Democratizing Investing and Building a Two-Sided Marketplace, with Ryan Feit of SeedInvest

Ryan, welcome to the show, man.

Thanks for having me. Excited to be here.

Yeah. And with SeedInvest, a lot with that to talk about in terms of, you know, got acquired a couple years back, with even starting this, a lot with that too. For people who don't know what SeedInvest is, though, what are you guys doing today?

Yeah, sure. SeedInvest is a leading equity crowdfunding platform. We basically provide investors with access to highly vetted investment opportunities. All online on our platform. And for founders, we allow founders that are raising early-stage capital for their startups to spend less time fundraising, more time building their business. They can basically apply to raise money on SeedInvest, and if they're accepted by us, they can immediately access 650,000 investors on SeedInvest. And we are highly vetted. We basically have launched about 1% of the companies that have applied over time. And, uh, that's, I guess, SeedInvest in a nutshell.

I want to come back to a few things you mentioned there in a second, but first, how did you start this in the first place, Ryan?

Uh, so I basically went back to business school. I was a professional investor, um, and then back in 2010 went back to business school. And my whole reason for going back to business school was to come up with a company to start. I'd always wanted to be an entrepreneur. And so I kind of took the leap of faith, if you will. And during my second year in business school in 2011, I basically read about these— I read about a couple of guys who had started this movement in Washington around moving startup fundraising, investing online for the first time and democratizing it. And I immediately was just struck by this concept early on. It made total sense to me that Just like everything else in our lives has sort of been moved online and digitized, this sort of really antiquated process of fundraising and investing also just ultimately had to be moved online. So it made total sense to me. And back in 2011, I got involved in this movement, ultimately got this sort of bill called at the time the Entrepreneurial Access Capital Act, signed and approved by Congress in 2011. Then we ultimately got that rolled into what's now known as the JOBS Act that was signed in April 2012. And so that basically, you know, was a springboard for us founding SeedInvest to sort of take advantage of these historic changes to securities laws.

With those changes, I know that was huge, obviously, and they've gone through iterations since then, trying to open up a little bit more to people that obviously I think there's a lot, long ways to go, obviously, in terms of getting more people access, of course. But they've made some progress with that. Back in that time, though, when you started this, how did you get the word out about the platform? What do you have, you know, MVPs to make sure this would actually be a thing that people would use and would actually, like, have a successful experience with it? I'm curious about the early days first.

Yeah, so, you know, we sort of built up SeedInvest over time and different iterations, because like you alluded to, The JOBS Act didn't all kick in at once. So when we got the bill signed April 5th, 2012, it kind of gave clarity that you could operate an online platform like SeedInvest to raise capital for the very first time, but it was limited to accredited investors. It's a couple percent of the country still, and you could only do this privately. So you had to come to SeedInvest, sign up, and then later on you could see investment opportunities. And then we sort of started there in early 2013. And then something called Title II of the JOBS Act kicked in September of 2013. It basically allowed startups to fundraise publicly for the first time. So you could talk about the fact that you're raising money in the press, you could tweet about it, you could email your customers, but still only accredited investors could invest. And then basically, in 2015 and '16, the last parts of the JOBS Act kicked in. Title III and Title IV, also known as Regulation Crowdfunding, Regulation A+, kicked in, and those basically opened up startup investing to everybody. So, you know, it was definitely an evolution over time of us opening up more parts of the platform and working very closely with people at the SEC and FINRA and others to sort of implement these final rules so that we could take advantage of them and make sure that they work properly. And, you know, beyond the security side of things, it's like, you know, like any business, two-sided marketplaces are really hard to start.

Yes.

We could probably spend a lot of time talking about that. And, you know, it's little by little, getting our first company to sort of take a leap of faith with us and raise capital and convincing investors that we could find good opportunities. And then once you sort of get your first case study, it's somewhat downhill after that, and you just keep sort of, you know, scaling at that point and having more success stories. But it's very tough in the beginning. And again, I mean, that's like its own, its own conversation, I think.

Yeah, the double-sided marketplace, I've talked to a lot of entrepreneurs who've started those businesses. And it is a lot to deal with. Obviously, you're solving a couple different problems within that. For you guys, then too, how did you approach that in terms of who you want as the investors on the platform? I guess we can start there. Because that's, that's one obviously huge aspect of Yes.

I think with any two-sided marketplace, you could think about SeedInvest, but you also could just think about Airbnb. You could think about Uber. They all had to build these two-sided marketplaces. And I always say that two-sided marketplaces are the hardest businesses on earth to build because you have to convince one side that they should sign up before there's sort of anybody on the other side and vice versa. And then, but once you get critical mass, they have— they're the best businesses on earth because they have such huge barriers to entry, right? It's so— it'd be so tough for somebody to, to start an Airbnb clone right now or Uber because there's just so much embedded network value. So, um, you know, I think when you're— for us, you know, we had that same challenge in the beginning. How do we convince investors to sign up before we have any deals? And then how do we, you know—

Yeah.

convince companies to come raise money on our platform before we have any investors. And so, for us, we concluded our thesis basically was that there are a lot of startups out there that are looking to raise money. It's a constant issue, right? And it's hard raising capital, especially then, was really, really challenging, just finding people who are the angel investors out there. And then, you know, how do I convince them to write a check? How do I basically herd these cats?

Yep.

So that's a common problem. And then on the other hand, although there are a lot more people that invest in startups today, thanks to the JOBS Act and everything else, you know, it's back then, especially, it's not like everybody was just saying, I'm like dying to invest in like illiquid startups right now. So, so our, because of that, you know, our bet was, let's go really focus on the hard part, which is find the, find investors and aggregate them together. And if we can do that, The startups will come to us because we'll be able to basically provide a good experience with getting them capital. So, that's where we spent, I would say, the vast— if you think about 80/20 rule, we definitely spent 80% of our time for the first probably 3 or 4 years bringing people on from an investor standpoint. And how do we do that? I mean, we were really scrappy like a lot of people are there.

Yeah.

There's a ton of good stories about that. But yeah, it was You know, first just emailing everybody in our networks that we, that we could to bring them on, you know, personally and professionally and sort of encouraging people to, to spread the word from there. But yeah, it was, it was, it was hard back then for sure.

Yeah, getting people on board. I think that's almost always the experience of like, you're just reaching out to everyone you know, at the starting point, because once you— to your point, like once you have a little bit of leverage in some way where there's some people on the platform, some people committed, you can leverage those committed people to get more committed people to be like, hey, You have this many people already using it. Like, let's progress from here.

Exactly. And I mean, there was definitely, there was definitely for us, like I said, I mean, there was definitely plenty in the beginning of emailing invest people that we kind of knew and saying, we have the best startups on earth, like, come check it out before we had any, any companies and, and then, you know, going to companies and saying, we're super connected people, we used to be investors, you know, there's tons of money and You just have to kind of like, I think with any marketplace, you have to figure it out along the way when you bring the sides together at the beginning.

After you got past kind of that point of it, so you're kind of cold outreach or reach your network, etc., to get these investors. From that, in terms of scaling then to, I mean, even the point where you got acquired in 2019, and even now your website says like $350 million plus raised, 250 plus successful offerings, which is a lot. How did you scale that in terms of getting investors on board, kind of streamlining that process of it?

The beautiful thing, and this is what we were banking on, is if you look at— if you look, I'll use Kickstarter as an example. You know, with rewards-based crowdfunding, Kickstarter spends none of their time finding backers and finding backers to sign up for Kickstarter. They spend all their time curating good sort of creative projects. And then those, those sort of, those people behind the creative projects spend their energy bringing backers to their project, which brings people to Kickstarter, and hopefully those people back more than one project. And so when the JOBS Act, when the sort of further parts of the JOBS Act kicked in, that allowed companies to email all their customers and people they know and And invite them on, we sort of shifted and at that point started to spend none of our time really reaching out and trying to bring on new investors. We spent all of our time, and we still do, basically focusing on how do we basically find the best companies and bring them onto the platform. And those companies, basically in partnership with us, obviously we reach out to our 350,000 investors, Or sorry, 650,000 investors, which is a lot. But also those companies are inviting their customers and their users to own a small piece of the company, and they're doing a lot to spread the word now as well. So, I mean, if you would've looked at least, let's say, a year or two ago, like 98% of our investors just signed up organically. We didn't spend anything on them because those companies really attracted new people to the platform, and then hopefully those people end up building a portfolio. Which is part of the magic of our business.

Yeah. As you build to that point, of course, then you can get to that magical place. And from that too, on the startup side, I know you mentioned early on and I've seen your website and everything too with how vetted these startups are. What does it take to be on the platform? What are you looking for from that process? I'm curious more about that too.

Yeah, we're looking to back companies and not ideas, I would say. And so a few of the— we've had 50,000+ startups apply over time, so we've collected such significant amounts of data from seeing so many startups apply. And based on our experience over the past decade, we basically are ruling out 3 main types of early-stage risks. The first one is sort of early founder team risk. And so we're not— we basically will avoid situations where it's like a single founder and nobody else is on the team, or there's not that core kind of like initial team, at least of people that are full-time dedicated, or avoid situations where somebody's started something or a couple people started something, but they're still working for a company and they're not 100% all in. We'll avoid that. So we kind of take that initial team risk off the table. The second thing is we'll take sort of the early product risk off the table. So we'll only invest in something that has a minimum viable prototype, MVP, or is in the market already. So at least there's something that, you know, if it's not generating revenue already, it's not, you know, like a complete product, there's at least something that's built that they can really shop around to customers and you can start to like figure out if there's demand for that. And then the last piece is we're looking for a startup that has some proof of traction. And if it's a consumer-facing startup, that can be revenue, it could be users and user growth. If it's B2C, it could be customer contracts and sort of proof of demand. And then the last thing after those 3 items is we're basically, we are making sure that the terms and that people are investing at, the valuation, the investor projections, make sure that's appropriate for this sort of stage of the company. And those are really the big boxes that we're checking. How we do that, I mean, it's interesting. A lot of what we've done is we've taken a lot of those data points that we found over time and kind of ran a regression through all that data. And so the first thing when you apply in SeedInvest now, it's fully automated, I should say. where we ask companies objective questions and collect objective data, and we can actually automatically sort of approve or reject companies based on that. And then after that point, for companies that advance further, we have an automated model that scores them, but we also will manually look at it still and make decisions. But it is, I would say, a sort of hybrid semi-automated diligence vetting process at this point.

I'm curious about that too. So I've seen this before from other organizations, same type of model, at least like from that, do you keep tabs on companies that applied, got rejected, and like, like, hey, come apply again in a year? Like, how does you, you know, I mean, how does that type of thing go too?

I thought you're gonna ask something slightly different. We do, we do, we do definitely keep, we definitely do keep in touch with people who, you know, weren't quite ready. And if someone's not quite ready, we try to help them and there are other, you know, maybe accelerators or certain things might make sense at that point. So we try to help them. But yeah, we did, we do definitely keep in touch with companies and encourage them to come back and follow up with them and stuff like that, for sure. I thought you were actually going to ask about do we keep track of companies that we rejected that went on, you know, to see whether they succeeded or failed, which I wish we had that sort of data. It'd be really interesting. We obviously have data on companies that have raised on our platform and how investors have done. It would be really interesting if we had data on companies that we rejected and what happened to them. It's obviously a lot harder to get in the and sort of with private companies, but that would be super interesting.

Yeah, harder to get, but at the same time, at least you know who the companies were that applied. So in theory, you could you could do it.

Which would be yeah, we could do it. Like that's true.

Which would be kind of interesting.

Yeah, one of these days, that's a big fun data project for somebody.

That's true. With with Seed Invest as well. So just thinking about you know what obviously you're acquired by. Circle, I guess, take me through that. And even that process of going through that in 2019, around that time. I'd love to hear about that. And then also, I'm curious about like how in terms of other investors downstream, how that kind of works with SeedInvest too.

Yeah, sorry, the second part of your question in terms of investors downstream.

Like you're helping founders obviously raise capital on SeedInvest, but is there anything after that too?

Sure. So let me take that part first. And I'll talk about, I guess, yeah, selling the Circle. So yeah, we do track how investors are doing across all investments, and we care a lot about that. I mean, hence our vetting process. I think hopefully this quarter, we will actually be able to release returns across the entire platform. And I'll just say they're quite good. And I can't give you a number yet, but I hope that this quarter, we actually will make that public, and we'll be able to make it public going forward. I think it's really interesting data.

Yeah, it's very exciting.

In terms of Circle, I mean, we had sort of, I guess, built SeedInvest for about 7 years at the time, and we'd grown revenue every year. We got to profitability, so we'd built a nice business. But we had ambitions to scale further and to do a lot more. And Circle today, I mean, is a company that has raised hundreds of millions of dollars. We're at Circle in the process of going public right now, which we've announced and listing. And there are a ton of really interesting assets and projects at Circle. And so for us, it's sort of, you know, the interesting thing is taking what we've built, this sort of successful, profitable business model that's growing, and how do we supercharge that with more resources? And that's really what we're working about. That's working on. That's what we're excited about.

For you, taking a step back as a founder, I mean, I've talked to founders who have gone through this and some who are considering it and go both ways on this. Uh, for you, just like, tell me more of like how you're, you know, having those conversations with your team maybe, or how you as a founder also are thinking through it when you have the opportunity, obviously, to get acquired by Circle. Like, are there factors you're considering or how you actually made the decision, finally getting to an actual decision? I'd love to hear more.

You know, there's no right or wrong answer. I think it's really, it depends on the founder and the, I guess, the team sort of specific situation. So I can't, you know, I can't tell you whether it's necessarily right or wrong. I think, I think for a lot of companies, you know, for us, we've been building it for 7 years. It's a lot of, it's a lot of time, obviously. And you put— and you invest a lot into it in terms of your time, in terms of opportunity costs. And, um, and you obviously, you know, myself and my team, you have sort of equity, but you don't have, um, it's not like that's— you have liquidity or anything like that.

Mm-hmm.

So, you know, I think for a lot of people, you get to a point in time where you've built something that is value and you've built it to a certain scale. And, um, you know, you look at, A, is it a good idea for us personally to take some chips off the table? And B, do I think that we could basically with this exit opportunity, can we make 1+ 1= 3? Meaning that with us combined with this other company, do we think it's a good cultural fit? And do we think that we could basically realize synergies and sort of invest in the business to accomplish more than we'd be able to do on a standalone basis? And that's kind of the analysis that that we went through that I think probably anybody would want to go through and kind of depends on the situation. It also, some people might go through that analysis and decide maybe we'd rather build it for another 2 years independently. We really feel like that's the right decision for us. But I think that's kind of the decision that people need to make. And I would say that an exit for most people, I mean, sometimes you just have someone who approaches you out of the blue, but a lot of times, An exit is something that it could take a couple years and it could take a lot of time to sort of have those meetings and do it actively in terms of going around and meeting with the right people. And so it's something that I encourage founders— people reach out to me all the time, especially after our sort of exit to ask about this. And I just tell them, if you're thinking about it, The best time is start now, start to sort of plan for it. You don't have to sell the company right away, but start to think about who would be the right acquirers for my business and start to set up strategic meetings with them to just talk about more partnerships and how you guys might be able to work together. And oftentimes, if you have that sort of strategic partnership discussion with somebody in your space where there's a good fit, I mean, they'll basically reach out to you and escalate that to an acquisition. And It just, it's one of those things where I just tell people to be proactive and start doing it, you know, like a year or two before you really want to sell.

Yeah. I think just to put that in bold, maybe like the amount of time it can take and having heard this from a couple of founders before is way longer than you'd think, I guess. For like, oh, we're selling a company. It's not like it's just, you just sell it the next week. Like it doesn't work like that. There's so much diligence and everything too behind that. So I think it's for people even considering that to look at.

Definitely. Sometimes you need regulatory approvals as well. That takes time and deals fall through all the time. Also, you might spend, you know, you could spend 6 months on an exit and think it's going to happen and it falls through. I mean, that does happen. So you do just have to plan accordingly. And the best thing you can do when you're going through a sales process is keep your head down and focus on continuing to perform as hard as it might be and make sure that if things do fall through, your business is in a good place. I think a lot of people, the mistake they make is they sign a term sheet, they think they're getting acquired, and they kind of take their foot off the gas and get a little bit complacent, and then a deal falls through and they're in a tough spot. So you just have to— I always just encourage people, keep your head down until everything is done. And oftentimes, You know, even after an acquisition, you're gonna, you're most of the time gonna stay on and you're gonna want to build it further and you're gonna be incentivized to continue to build the company. So it's not necessarily, it's a partial finish line, but it's not always the ultimate finish line either.

One of the things I just want to kind of wrap up with, you mentioned this, you know, grand ambitions and with getting acquired, obviously, you can have more resources to do more things. And just to kind of reiterate, 600,000+ investors, $350 million+ raise, over 250 successful offerings, like what are those grand ambitions? And what does that look like? I'm just curious on that side of things. You've done a lot already, obviously, but I'm sure there's, there's way more. I'm curious on what's, what's next.

Yeah. So, you know, we think a few things will happen. First of all, we think that this idea of sort of fundraising and investing in, let's say, private companies or alternative assets, it's not a, it's not a US phenomenon. It's a global phenomenon. And so right now, you have people like SeedInvest in the US, you have platforms like Crowdcube, who we actually made a significant investment in Crowdcube a couple months ago, and I actually joined the board. And they're doing massive things over in the UK. Europe just opened up, and we're collectively expanding into Europe. But there's sort of these small pockets of things where people are investing in startups and raising money. At the end of the day, in the long run, that's all going to be global and you should be able to easily just invest in a startup in Indonesia if you want to and vice versa. People from Europe should be able to raise capital from people in the US. That will happen, but it takes time and it's going to take some changes on the regulatory side as well. That's sort of number one. Number 2, I would say this movement of startup fundraising and investing online is one piece of the puzzle. I think the same thing you will see, and you're already seeing it across other alternative assets like real estate, private equity, growth equity, private debt. And so that's, I think, part of this bigger picture too. I think we think all of that will also move online. And just in the long run, people shouldn't just be investing in stocks and bonds. They should be investing like the best pensions and endowments out there that are building portfolios that have some stocks and bonds, but also have access to venture capital, private equity, real estate, et cetera. And so it's about getting that in the hands of everybody and democratizing it. And lastly, Circle is a serious leader on the crypto finance space. side of things. And so we definitely believe that this world of sort of digital online fundraising and blockchain and crypto will converge. And there are going to be really interesting things that happen from a liquidity standpoint, from an on-chain perspective, when that does come together over the next few years. So there's a lot— there are a lot of— a lot of— a lot. I think we've built an interesting business where there's a lot more to be done for sure.

Yeah, you definitely built an interesting business. I think we're very passionate about that at Vitalize too, which is why I have an angel community, which is using Reg CF to allow people to invest, because we think it's just like a huge opportunity for anyone to kind of join and start investing in startups and build a track record, launch funds, like all those different things that people are going to do with that, which is going to be exciting. We'll see how it progresses over the next few years. And if the SEC, fingers crossed, can make some big changes, which we're trying to help with as well, it'll open up to even more people. But I know we're out of time. Where's the best place for people to connect with you, learn more about SeedInvest as well?

Yeah, I am— people can find me on LinkedIn, Twitter, I'm @RyanFeit. They can come to seedinvest.com, they can sort of check out the academy, they can apply to raise capital, they can sort of browse investment opportunities and also find, find us at circle.com as well.

Perfect. Ryan, thank you so much for your time today. Really appreciate it.

Thanks, Justin. Really enjoyed it. Have a good one.