243: Crowdfunding Venture Capital And Accessible Angel Investing with Chuck Petid

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What's next? This is a question we're all having to ask and answer more frequently. I'm Jenny Blake, your host of the Pivot Podcast and author of Pivot. The only move that matters is your next one.

For show notes from this episode, visit pivotmethod.com podcast if Change is the only constant, then let's get better at it.

Here we go.

Hello friends. I am bringing you an episode today that I recorded at Podcast row back in 2019 pre pandemic when the world was an entirely different place. But I'm releasing it now because I really did love this conversation. I was kind of looking for just the right window to release it on the podcast. The interview is with Chuck Pettit of Republic, which is a really interesting company that essentially crowdfunds angel investing so you can become an investor for as little as $10. And I chose this company and this podcast for this week because I particularly love their focus on diversity, equity and inclusion. From their website on Republic Co. They say because talent is evenly distributed but opportunity is not. They are working toward equalizing the fundraising landscape and providing more talent with the chance to build companies and create investment opportunities for investors. Typically VC backed CEOs are 87% white, only 12% Latinx and 1% black. In terms of gender, typical VC backed CEOs are 97% male and only 3% female. 57% of VC backed companies are in California and 43% from all the other states combined. Come on, we can do so much better than this. I have to say I have no skin in the game. I am not yet an investor with Republic Co but I am curious about it. So I have been circling back to their website. I don't see any reason I can't jump into the pool just for $10 at least. I love this idea that you can invest in the founders and startups that you believe in as an angel investor. It kind of democratizes angel and it's not quite VC but angel investing for the rest of us. I hope you enjoyed this conversation with Chuck from Podcast Row where I interviewed six entrepreneurs in one day who I had never met before from 2019. Thanks for listening, everybody. Enjoy the show and you can learn more about Republic at Republic Co.

Hello, everybody.

I'm here at Podcast Row with Chuck Pettit. Chuck is the CEO of Republic Funding Portal, a leading equity crowdfunding site, and and co producer of the international television show Meet the Drapers. Chuck's company specifically has an AI focus. Not the AI you're used to hearing, but access and inclusion. Republic gives you access to new and vast pool of capital. So that's for the founders. They can raise funds from anyone, their community, customers, partners, and millions of retail investors. And then Chuck was asking me before we hit record if I am an angel investor. And I kind of laughed because I think of angel investors as having millions of dollars to throw around. But he let me know that you can invest and have equity in a company for as little as $10.

That's right.

Is that true?

Anyone could be an angel investor. Anyone, anywhere, regardless of their wealth.

And that's relatively new, right? Because laws passed that allowed for VC crowdfunding.

Essentially, it started with the 2012 Jobs act and then the license law that we operate under was effective in May of 2016. So about three years old.

That's what I thought. I remember it was around 2016 that this was kind of big news that came instead of companies that were raising money, instead of them only being available to the millionaires and billionaires of the world. By crowdfunding, it creates a whole new level of access.

Exactly. So we've always looked at it as being not just a capital campaign, but also a marketing campaign. And there is a mountain in our logo for the reason that you climb that mountaintop and you get a screen from the top of it to let people know about the investment opportunity and your products and services.

Why would a founder do equity crowdfunding where they're distributing actual equity in the company compared to regular crowdfunding such as Kickstarter or Indiegogo?

I mean, Kickstarter Indiegogo is a great place to launch a new camp, like a new product. Equity crowdfunding should be for growth capital you're going to take out. You're not actually going to spend that money on perks. So you actually have that capital to hire new employees, to get new systems and services, et cetera, to help grow your company to the next level.

Seth Godin said something really interesting, I believe, actually it was in the Startup School podcast, which is. It's not an active podcast. He has a Kimbo now that he does week after week. But you can go find startup school with Seth Godin. And I think it was the first time I heard it said so clearly that if an entrepreneur is gonna invest capital in their business, it should be toward assets and not toward things where you're gonna spend the money and it's gone.

Right?

And I'm putting that in very rudimentary terms. Can you explain the difference?

I mean, it's along the lines what I just talked about. Instead of, like, actually taking in capital so you can immediately spend it, maybe have a small percentage margin profit on it, you can actually take this capital and use it to add a new employee, find a cto, do the things that you need to do to get to the next level, which will increase the value of the company and increase the value of, like, the holding that you have now. To make that happen, you need to actually sell part of your company, which is where someone like Republic comes into play. And you decide how much you're selling of the company. You decide who you're going to raise it from. Yes, it's crowdfunding, but you can direct it toward just your fans, just your clients. You can direct it toward just your 1099 employees, who you're not allowed to have employee stock option plans with. There's a lot of different reasons why companies should use it. A lot of companies use it because they're actually blocked out from getting venture capital or angel investing angel dollars. And that typically happens with female founders and minority founders. I think, you know, our core has always been to help the underserved founder. And to date, 35% of funds have gone to FEMA, a company with at least one female founder, and 25% have gone to a company with at least one minority founder from Republic. From the crowd.

And how is that different? I know is very skewed in the regular VC world, but do you know any of the stats on that?

I think collect, if you combine those two groups, it's less than 2% of venture capital goes to minority and women founders.

That's part of the reason that I was attracted to have you on the Pivot podcast as soon as I saw that line about access and inclusion, because I know how important it is. I'm actually from Silicon Valley, San Francisco and Palo Alto, and it's a huge issue that female and minority founders just don't even get the time of day, that a lot of venture capitalists immediately associate a young white male in his 20s wearing a hoodie, and they think this guy Looks like a founder just simply because of the past, basically.

Or if you went to Berkeley or Stanford, you're pretty much good to go. It's definitely changed today and I believe the number is 73% of the campaigns that have gone through Republic have gone on to raise institutional funds. So a lot of these individuals who are unable to raise it in the first place use a crowd, were validated, got some growth capital, hit a couple milestones post campaign, and then they were able to raise from these people who previously denied them for basically no good reason.

Right.

I always find it interesting, companies and people who bootstrap, which by the way, I have kind of a caveat now every time I say the word bootstrap, I do like to ask the question of what brand of boots were you born in? Like even those of us, myself included, where I say, oh yeah, I bootstrapped my business. I never took outside investors or family money, but I had every invisible privilege going for me, like even what I happened to go to high school in Palo Alto. The access the people that I had, many people don't have. So that's my caveat around privilege for bootstrapping and that term, because I think we don't acknowledge a lot of these invisible privileges even for founders who think that they're bootstrapping. Access to two parents, a roof over their head, not having to get a job in high school and instead getting to intern wherever they felt like it. That soapbox aside, there's a difference between sort of self funded entrepreneurs and then those who want to get outside funding, whether it's crowdsourced capital or they go straight to VC rounds. What do you think is the tipping point and who do you recommend should actually go to a site like Republic versus those where it is better off to, to kind of stay lean and keep full ownership of their business.

So I think you need to be a company that has some stability. You can be early stage, pre revenue.

You can, you know, just have a few fundamentals in place, whether it's just one investor or you've bootstrapped, whether it be from your own blood, sweat and tears, or you had a family who kind of set you up to get things going. But you do want to come into some sort of stability and a few milestones hit because otherwise the crowd is very sophisticated. Whether they're putting in $10 or $100,000, $100,000, they want a return on investment. So they're going to actually take a solid look and it maybe takes someone five minutes. It could also take Them five days. But they're going to take a solid look at the evidence and make a decision to invest, hopefully, or become a client or share it with their own network. But if you don't have something good for them to sink their teeth into, they're not going to they any of those three things. And if you don't, don't get one of those three things, you're really missing out in crowdfunding. So you need to come to the table, to the crowd with something viable, something stable that they can sink their teeth into and actually want to be part of. A lot of the crowd doesn't get much credit for being sophisticated. That's a myth that we've definitely turned upside down with crowdfunding, is that individuals, regardless of their wealth, are sophisticated and they're very sophisticated at investing.

You have a little smile on your face when you're telling.

I like that a lot. Because a lot of people think it's very.

Signal.

It's a negative signal to the market. If you're a company raising capital from the crowd because it proves that you're desperate, you want to get dumb money. It's not dumb money. You're not desperate. You're actually using a resource that's going to help your company grow. And yeah, you're raising some equity from it or selling some equity for it also. But I've loved seeing people be at times even more sophisticated than some of the venture capitalists and angel investors that I know. They've been doing it for their whole career.

It's cool to see that thought really sparks joy. Like you can't see it because you're listening to this episode, but it's cool to see you light up around that. It makes me think, what's the operational relationship on an ongoing basis? So let's say a company now has 100 or a thousand crowdfunders, if not more. I don't know what the average number of funders is for your platform, and I'd love to know. But then what kind of relationship? Are they kind of treated as a board of sorts? Or do they. Does the founder then give updates?

How does that work?

There's different investment terms they can take, whether it be, you know, straight equity, fixed income. They could do a revenue share agreement. They could do. We typically use a crowd safe, so a simple agreement for future equity. It works, you know, two different ways. One way is that it helps the founder keep these individuals off their cap table, which you don't need to have 4 or 5, 600 people on your cap table, it can come very. Become very like burdensome operationally. It can be very costly. It can cause investors in the future not to invest in you if you have that much going on. And then on the flip side, it actually just clears the path for founders to grow their company. And you as an investor want that for your founder. You want that for your portfolio company. You want them to be focused on things that are meant to grow the company. Not like figuring out K1s on an annual basis or what are K1s? K1s are tax reporting documents that you get on an annual basis when you're invested in a private company. That's if you have straight stock in the company.

And cap table, what are the practical consequences of that? Like those are people who, if you're.

On the cap table, you're going to get a K1. If you're on the cap table, you're going to be, you know, presented with financial reporting information on an annual basis. You're most likely going to have some sort of voting power.

Okay, that's what I was wondering. I think it's capitalization table. Is that what that. Okay, right. Of how the company is structured? Basically?

Yes. Who owns what exactly?

Yes.

For founders to raise capital, they have to, you know, consider that we were past venture capitalist, angel investors, founders ourselves. We are never going to put a founder forward so they can shoot themselves in the foot. We constantly have them on our mind. We also have an equal amount of concentration on investors because we have to protect them as part of our fiduciary responsibility. But when we do that for you and we get you suitable for the crowd to make a potential investment, you look very professional. You're going to go out there and actually.

You'Ll tighten your ship and you'll get things really revving and you'll present yourself in a nice fashion in a light that you've never done it before. When you do crowdfunding, there are some platforms that just basically give you the keys to the castle and say, we'll see at the end of the day. At Republic, we take you hand in hand from day one until the last day and even beyond the campaign because we look for long term partners to work with. There really isn't a company that has gone through a campaign with us that we still don't talk to.

If it's not a daily basis, a weekly basis or monthly basis or something like that.

That's an amazing network in itself for sure. Do you know what the average number of investors is?

I believe it's 400 Campaign 400. We've had maximum of about 2,000. And those individuals end up being a small, like, marketing army for you. They end up being a small market, like a resource army for you. Because you get 25 people in there. Well, they're investors, but 25 of them are attorneys and 50 of them are marketers, and, you know, 100 of them are HR people or whatever it is. You get a lot of people who are familiar with their industry. You don't need to be a gizmo or a gadget. You can be a B2B. You can be a SaaS company. You can be things that are, you know, typically thought of as being too sophisticated for investors, but they're not because they recognize some part of your product or service that they're familiar with. It's the industry that they're in, and they want to, you know, support and make money off of things like that.

Well, this goes back to the access and inclusion for both founders and investors. What I love is that you're allowing access to capital for more than the pool that is currently typically served in the VC world and angel investing world. But then also, it's really amazing that investors, or micro investors, as probably me and many pivot podcast listeners would be, we also get access. We also get to say, you know what, I want to support these types of founders or these types of businesses.

You can invest in the, you know, you can invest in tomorrow, today. You get to pick the things that you want to see succeed, and it adds up when you're putting in 50 bucks here and there and. But four or five hundred other people are. That's real growth capital that these, you know, companies can use to take themselves to the next level. And that you hope ends up being, you know, something that goes on and on forever.

I still am wondering who is not a fit for raising equity crowdfunding. Not just or even raising equity at all. You know, are there people where you would recommend, you would say, actually don't. You can scale your business without outside funding and therefore sharing ownership of the business?

No, there's definitely some companies that aren't scalable. You see them come across, they're almost like lifestyle businesses. They're going to have a great career. They're going to make $250,000 a year on their own, but it's not going to actually scale or be some sort of asset that can be transferred, acquired, et cetera.

And maybe they don't even want to scale. They like having it run around them. Themselves and their business.

Exactly.

Yeah.

So you do see some, you know, from time to time you'll see a company that's in great shape, but you're like, you know what, that's not really investable on any level.

Yeah, you just mentioned they're not. I read a book long ago, actually, I don't think I finished it, but I should have. It's called Built to Sell. And you raise an interesting point that maybe a lifestyle business is not transferable. That if the person at the center of it were to leave, yeah, PR.

Firms would be one, they need capital, but they're not going to be a sellable asset later on. Why is that the individual that you mentioned, the one person that is the head of it, that has the relationships that that basically is the lifeblood of the company once they leave that key man risk can absolutely kill all investors.

Yeah, I think about this question a lot for what I'm doing and I think if I died tomorrow, which I'm sorry to be cryptic everybody, but just gotta think about it. Been in business eight years and I'm like a hybrid of what you're describing because I do think about it. I'm like, if I died tomorrow, would everything just grind to a halt and it would all get shut down or would I want the business to continue and anyone could come in and run pivot and have pivot coaching and, and I'm often torn on this front, but I think it's an interesting question of, of maybe you can even shed some light on how you build to sell if you are a hybrid type business where it does the founding, the founder is a huge part of it.

You need to have a partner that, that's just as passionate as you are. You need to have potentially a co founder that's going to be working side by side with you and that would carry the torch if something like that were to happen.

Also, let's just knock on mud. Hopefully I won't tell exactly because we got to get this podcast out.

And it's also not a bad thing to have some junior members or new industry.

Individuals on your team who could carry the torch for you as well.

And it seems as well systems kind of building with this in mind. And again, if we pull it back from the brink of death, maybe it's also just the founder is ready to move on. And what would that look like? Are you building something that you could transfer or would want to transfer, or would you rather shut it down?

I guess I've typically been around companies and even startups that have multiple layers of management or ownership or things that will continue the company if something like that were to happen. Maybe the one that I really don't have that on is you mentioned before, I'm co producer of an international television show. Which sounds completely insane.

Yes. Which just says somehow I'm the co producer.

So I wrote that then.

Because I know that's what I was curious about.

I wrote that. Exactly. Exact.

Somehow I'm curious about.

And we're going into season three right now, so we've had 26 episodes so far.

Is it a web series or is it on a network?

It's on Sony Entertainment Television. The show is basically founders come on and they pitch Tim Draper and his dad, Bill Draper, and then some of Tim's either his son or his daughter. So you meet the Drapers and they ask them questions and then the founder leaves the room.

And just for the uninformed, Tim Draper.

Is, I would say He's a top 10 venture capitalist in the world.

Great.

His dad definitely was at some point too. But he's essentially Jessie Draper.

I'm familiar with his daughter.

Jesse is Tim's daughter.

Yes.

So she's been on the show.

She has her own podcast.

Yep. She's been on the show probably a good dozen times. But so they pitch them and then afterwards the founder leaves and the family talks about it amongst themselves. And then at the end of the day they say, hey, viewers, you can go to Republic and you can invest in this company. Like this is what we think. Go to Republic. Invest if you want to. If you don't want to, maybe buy the products and services. If you don't want to do that, wait till the next one.

How does their vibe differ from Shark Tank?

Well, it's a family vibe. They're very goofy and they have a lot of like rapport going on that Shark Tank doesn't have going on.

Right. Shark Tank kind of cultivates that adversarial nature of.

Yeah, no adversarial nature for sure. It's very. They're very goofy together. They're very loving. So they play off each other's energy and it has a totally different vibe to it. That's what happens in entrepreneurial life, though. You have to expect. And I say, somehow I became co producer. I did. I fell ass backwards into this just through the regular course of business. How so the found. Well, the producer of the show had actually a good seven year run with a television show on Sony and it ran its course and she became a founder and had her own business. And she applied to raise in Republic. And at that time there was only about five of us. And one of the things that we always wanted to do was if we were going to reject a company, we wanted to give as many as we could, good reason and feedback, et cetera. So I offered her feedback and she had a phone call with me. She was really grateful for it. About a month later, she reached out and said, hey, I talked to Tim Draper and Draper also rejected me. But he said, why don't you take your producer skills and help me create this new TV show I want to do and I want to have it do with. There'll be some crowdfunding component to it. Do you know anyone crowdfunding? She's like, yeah, no chalk and Republic. So she reached out and then a month later we were talking to. A week later we're talking to Tim Draper. A month later we were doing the pilot and then two months after that we were in the midst of a week long session of filming 13 episodes. And it was often we're off and running.

Absolutely. Well, I can't wait to check it out. As we start to wrap up, what are three pieces of advice that you would give to a company who is preparing for a round on Republic?

So engage your audience sooner than later. Actually start to. Technically, it's not legal for you to go out and test the waters and you say, I'm going to run a Republic Equity crowdfunding campaign before you file your regulatory documents. But you can have discussions with your fans and your friends and family. You can definitely have very detailed discussions with anyone who's an investor that has information rights. You kind of want to gauge, get a feeling for, are they going to support me? Because you need that initial momentum to make things great throughout the campaign.

Sweet. Real quick, what do you mean they can't say, I'm about to do a crowdfunding round?

No, it's not until you actually file your Form C, which is a regulatory filing.

Good to know. I wouldn't have known that.

There are some shortcuts to that that we help you with that will actually file the Form C early so that you can go out and then legally talk about it. But you basically don't want to get onto Twitter or Facebook and say, hey, I'm going to do a campaign until you have that type of thing.

Why is that?

It's called testing the water. It's an old 1933 securities act law.

Okay, all right. It's so counterintuitive to all other Social media advice. You know, it's. That's really funny. Okay, that's one.

So, yeah, one would be kind of like, prime the pump, be ready to hit the ground running. Two would be, you know, start building out different content plays. We're going to help you. Like, we have the television show, we have a radio show in Chicago. We have podcasters that bring our founders on. There's press, there's live events, etc. You're going to get a lot of content from us that we help create. You should also start making new content. And the reason is that that's a great reason to go back out to your network. And it's another touch point that you can have with your potential investors and that we also have with our investor base. So we have 250,000 registered investors, and it takes three to four touch points for someone to invest. And that could be your. Like, it's the same numbers. Also for your mom, she's not going to invest in the first time you send her an email. It's going to be the third or fourth time. It's very strange.

True. My mom joined Patreon.

Takes a while.

One day I just saw my mom come through as a contributor maybe six months in or something.

I was so happy.

I've since paused my paper.

Expect it to take a while. But, you know, it's going to be fun. You're going to have content. You're going to have a good reason to reach out to people. You also get a, you know, you'll have a chance to put yourself into a new light. And then third, be ready to commit. And also understand that we know you have a life. You have a business, you're building. It's not a 247 thing. You're going to have some lulls. You're going to have some time off during the actual, you know, campaign window. But when you're doing it, be ready to commit and, like, push the pedal to the metal. So the more that people do those three things, the better they do.

Awesome. Chuck, thank you so much for being here.

Thank you.

Where can people find you if they want to keep in touch and or become an angel investor?

And I hope everyone becomes an angel investor, yourself included. Jenny. All right, you do. I'll monitor and see what happens, but I can't give you advice, but I'll watch it to see if you do. Go to Republic Co.

I'm into it, but I'm not an investment advisor. Whatever the legal disclaimer is.

So Republic Co or ChuckPublic co. I do reply to all emails.

Amazing. Oh my gosh. We're gonna have to do another episode on how you reply to all emails.

I'm inbox zero no matter what.

How many hours are you on email every day?

Then I get a lot of flack for being on my devices all day. Yes.

Can't stand it. It's a pet. It's like a nervous.

I think there are two types of people in this world. Inbox zero where you just have to do it.

Yep.

And then inbox overwhelmed where it doesn't matter how much time I spend, I'm just still overwhelmed.

Maybe the greatest thing ever was when Apple started putting that unsubscribe now little offer at the top. It is. Click that when you get some random email. But actual people emailing me. I do email back.

That's amazing. All right, everybody. Thank you so much, Chuck. I really appreciate it.

Thank you.

Thanks so much for listening to this episode of the Pivot podcast. Make sure you don't miss an episode or my insider tips and templates by signing up for Pivot List, a curated twice monthly newsletter where I share the inside scoop on what I'm reading, watching, listening to, and the latest tools I'm geeking out on. Sign up@pivotmethod.com pivotlist get show notes from this episode@pivotmethod.com podcast and connect with me on Twitter ennyblake.

Remember, build first, then your courage will follow. Hasn't it always.