How StartEngine CEO Howard Marks Plans to Democratize Fundraising for Entrepreneurs

All right, everyone. Welcome. Today we have a return guest, Howard Marks, and we're going to talk about a lot of fun things. But because this podcast is called Leveling Up, I think it's really important to note that Howard Marks was the guy that revived Activision, saved Activision, and really changed my childhood. And beyond that, he is the CEO, founder of StartEngine, which is doing incredible things right now. But I wanted to get a quick update from Howard. kind of on how things are going for you overall right now. Tell us how the business is doing. Because last time we had you talking about kind of the structure of StartEngine, but I don't think we really dove deep in to find out what the true benefit of the company is. At least, that's on my end. My fault.

Well, thank you, Eric. Our mission here is to help entrepreneurs achieve their dreams. And we've built our company around this mission. And the mission is pretty important because if you think about how many businesses there are in this country, 5 million businesses, 600,000 new ones every year, in order to enhance that, you need capital. And capital is very difficult to get. As you probably know, it's not for everyone. Not everybody has the opportunity to raise capital. And we wanted to democratize the whole thing. We wanted to remove all the barriers so that anyone who has the right, I would say, ability to communicate, share the idea with the crowd, can raise money. So as an update, where we are today is we grew pretty significantly last year. We've pretty much doubled the number of investors who are on our platform. We're nearly close to a quarter of a million users. We launched over pretty close to 200 companies. And we had more $1 million companies going to $1 million. We had 19 of them, and we have several who went to $5 or $10 million, and, and then a bulk of them in the few hundred thousand dollars. Now, a lot of people would say, well, okay, so you raised $400,000 for a company, that's not a lot of money. I would argue it is, you know, significant because not everyone has that kind of money lying around.

Huge.

A lot of people in the past would go and mortgage their home and and and get a line of credit or or run up their credit cards. They don't need to do this anymore. I mean, you can just go and raise the capital, and that's equity. That means it's not a loan. You don't have to pay it back with a very scheduled timetable. What you can do is build the business, and the fruits of the reward come to everybody. The people who Invested, have part of the reward, and of course, the entrepreneurs.

Yep. And I think I had somebody recently come to me and they're like, you know, Eric, I'm looking to raise $1.5 million for my next business, but I don't know how to get it necessarily. And this is a scenario where I think we were talking about before we started, a lot of these words are scary— equity, crowdfunding, angels, all this stuff, right? But I think you shared a case study example of, and maybe you can speak to it, Where people were able to raise 7 figures in just a couple hours and then raise even more on top of that. Are you able to share that?

Yeah, sure. So I'd say January 2nd, you know, we finished the year, a lot of people went away, our team took a break, and we came back January 2nd and we launched this company called Liquid Piston. It's a modern gas engine, so it's still gas but very efficient in how they handle the energy. And in 8 hours, they raised $1 million.

Wow.

But that was pretty spectacular. It's probably one of the fastest campaigns, if not the fastest one. We're not sure. But then people continued, and as they reached the million-dollar limit, which is what they were looking to raise, there was hundreds and hundreds of other investors coming in, piling in, and it got up to $2.5 million in the waitlist. So you have a million in and two and a half million dollars waiting to get in. I don't know how you do that. How do you get in if you're already done?

Yeah.

And so logically, what they're going to do now is they're going to do another offering eventually. That's up to them. But what it signified to us is that the the ordinary investor out there, the Main Street investor, wants in. They want in on some of the great ideas. And they've been conditioned to invest in ideas when they go public. The Lyft, the Ubers of the world who go public are great, except that by the time you get there, they're already full. I mean, they've already valued their company pretty significantly.

You don't get much.

And a lot of them have actually lost money if they bought at the beginning of the IPO because the price went down below the IPO price. It must be very frustrating for people, but okay, that's how the market is. Here, we have a new paradigm. The paradigm is you can get in very early. However, with that comes risk. We have to understand that it's not the same as buying a stock on the public markets. You're buying a stock early on who in the future could go on the public markets or in the future could be sold, Or eventually pay dividends, so there there is a pass eventually, but it's not the same as the public markets.

Right, and I think you alluded to something good. I mean, any good investor knows that you really make money on the buy. You make money on if you if you're able to get in early, great, right? But you're right, you're going to take a lot more risk too because these are such early stage companies. But I think most people forget about that. It's like everyone's looking at Tesla right now. Great company, by the way. You have a car. I have a Tesla too. It's it's. great, but sometimes things are a little crazy, and people come in a little too late. Who knows if it's too late right now? I don't know. But, um, point being, it's a good opportunity for people. And I think when we spoke at our event, the Growth Accelerator, you talked about people can invest as little as how much to get started with this stuff?

So we have, right now, we just launched one offering called BrewDog, and you can invest $60.

Wow. Apple Pay?

Um, credit card.

Credit card. OK.

How about that?

That's amazing.

Pretty simple.

Yeah. It's like you can get on your phone and invest.

You need an investor for $60.

OK. So, OK, if I switch back over to I need investors, what is the catch here? It sounds too good to be true. In 8 hours or whatever, I can get $1 million, and I get 2.5— like, what's the catch here?

Well, not every company is able to drive that kind of excitement, and I think— That's the truth. Not every company can drive that kind of excitement, but every company can raise money if they do 3 things. Only 3 things. One, you want the founder or the co-founder, someone on the founding team to put themselves out there, to be willing to be visible, answer the questions, talk to the press, get out there, get out of the— Get out of the building and really work the crowd and the system and work all the tools that we would provide, and that could include some Facebook ads as well. The second thing we think is critical is you need a compelling offering. That's pretty subjective, but compelling means it has to bring some excitement, some interest. You're digging into people's imagination, and you want them to feel. What you're feeling. Yeah, that's good communication, by the way. And the third one, a well-defined audience. So you can't say, "I want to raise money from everybody and anybody," and that's just too wide. You want to be able to very clear who you think would be the best person to invest. That could be your customers, by the way, in many times, or it could be someone who has a passion for the the subject of your company. That's pretty much it. So yes, we've removed all those barriers. The idea that I need to know wealthy people or Eric introduce me to angels or VCs is the old-fashioned way of doing things. And it's very limiting because you can't do that all day long. First of all, it's very time-consuming. And in many cases, the angel or the VC receiving information, if you go too often, they'll just discount you out. They'll be like, we're not going to listen to you anymore.

Yeah.

But if you have one deal every few months, they'll pay attention. So there's no scalability. You can't scale that.

Yeah. I mean, it's— you hit on a good point. I think for most investors, or angel investors, whatever, the biggest struggle is deal flow. And you bring deal flow to people that are looking to park their money or put money into companies, right? That's what it is?

Yes, we bring deal flow. The name of the game in the VC world is deal flow. And the reason it's important is because The people at the top of the heap, the Marc Andreessen's of the world, Sequoia, they're the top of the heap and they get the best deal flow. Then as you go down the levels of, I would say, reputation in the VC industry, the deal flow gets smaller or different deal flow. It's not the same. In our case, again, removing all the barriers, our view was, Look, let's offer it to everybody. Let's not make it where it's a, I would say, pecking order. It's much more democratic if a company who's an exciting company goes to the crowd and say, look, I want you guys to invest, as opposed to going to a VC.

Right.

However, I think VCs still play a very important role. I'm not discounting their role, but they only do 2,000 deals a year. In total, that's, that's it in the United States. So, you know, and the bulk of the money goes to a few companies. It's just not enough.

And you're— that's what you're doing. You're democratizing capital, but you're also getting more deals in front of people too. So I guess you're— are you democratizing deal flow too?

Yes, in some ways. If you look at the idea of investing, which goes back quite a long time, one of the companies that comes to mind that has done a great job is Charles Schwab, for example, because they were able to discount the costs of investing. The idea that you democratize even further because more people have access, but really, in many ways, the stock market in the 1920s was going crazy. People were investing all over the place and there were no real rules and restrictions. In the 20s, if you wanted to invest in a railroad and you were you know someone with not a lot of means but a little bit of disposable money to invest, you could just do it. There were no rules. I didn't know that. Yeah, and then 19 well the 1929 there was a crash. If we all remember the 1929 crash hurt our economy. We got the Great Depression, and in 1932. We we got the Security Exchange Commission that said something. They said, "Look, yes, you can raise money from the public, but you're going to have to register with us." And that's a whole process. It's very elaborate, very expensive. Today, the only people who go public are the Ubers and the Lyfts of the world. So it's very limiting. Hundred plus companies, two hundred companies a year. We're not talking about thousands.

Yep.

Well, guess what? With the new rules and that were changed in 2012 with the JOBS Act, now you can have what people had before, except that it's more supervised. And the supervision is companies like StartEngine. We're here to help understand those companies, make sure they're well structured, and they're meeting all the rules, and so we can put them on our platform.

Got it. And I mean, I was kind of iffy on crowdfunding in the past, and we actually crowdfunded for a fairly complex software, marketing software, we crowdfunded about $340,000, $350,000. And it was actually a pretty simple process. So most people might say, hey, crowdfunding is just Kickstarter or whatever. But it's actually a lot easier than that. So I guess what I'm asking is, for people to get started on something like this, is it just a matter of going to StartEngine, clicking a button, and then We're good? Or like, how elaborate does it get? How complicated is it?

Well, I wish it was click of a button. Obviously, that would be a dream. It's not. It is, I would say, a task that takes 5 weeks for a company to put everything in order, all their paperwork, prepare their campaign, and get everything ready. We do help them get through this. Step by step, we're here to guide and help. And in some cases, we do the work, like write the campaign page. But in many cases, you know, we can't do the work. They have to go and get their articles of incorporation. They have to make sure the company's in good standing. They need financials. They have to be reviewed by a CPA. Not necessarily. If they don't have a reviewed CPA, they can wait until they raise the first $100,000. But I would say it is still work. The ideal would have been where you just post a blog, you post a note, and you raise the money and you walk away with it. I think Kickstarter is a lot simpler, but it's not a platform where you raise capital for equity. And so thus Kickstarter is very limited, limited to things that are very appealing as passion projects, as opposed to Companies who want to make money.

Yeah.

Who want to build their business.

Yeah, I think 5 weeks is exactly right. It took us— so we spent $15,000 on lawyers. I'm not saying everyone needs to spend $15,000, but we spent that, and then it took us 5 weeks. We kind of had to rush it too to get it out, which cost us, I think, more investors because we didn't get it out when the platform launched, which we'll talk about in a second. Angels and entrepreneurs going to lawyers, going to CPAs, getting the documentation. having to promote to our audiences as much as we can, or even potentially running ads. It is an involved process. I don't think it's easy by any means. But I guess my next question would be, if you— if someone's looking to get started, it's like, okay, Howard, I want to get started on StartEngine. How much equity do I need to give up? Like, what are the terms exactly?

Right. We get that question a lot. And the response we usually tell people is this: you make the decision as to what your company is worth, your valuation. However, We expect you to deliver to us a reasonable basis for that valuation. So it can't be just a number you just pluck out of anywhere and just say, you know, we're worth $10 million just because. It has to be, oh, Howard, look, there are other companies like us in the same field who have received similar valuations, or look at our revenue, our business model, and our projections, and we discount it backwards, and here's why we think We're worth this valuation, and so there are three or four methods are pretty common. So one of them is you do comparables. The other one is a discounted cash flow analysis, and then another one is you you do multiples of revenue, multiples of profit. You know, some some things like that, and based on growth, based on prospects, you can derive a valuation, and then we look at it. So the good news is. That's not our job. It's not our job. Our job is to make sure that the entrepreneur has structured properly their offering, and when it goes live, it's successful.

And you talked about at our event in Beverly Hills the different types of you have you know different Reg D all these different things which I actually didn't know of until you mentioned it. Funny enough, we had already raised the money for my thing, which I I was like I didn't know there were these other things. So can you talk about? There's 4 different options here.

Right. Going back to, as I explained, the Securities Exchange Commission came up with this notion that you have to either go public, or you can only sell to wealthy people. That was the idea behind the Securities Exchange Act of 1933. You can raise money by going public and going through a Very arduous system, very difficult, with lots of gates. You know the stock exchange and the brokers, or you can go raise money very simply through wealthy people. And that's what they came up with Regulation D. Yep. Regulation D is the ability to raise money from wealthy people. And in the past, you could only do it privately. You have to do hush hush. Oh, I call Eric up. Hey, Eric. I'm doing a deal. Are you interested in investing in it? And then you say, send me the paperwork. You look at it. There's not any real big rules about it. It's simple. Then with the JOBS Act, they allowed Reg D to be public. So you could have it on a website. The hush-hush went away. But there's a caveat. You had to verify each person as being wealthy, accredited.

That's what we did.

But imagine what you have to do. You have to ask for their taxes. That's not so cool. You have to ask for their bank statements showing that they have $1 million of cash or more. That's not so cool. Or you have to get a letter from their lawyer or their accountant certifying that this person is capable of being an accredited— is an accredited investor, right? And I think that's a pretty big barrier. Now, we don't play much in that space. We play in the other 2 regulations. Regulation crowdfunding, that one is recent. That's since the JOBS Act. It came out in May of 2016. And with this one, you can raise up to $1,070,000 very simply, but you have to do it on one of the platforms like StartEngine. You have to use a platform. And lawyer fees very low because everything is templates, templates. So thousands of dollars later, you're able to go live. It's inexpensive. However, like liquid piston experience, there's a limit to it. $1.7 million. You reach that, you have to stop and wait a year and repeat or go for another regulation. So the next regulation is Regulation A+. And this one is probably the most attractive of all. Like anything, there are trade-offs, right? So this one, you can raise up to $50 million.

Amazing.

Per year, not once per year. Yeah, that's a lot of money. It's like, you know, when you hear, when you read in the press people raise, you know, $20, $30 million, you're very excited. And when you hear they raised $100 million, but they raise $100 million for 2 or 3 years of, of use, right? So if you can raise $50 million a year, it's like raising $100 million in, you know, for 2 years, right?

Has anybody done that on your platform?

The most we got so far is $17 million.

Still a lot.

But I think it's going to happen. Yeah, I, I don't know if it's going to happen this year, but we have one company called Nightscope that has a raise limit of $50 million right now. I think so far we're, we're over $8 million. That's what they've raised in total so far. But to get to $50 million, that's possible. It's just a lot of work, you can imagine. Anyway, That's the third regulation. So these 3, the D, the crowdfunding, and the A+, are tremendous opportunities for entrepreneurs. We only really spend time on the crowdfunding regulation, crowdfunding regulation A+, because we want to appeal to the general public. And then even if you're an accredited investor, then you don't have to reveal all your taxes and all— you don't have to go through that paperwork. Right. Exercise. You just go in on our website and you take your credit card out. You give us some information. You're an investor, or if you want to wire the money, you can do that as well, right?

So when I think about ClickFlow, which is where we did a Regulation D, lawyer calls and he's like, "Look, we're trying to not get you thrown into jail," and this is something I told you already. He's like, "You should do Regulation D," and we had to go through all verify every single investor. Takes a long time. We actually lost some investors that got pissed because they were trying to verify. They're like, dude, I just raised, I just funded all these other companies. I didn't have to verify. What's the deal here? So it actually pissed people off. I think it did actually cost us some money. And so he's like, look, you know, at the end of the day, this Regulation C stuff is not safe or whatever. Like, you can get sued. People are investing. So like, we're like, we got scared by the lawyer, right? Okay, okay. What's your response to that?

This attorney understands there's a new regulation, may not be familiar with it. So these are, these are this. We see that a lot. We work with a lot of attorneys who embrace these regulations. But you have to understand, there are a million attorneys in this country and maybe 100,000 of them are securities attorneys who can do this. Not all of them read the rule. So if you don't read the rule, it's hard for you to recommend it. And so it's a process. It's a process. I think your lawyer should have considered it. And that means, hey, Eric, why don't you call one of the platforms, have a conversation, let's see their paperwork, let's review it together, and let's see if this makes sense.

Right. Yeah, I think you're right. You said it came out in 2016, right? So it's basically brand new. And I think about what you said earlier. Our software is complex, and we're still able to raise $340 million. So I think if you have good messaging, it's a simple product, people can understand it, probably easier for consumer products too, right? Because people just get it. And they can raise a lot faster.

I think your company could raise multi-millions of dollars on, on, on a platform. Absolutely.

The way I look at it for ours, it's like, it's, it's marketing software, it's analytics. It's like, how do people get it?

You know, going back to the concept of why, who, who, who can raise well, 3 things: the CEO willing to put themselves out there. You're one of the most put yourself out there persons in the country. I mean, you're so visible with your podcast and your writing, your blogs, and all the things you're doing, you're out there. You're very visible.

Yeah.

So you're— you check that box more better than anybody. And then compelling offering, I think it's a compelling offering because marketing software, if you think about it, it's extremely scalable. It's a platform. It can— you can have a million customers. It could be very profitable. And the third one, a well-defined audience, is you go after the very same people who are Seeking your advice, but also have some capital.

Oh, that's a good point.

So, to me, you could raise a tremendous amount of capital.

The last point you just brought up, once you get people that are— let's say you do a Regulation C, you have 1,000 investors or whatever. This actually came up at the event. One of the guys was like, dude, forget the investment point. The fact of the matter is you have 1,000 people that will go to bat for you For any— because they're an investor. It's almost— it sounds bad. It's not dirty, but it's basically like MLM. It's not MLM, but you have an army of people to help you. And that's what a lot of people don't think about when it comes to crowdfunding. I don't think people think about that advantage.

True or false? Well, it's true, and here's why. The interests are aligned. With MLM, the interests are not exactly aligned, because the one on top makes more than the other ones, right? Here, it's aligned. Every share, when it's sold in the end of the day, when a company sold or goes public, will be the same value. Yeah, right.

They have the incentive to promote.

That's exactly right. And and and it's a self fulfilling prophecy. I mean, it's hey, I love his software. I invested in it. I'm going to promote it. And next thing I know, I made a smart investment. It works.

I love it. So, okay, let's say someone goes to StartEngine and it works out. What are some tips you have for people to— what are some mistakes you see people make? So one example might be, oh, like they don't stay in touch with their investors, they don't give enough updates. Like, what are some critical mistakes you think?

That's correct. There are many mistakes that we have seen entrepreneurs make. First, They underestimate the amount of work. They think you just put it up there, you go to bed, and you wake up the next morning. I mean, the liquid piston guys had a lot of work put in place to to have such a successful raise. But the idea that you can just go to bed and wake up, it's done—it's unlikely. It can happen, but it's unlikely. Yeah. If it happens, you have to redo your business plan and say, "This is a bigger idea than I ever thought." You know, right? Change your expectations. But in most cases, again, the work planning and execution. For example, we have a lot of companies who go on Facebook and advertise. That works amazingly well. So if they say no, we don't want to do that, you know, because everything works together. You know, the advertising works with the emails to your community. works with the press, PR, blog posts. Everything works together.

So many moving parts.

Exactly. And when someone sees the ad, huh, that's interesting, does nothing about it, but then reads about it in the blog, the light comes up and say, you know, actually, I've heard about this. I've seen this before. Clicks on the link, gets to the page, reads about it, may not invest right away, gets hit by a retarget ad again, and say, you know what, I'm in.

Screw it, $60.

Yeah, well, in that case for BrewDog, but for many other companies, it's a minimum investment of $300. And when you think about it, it's still not a lot of money. Yeah, the average investment is around $1,000. So we're talking about micro-investment. We're not talking about giving your savings away. We're not talking about taking undue risk. We're talking about crowdfunding. You're part of a movement. You're investing. You're becoming a shareholder. If you can afford more, then you invest more. Why not?

Right. Makes sense. And I want to talk about the future a little bit because you have a really big mission. And that actually got me to rethink my mission. And I think so. You know, a lot of people have these goals. It's like we want to impact 1 billion people or whatever, right? Your mission, do you want to reiterate what it is again?

It's to help entrepreneurs achieve their dreams.

So people would come to you and be like, Howard, that's That could be everyone. Like, how are you supposed to do that? So why such a big mission?

Let's think about the United States and its impact in the world. The United States really exists because of the American dream. And the American dream is a concept that we can sell, that we sell in the United States. It doesn't really exist in many countries. They don't have the American dream. The American dream gives you unlimited potential for those who seek it. And entrepreneurship is part of it. The idea that you can start a company and build a company that becomes Apple, that becomes Google, that becomes Facebook, is on Amazon— it's unbelievable. It is an unbelievable dream. Activision is one of them. Yeah, they call them dragons. You know, any companies over $10 billion, those are dragons, right? In the United States, this is possible. However, capital has always been the friend, the entrepreneur's best friend. Even Ford Motor, when they started, they crowdfunded. They went to churches.

I had no idea.

Yes, they went to the community to raise some money. So Henry Ford, you know, needed capital, was not a wealthy person. He was an engineer and he went and got some capital. And then eventually when your company grows, you go to the banks. You know that, that will— Banks would love to invest or give you money if you're if you're if you're successful, but we're talking about entrepreneurs. Yeah, and I thought that if you could solve the issue of how you access capital, we would unleash a whole new generation of entrepreneurs and opportunities for the next big companies. And that mission works so well in the idea that our economy is transforming itself from. A manufacturing-based economy into a more service-based, knowledge-based economy. And those new high-paying jobs are important. They're important for families. They're important for our society. And so entrepreneurs, that's what they do. They're job creators. Yeah, they create jobs. And those are— and usually when you start a new company, it's usually modern, and those companies create those new modern jobs. So This mission is critical for our country. So yeah, it's an important mission because you could say, "Yeah, Howard, help entrepreneurs." Yeah, but it's it's it's more than that.

So some people might say I want to impact one billion. So they they stop at one billion. But you're like, "I want to impact everyone. You know, every entrepreneur out there." And they're like, so someone comes on the street and they're asking you like, Howard, how is that a realistic goal? I remember what what you said during the conference too. But You said a mission that you're like, that's what a mission is. It's supposed to be unrealistic. Where'd you get that from? Why?

Well, I can tell you a mission that happened. So Microsoft, when they started, their mission was a computer on every desk. Well, I guess that's done, right? Are we done? But what's that?

So they had to change it.

So you just shut down the company? Yeah. So they changed the mission, right? Yeah. But if you can find a mission early on like we did, That is unattainable. That's a good mission. Now, it doesn't mean when you say unattainable, we can still succeed in the mission. So we have a vision that by 2029, we've raised $10 billion for companies. Okay, so that's 10 years or now 9 years. Yeah, that's attainable. It's not everybody. $10 billion of capital, that's basically 10,000 companies. Yeah. Okay, so let's go. Let's let's make that happen.

Yeah. Where are you guys at right now?

We've raised close to 150 million. Okay, you're on your way. We're on our way. Yeah. Look, in two years, who knows where we're going to be? But we're we're going to get closer to that 10 billion. Now let's say we don't achieve 10 billion. Let's say we only get to seven or six. Still big. Still a big success. Yeah. So I think. For entrepreneurs, it's important to plant a stake in the ground that is difficult. And the funny part of it is that when the system starts working, when your company starts growing, then you realize, hold on a second, we're going to not only attain what we thought, we were thinking too small. And it's possible. I mean, look at Facebook. I mean, you know, 2 billion people. That's— that was not in their business plan. So, you know, we're We're trying to be, I would say, ambitious to the point where it's viewed by people as very difficult, if not hard to achieve, but not impossible.

I love it. I think that's what a mission is. So I encourage people to recalibrate there. If it's— if they're thinking— if they think they're thinking too small, you probably are. So if people are looking at StartEngine, there's other platforms out there, obviously. Why StartEngine versus the other ones? It's interesting.

I was talking to a customer today who wanted to talk to me. So my salesperson, they put me in touch and said, "I want to hear your journey." So I went through my journey. You know, I have a a five-minute pitch, ten-minute. You know, I have different ones. In this case, I went through the five-minute. Started at University of Michigan, first company, then bought Activision, then bought Acclaim, and started Star Engine. I just went through that whole. Yeah. journey.

Yeah.

He needed to hear that. And you know why? Because he wanted to know that I understand what he's about. Because he said, you know, my company is going to probably grow 10 times this year. I need people who get it.

Yeah.

So I think that's a big plus. I think we've also built some software that a lot of people say is really better than they've seen elsewhere. Dashboards, be able to track all the clicks, track all of the views and give good analytics. We've automated a lot of processes, including the filing with the Securities and Exchange Commission. So in many ways, I think we've taken the thing to the next level and we just got started.

What I'm hearing is better product and a leader that has actually been through that journey. Not everybody else can say that. No, I don't think they can. Yeah. Can we talk about candy company? Are you? Do you want to reveal the name just so we're on the same page? Sugarfino. So from what I heard, or maybe we talked about it already. I mean, I love the gummy bears. Last time we spoke on this podcast, we spoke about how you find really good deals. Activision, Acclaim. Sugarfino is one of them, I'm assuming.

Well, I thought it would have been a great deal, so I went in and invested. And in fact, the founder. Who's extremely talented founder, Josh Resnick and Rosie O'Neill. They started Shookafina with a passion and it was so extraordinary. So I went in, invested, you know, not a big investment, but I made an investment with the hopes that they've created a luxury brand and it was on its way really well. You know, they opened 40 stores, revenue growing fast. Yeah. And one day I get a call saying, hey, we're having some problems, logistics problems, and then most importantly, cash. When you hear from a founder or CEO that there's cash problems, it's usually worse than they are telling you. It's usually a lot worse, right? Why is that? I think you, when you're focusing on your business day to day, you kind of Forget the idea that if cash becomes critical, everything falls apart. And you, you get into that sense of false optimism. Oh, my investor has my back, or my bank will give me a new line of credit.

You think you have backup when you don't.

Right. Yeah, it's a false sense of optimism, and it's normal. By the way, if you're an entrepreneur, you're an optimist. You have to be. I mean, Eric, you must be a great optimist. Oh, all the time. Ask Noah. I'm unrealistic. Yes, but optimists. Yes, yes. I didn't talk about unrealistic. Some people would say, "Wow, these guys are crazy." No, no, they're entrepreneurs. Yeah, right. Yes, we've chosen probably the the hardest thing to do. Mm hmm. But guess what? Would you want to do anything else?

No, I would rather just fail. I I would be okay failing completely and getting right back up the next day. It'll be hard, but I'm down.

Yeah, yeah, I'm the same. Yeah, I'm in. Yeah, so maybe together we'll do it. Yeah, so. What happened was they ran out of cash and they went bankrupt, and that was very painful for me. Not the money, believe me. I'm not counting the money and saying, "Oh, Eric, the money." Yeah, it was painful. It was so painful to see the dreams go away, and yet the the company survived. It was purchased out of bankruptcy. And it's being rebuilt, and it's going to succeed. But for the entrepreneurs, it's very painful. It's the dreams going away is a very painful episode. And by the way, for what reason? The brand was great. The company was doing great. They ran out of money. Yeah. And this is another example of why I think our mission is important. Should have they picked our method of raising money, we would have raised them. Tens of millions of dollars. It's very, it's a very understandable idea. But the lawyers, the lawyers, the advisors, the board, they don't think the same way, right? You know what is interesting? Even VCs in many ways are willing to kill a company. You know, they don't want to put good money after bad money, right? They won't. Instead of saying, is there another way? Can we succeed?

Yeah, well, incentives. They they just rather move on to another deal.

Well, because they know that in their portfolio eight out of ten fail, and so they're just gonna you know just gonna move on. Look, when I see entrepreneurs failing because of money, that hurts. If they fail because they decided to pack it up, they don't want to work as an entrepreneur. They want a real job, and fine. Okay, that's fine. Right? Lifestyle change. You know, maybe. Maybe this is not for them, right? But when they fail because the VC structure was against them, when they fail because the investor let them down, when they fail because the bank just decided to just jump in and take it all as fast as possible to lose less, right? Then I think that's, that's where it affects me the most. That's why I really feel That I get up in the morning, I'm just going to change this. The status quo just is no longer acceptable.

You're here to fix it. You're an entrepreneur.

I have to fix it. So maybe that's my legacy. We'll see. Yeah. Look, I'm an entrepreneur. I can get arrows in my back like any entrepreneur. I feel strongly that our mission is important. And I know that the team we have at StartEngine feels the same way.

Got it. I love it. So working towards wrapping up here, a couple more questions. Last time we also talked about how you find good deals. Again, looking at the 2 gaming companies, how do people go about— okay, one thing is sourcing the capital. They might go to StartEngine to get the capital, get the investments. The other side is, let's say someone is a successful entrepreneur, they want to go out and they want to go buy businesses. Where can they go find their own deal flow to go potentially buy a business or merge with a company?

Well, in the world of mergers acquisitions, there is a marketplace. There are websites that are showing companies who are for sale.

Flippa, FE International.

But but you have to ask yourself the question: Why someone's selling their business? Now what I've learned about buying businesses is that what you're buying is always ten times worse than what you think it is. So imagine what you think it is. It's way worse.

Why is that?

Reality. Reality is they're selling you a better picture, and the reality is the entrepreneur who's an optimist misunderstands how bad things are. I mean, it's not always they are sugarcoating it. They don't even know themselves. So you're buying a business. Now, if it's someone retiring, or, uh, you know, okay, it's a traditional business, you, you have much more ability to, to understand it, right? I think the best solution is to seek them out. Look at, read the different publications in the field and seek out the right company for purchase because then you take out that random, that, that, that factor that, you know, look, it could, it could happen that you pick the wrong company, but it's less likely than if you just go on a website and just pick it. Right. So you—

which is probably even worse. Right.

So you have a better chance of making it work. And in many ways, that's a great way to seek out. Now, how do you find deal flow? A lot of the old school is find a friend. So your best friend starts a company and you invest in it, right? That's a good way. A family member starts a company, you invest in it. Then the other way to do it is, is to go to conferences and meet entrepreneurs who pitch, go to pitch competitions, go to Accelerator demo days and invest in it right now that you have to be accredited. So now I've eliminated 98% of the people already done; they're gone in my conversation with you. How unfair is that? You can buy a business; investing in is different. You could buy; you don't have to be rich to buy business. You just have to have the right backers with you, right? But to invest, you have to be wealthy unless it's on a platform like Start Engine. So now what we've built is an alternative. They can't go and invest, that 98% of the population. They have to wait till the deal comes on StartEngine. And I have to tell you, in my entire career, every time I'd start a business— Activision, games are dead. That's what everybody said. Games are dead. Acclaim, online games. No, no great game will ever be an online game.

Wow.

League of Legends. Yeah. Amazing game, right?

Yeah.

I mean, many more. Okay. StartEngine. No one will ever invest in a company online.

3 for 3.

Right?

Yeah.

Is that unbelievable?

Yeah.

So, I feel great. I feel absolutely great because I think we're onto something very, very big here.

I love it. So, we're gonna talk— maybe you have a special deal for someone afterwards, but 2 more questions from my side. Last time we talked about favorite books. You recommended Zero to One, Lean Startup, and Innovator's Dilemma. So what is a, a book that is none of those that you'd recommend?

Well, I recently read Sapiens.

Okay, great one.

Because I felt strongly that, uh, you need to understand better where we come from and, and how evolution has worked. Uh, I'm reading now The Fountainhead. You will ask me, why would you do this, Howard?

That's fiction, right?

Yeah, I grew up in France.

Okay.

And that was not available to me. And there's a lot of great fiction and novels that I need to get my hands on. Yeah, but I just recently wrote another book called Platforms by a professor called David Yoffe in Harvard. And it's really interesting because he— his view is that the future of business are— the best businesses are going to be platforms. Yes, because they are very nimble. They take less capital to build, but they can scale infinitely. Amazon and Facebook. And these are all platforms, right? Two-sided. He explains how everything works. So I was very interested in that.

Wow. OK, I'm going to take that book out. I think I have that book, actually. So I'm going to add that. And favorite business tool that's not called StartEngine?

I think Google Docs is a revolution. I think everybody realizes it now. But it was not the case when it came out.

It was a very small fanfare, low fanfare.

And now it's just major.

Yeah.

I mean, you have to use it. I mean, we— I still have lawyers that I complain because they want to use Word. I said, I said, why don't you do WordPerfect? They said, oh, funny, Howard, WordPerfect was before Word and it's old and no one uses it. I said, yeah, but you're using Word. Yeah, I'm using Google Docs. Yeah, it's the same thing. Yeah. And they take a pause. And they come up with an excuse. Oh, my IT department won't let me do it. So I think still, if you look at my go-to tool is Google Docs. I think Slack is phenomenal. We're always looking for new tools to use.

Got it. Actually, I lied. I have one more question. What's one company or CEO that you're following right now?

Well, my favorite company and CEO is Elon Musk, CEO of Tesla. And I'm obsessed by what he's able to do. From the main, the main reason what I admire most about Elon Musk is that he is not willing to accept the status quo. He's not willing to accept what people say about his company. He just goes out and, and does the work and surprises people constantly. Yeah, I mean, his company is the most shorted stock on Wall Street. I think in the last few days billions of dollars of money have been lost. Yeah. He sees his stock go through the moon, goes to the moon. Yeah. You know, multiple of GM, Ford, everybody combined. Yeah. And it's just giggling.

I mean, he's the epitome of entrepreneur. He's gambler, all in. Doesn't matter what the proceeds are from whatever else he sold, all in. All in.

He, he nearly— I mean, I was reading his book.

Yeah.

that was written by a different author, but it was about him. And he basically ran out of money.

Yeah.

And he didn't care.

Yeah.

He didn't care. He's like, well, you know what it is, you know, we're all in and I don't care. But, but he's not the kind of gambler you would expect, like, uh, you know, going on the poker table.

Yeah.

I would not characterize him as that. I would say he's a very calculated Yes. His odds are always in his mind. He understands those odds. He knows there's risk, but he understands the risk. Where if you're gambling—

I would argue the best poker players know, they know their numbers well.

Yeah, yeah. But, but again, they don't control much. Yes. You know, someone could have a pair of kings, they don't know that. So yes, they're, they're, they're making, uh, great calculations. So let's say statistics, but he He has the control.

You gotta have guts to launch rockets into space. Well, that's other business.

And then he wants to put 20,000 satellites. I mean, it's, it's an extraordinary vision, and I think he moves the world forward. So that's why I admire him.

I love it. Well, Howard, this has been great. What's the best way for people to find you online and StartEngine?

Well, StartEngine is simple. It's startengine.com. You can go online. I'm on— I have a LinkedIn, I have a blog. HowardMarks.com is my blog, and I have also a LinkedIn page, and you can see what I write and interact with us, and hopefully consider StartEngine for your company.

That's cool. Everyone go check that out. I'm surprised that the Oaktree Capital Howard Marks doesn't try to— you guys ever try to fight over that domain?

Well, actually, we— there was a third Howard Marks.

Okay.

Okay. And we were fighting about the domain. I got it first. Yeah, he was a drug dealer out of, uh, in the United States and United Kingdom. Yeah, he actually went to jail because of cannabis. I mean, he was one of those cannabis early guys. Yeah, and his fans were forcing me to sell howardmarks.com, and I, I said no, I'm not selling it. So it's a wonderful story, but we had 3 Howard Marks and the Oaktree— he, he died since, but the Oaktree Howard Marks is a phenomenal business person.

Alright, well Howard, again, thanks so much for doing this.

Thank you, Eric.

Let us know if you want us to do more interviews like this, 'cause this is actually in person at my place in downtown. Takes a lot of time to set up. We wanna know if it's worth the effort. We wanna know if you loved it. So put a heart below if you loved it. Heart me on Twitter if you loved it. Heart me on Instagram, alright? So that's it for today, and we'll see you tomorrow.