities, but that’s helpful because you’re exactly right. mean, there has to be whether it’s B2B, B2C, it needs to be something that people subscribe to, not just from if it’s a product they’re buying like you described. And let’s say I’m doing a raise and I have, you know,
30 ,000 customers that have bought from me. They have to have the conviction that not only is this a good product, but it’s a product that they can see growing and expanding in the market to the point where they’re investing. And those investments, correct me if I’m wrong, be, it’s dependent upon income, but let’s say I’m an investor, what’s required of me and how much can I invest?
Well with you as an accredited investor skies the limit you could put in anything that you know I got it But if you’re not accredited and there are there are rules about what accreditation means But if you’re not accredited then we have a calculator on our website Okay, where you put in your income and it tells you how much you can invest in okay invest, okay, so The founders don’t have to think about it. Yes, we’re we’re in charge of that part of her clients and it’s a is it based on W2 income or all income?
It’s based upon your net worth or your income and it excludes your home ownership I guess because everybody in California would be accredited Yeah, even if you’re in a condo Yeah, that’s a good point so okay good so your system tracks traces monitors You know that aspect of it so that founders can continue to run their business to scale it
And that’s the nice thing here is because you’re the outside team that’s in charge of compliance, making sure everything is done appropriately and correctly, because no one wants to get in trouble from that standpoint or any standpoint. But this is one of the common areas that folks get themselves in trouble is when they are not following all rules and regulations when it comes to the SEC as an example. And you guys have figured that out. And you’ve figured out a way to keep everyone compliant, raise capital.
on a consistent basis, but also your upfront process that I’ve experienced with you is very impressive because you’re not just looking for another opportunity on your platform that’s gonna give you exposure or attention or the ability to raise money. You’re looking for that right opportunity that fits the thesis of Title III, that fits the platform that you’ve created because you wanna succeed as you want.
you want to succeed as much as want these razors to succeed. And to do that…
You have to take this holistic approach and that’s what I like about what you what I’ve learned about you and what I’ve learned about Title 3 is that you do take that holistic approach. You give that good advice and direction because otherwise you know you probably have a lot of it’s not that you’re arrogant or you think that you’re better than you know some of these opportunities but you’re protecting what you built but you’re also protecting in turn you’re protecting those that are coming on your platform to raise and that’s something that I think people need to understand.
expand on that a little bit. First of all, I’m happy to talk to all founders. I have something, calendar set up where people can set up the time to talk about the process and the ins and outs and my opinion about them. But at the end of the day, this is investments. This is where mom and pop who not accredited perhaps, they have to make money on these investments over time. If they’re not good investments,
Crowdfunding is not a thing. So we’re really looking for what we think are good quality investments. In fact, that’s very subjective. what we’ve also done is we are teaming with a venture science company where they take our lead funnel and they score it. So I get tapped on the shoulder when something that seems like a good investment comes through. And if it’s a good one, then I’ll be happy.
I’m trying to get the founder to talk to me. So that’s one of the things that I think we’re doing. Whereas I’d say a lot of platforms, anybody could just go up and throw their stuff up there and see what works.
That’s probably never going to be a great investment. not nor is it a good strategy for them, right? For the platform it’s good because they get a little bit of a yes. Yes. Yes. you know, it’s not good for the world. Correct. You know, it’s not, you know, it’s just people wasting their money. And that’s the comment. That comment right there is exactly what I’m talking about. You really take a holistic approach to how you look at these opportunities and these investments. And it sounds like you’re deploying technology that’s helping you and assisting you in looking at
more opportunities faster and quickly determining, okay, is this a fit or not a fit? On that topic, what are you measuring? Are you measuring the pitch? Is it the words? Is it the numbers? What are you measuring? Well, so as far as what’s a good investment, what is that measuring?
a lot of algorithms behind it. And maybe I’ll introduce you to the person who operates the venture science company to do a podcast with him. Yeah, that would be awesome. So it’s proprietary software that we’re partners with. We use, we love, it’s beneficial. We have good companies that we see all the time now. So before that though, we were just randomly looking at things saying, does this look like a good deck?
That’s hard. That’s what we do today too. We have a committee internally when we have clients, prospective clients, we look at them and we talk about it.
That’s that. I we’ll have some good comments, some comments that say, go back and find out more, or we’ll determine it’s not a fit, but that’s time consuming. Right. And you like to say yes, and it’s hard to say no, and then you don’t want to break the founder’s hearts. But you know. I know. As entrepreneurs, it’s hard to tell another entrepreneur or founder no, right? You want to give them some sort of pathway or direction, but it’s really cool that you can deploy this sort of this technology
assist you in that in that process because it’s part of your due diligence process and it’s interesting to see we’ve seen you know, I’ve seen AI that’s measuring linguistics and they’re doing it from the standpoint of Sales right where there’s a sales rep and a consumer or buyer on the other end. It’ll measure the likelihood of that consumer I know you’re talking about. Yeah. Yeah, okay. You you do know? Yeah, that’s right. And so that’s a really neat technology and I think they did a
program in a car dealership where they had a kiosk and the consumer would interact with this kiosk and you would measure their language, their linguistics, it would talk back and forth.
And I forget, I was, I can’t remember the stat, I wish I did, but it was pretty high improvement. I’m excited for all of this new tech that’s coming in. Yeah, me too. Because, I mean, it’s really matchmaking. There’s so much money out there to be deployed for investment, and there’s so many investors looking for money, but they don’t know each other. They never connect. They don’t know how to connect.
Maybe technology is, I think technology is that answer. Yeah, I 100 % agree because when you look at, we have touch points at startup, scale up, and then exit, but at the exit stage, we’re concerned with, is this business valuable? So we determine the valuation based on market stats and data. And then the question there is,
Is this value transferable? Right? Because sometimes it is. Mostly it is. Sometimes it’s not. Right? So if it’s a business that maybe they haven’t buttoned down or tied up their IP or maybe they’re SOPs or whatever it may be, every story in every case is different. But we want to make sure that’s a transferable value. Because if it’s not, then we’re going to be penalized from a valuation standpoint in the marketplace.
which comes in the results of lower valuations and worse terms or bad terms, right? And we don’t, no one wants that. So, well, what would you leave founders with when they’re considering to reach out to you at Title III and, you know, any closing thoughts, any closing advice that you would leave them with? Okay, if you’re a founder and you want to learn about crowdfunding,
CEO to CEO without any sales pitch. Yes, I’ll be happy to explain it to you and Really? My point is going to is going to be have a good investment first; then build a community, and if you think you have a good community, let’s test it before we go through the rigmarole of what it really has really is. Yeah, I 100 % agree with you. I think community is is an under
undervalued asset of a company. right, in having that community around a product or service. When you see so many folks subscribe to a product or service and they’re collecting around you, that’s powerful. Not only from a crowdfunding standpoint, but from a scalability standpoint because you’re getting others
that subscribe to whatever it is you’re offering to support you in that way; and usually that support comes in the form of community. And That’s really what resonates with me with Title III funds is: If you could bring that community along with your fundraising efforts, you’re likely to be successful; and you’re likely to achieve the capital raise that you need. I think one more thing I could add to. Maybe it’s a different direction, but it’s part of the same thing.
have a community, if you have enough marketing budget to buy one, there’s a whole different direction you can go where, so I said we’re compliance, well we’re also e -commerce. So we open up our whole e -commerce platform to marketers who can see who’s looking at any particular offering so that they can figure out ways to convert eyes into investments. But you have to have a substantial marketing budget for that to work.
and if you don’t have the right marketing, everything to do with, everything has to fire on all cylinders, then it’s hit or miss. And you could waste the marketing budget. So community is the best, marketing budget is also, but could be hit or miss. To your point, it’s really efficiency in marketing dollars, right? Because you could spend a lot of money that…
Unfortunately at times, companies won’t see the results they had expected. But if you have that, if you could test it with your community, you could have that opportunity to interact with them at that level and you see the results, I that’s a great indication for the founder, a great indication for you at Title III funds, and even a great indication for us at Meritage Partners when we’re looking at building an exit strategy for a company like that. So that’s very valuable, extremely
helpful and I hope it provoked a lot of thought and those tuning in. Bruce, thanks for coming in. I love to stay in touch as we always do but more specifically love to have you back on the podcast. We could talk about you know more unpack more details of what you guys are doing but thanks for being here with us. Thank you very much. Yeah and thank you for participating and joining in into this episode of the Private Capital Mastery podcast. I’m your host Brian Franco. We’ll see you next week.