Interviews
Howard Marks, CEO, of StartEngine – Interview Series
Howard Marks is a co-founder and CEO of StartEngine. Since inception, nearly 150 successful financings have been completed for startups and other businesses via the StartEngine platform.
Long before ICOs became standard parlance, Howard saw the future of Security Token Offerings. On his blog and also through guest articles as contributor to Forbes, Hacker Noon, The Mission and Next Web, Howard has shared his vision for the space and has worked to chart the path forward to liquidity.
StartEngine was involved in the highly successful tZERO STO, they hold annual conferences, and many STOs are raising via the StartEngine platform.
AT: You have quite the impressive background, with an extensive history in software and gaming. Yet, you decided to launch an accelerator program called StartEngine. What inspired this?
HM: I felt the Los Angeles technology community needed an accelerator to invest in young companies. We were the first accelerator to launch in Los Angeles, many more followed. The mission was to help Los Angeles become a technology city.
AT: How long was it until StartEngine pivoted towards equity crowdfunding?
HM: We invested in 60 startups and most of them were not able to raise any capital. This was a huge problem. Investors were only interested in very narrow set of ideas and a certain type of founder. This resulted in most of our investments failing. This is viewed as normal given the early stage nature of the companies, however, access to capital was difficult for most of them, especially for the female led founders. In 2014, two years after launching the accelerator, we created the crowdfunding platform and launched in June 2015.
AT: Your first client on StartEngine Elio Motors went on to raise an impressive $16.9 million. How did you source this client?
HM: We were introduced to Paul Elio through a marketing company who felt they would be a perfect first customer for our company. Paul was adamant his community would invest and we were excited to have such an early success.
AT: When did StartEngine decide to also offer ICOs?
HM: In June 2017, I was reading about the DAO report published by SEC. This report explained how the DAO was an investment in securities although it was positioned as utility tokens. This intrigued me to learn more about ICOs and I found huge fast growing marketplace of investors who were using cryptocurrencies to crowdfund companies. There were two main differences from our marketplace: They were not following the securities laws and they offered many liquidation marketplaces for the investors. We decided to help ICOs get out of the shadows and use the JOBS ACT to sell securities within the securities rules. The first significant ICO we launched was tZero in February 2018.
AT: You were one of the first companies that pivoted from ICOs to STOs. What made you pivot toward STOs?
HM: ICOs were viewed by the general public as an investment in utility tokens. Although most of those tokens were securities, they were not sold as such. Changing the name to STO made sense because it was clear these offerings were for securities.
AT: We are huge fans of tZERO, how did you get tZERO on-board to raise on the StartEngine platform?
HM: When we launched our first summit on November 10 in 2017, we invited Ralph Diauto from tZero to come and speak. He saw our entire organization and how we were focused on compliance and following the rules. This was refreshing for him given the large number of platforms who were launching utility tokens by disregarding the laws.
AT: The StartEngine Summit has been quite successful. My only complaint is that it’s not long enough, any plans on making this a 2-day conference?
HM: We have completed three Summit so far and our next one is April 12th. I think a 2 day conference makes sense, however, it involves twice as many speakers and a lot more logistics. For now, we are expanding the 1 day conference and in collaboration with many other Los Angeles companies to offer an incredible LA Blockchain Week.
AT: You’ve spoken strongly in the past about supporting women entrepreneurs as traditional venture capitalists often do not provide them with the support and funding that they need. Do you feel that equity crowdfunding and STOs offer them more of a fair playing field?
HM: We have learned that under 4% of Venture Capital is invested in women led companies. This results in discouraging women to pursue their dreams and business aspirations. This bias contributes to the lack of diversification in the types of companies that are funded and also in the types of ideas available for investors. So far, StartEngine has women leading 22% of the companies on our crowdfunding platform. This is still low but a large step forward. We believe crowdfunding and STOs will help fund more women led companies than VC and Angels combined.
AT: I know you believe in mission statements, what’s the mission statement of Start Engine?
HM: Our mission is to help entrepreneurs achieve their dreams.
AT: StartEngine is currently running their own STO. Could you tell us about this STO, the raise amount, and the terms that are offered?
HM: We have a fundraising campaign for accredited investors called OWN Limited. This is limited to a short period of time before we have received qualification from the SEC for our next Regulation A+ public offering. The OWN Limited terms are $7.50 per token. Each token represents a share of Preferred stock in the company.
AT: Anything else that you would like to share about StartEngine?
HM: We are focused on building a modern financial firm which can help entrepreneurs capitalize their companies directly from the crowd. We also want to provide investors with liquidity options. We are in the process of registration with the SEC for our broker-dealer and Alternative Trading System. We recently launched a proposed standard called ERC-1450 to tokenize securities. The purpose is to offer investors the ability to receive digital stock certificates in the form of tokens and to then facilitate the trading on our upcoming platform.
AT: Thank you for the interview. We are huge fans of StartEngine and we were excited you were able to join us.
For anyone who wishes to learn more about StartEngine or Howard please see the links below:
StartEngine – Invest in companies via equity crowdfunding or STOs.
Howard’s Blog – Howard discusses his views on the industry.
Howard’s Twitter – One of the best Twitter accounts in the industry to follow.
COVID-19 has made life difficult for many. There are those however, that have made the best of a bad situation. A prime example of this is the recent resurgence of crowdfunding platform, SeedInvest.
In a recently shared update, SeedInvest elaborated on a notable uptick in platform participation throughout 2020.
Moving Forward
Best quarter on company record? Check. Investment volumes reaching new highs? Check. Massive investor signup, dwarfing multiple previous years combined? Check.
With people adjusting to the new world, it is clear that they are recognizing the benefits and efficiency afforded through crowdfunding. April, alone, saw roughly 25,000 new investor signups on the SeedInvest platform.
Commentary
In their post, SeedInvest CEO, Ryan Feit, elaborated on how their platform differs from traditional means of raising capital.
“Unlike venture capital firms, online fundraising platforms are perfectly situated to help startups in the current, post-COVID-19 world we are in. Online fundraising platforms are not dependent on capital from a handful of pensions and endowments, but rather a large, diverse network of investors (SeedInvest has had over 350,000 investors register for example).”
He continued,
“…while the traditional venture capital investment process is highly dependent on in-person meetings (which is next to impossible in the current environment), the online fundraising and investing process is inherently digitally native. Furthermore, there are a number of pending improvements to U.S. securities laws (the most significant changes since the JOBS Act was signed into law), which will turbocharge online fundraising for entrepreneurs and investors alike.”
Widespread
SeedInvest is not the only platform to see a recent boost in usage. Rival crowdfunding platform, StartEngine, has seen a similar uptick.
While this positive turn may be due, mainly, to venture capitalism drying up, due to the ongoing pandemic, there is no doubt that the SEC has also played a role.
While the SEC is often viewed as a regulatory body that simply punishes those breaking the rules, they also have a direct hand in crafting friendly environments for growth. Recognizing the potential harm of COVID, they recently relaxed regulations surrounding crowdfunding. The following are a few examples of this:
- Financial statement exemptions
- Broader eligibility
- Easier ‘early closing’
SEC to Give Crowdfunding a Boost through Relaxed Regulations
Boding well
While no official announcements have been made, it has long been suspected that SeedInvest owner, Circle, intends to sell the crowdfunding platform.
Reports of a possible sale surfaced after Circle began streamlining their operation in 2019. Their efforts saw the sale of popular exchange, Poloniex, as well as the departure of multiple ‘C-level’ employees.
With the recent growth seen at SeedInvest, Circle has every reason to be happy. Either they keep SeedInvest under their umbrella, and benefit from their successes, or they sell the platform, and benefit from an increased market value.
Circle Ponders SeedInvest Sale while Doubling Down on Stablecoin
SeedInvest
Founded in 2011, SeedInvest is a crowdfunding platform, which operates out of New York. Above all, SeedInvest acts as a bridging platform, connecting vetted investment opportunities with eligible investors.
CEO, Ryan Feit, currently oversees company operations.
In Others News
For those interested in learning more about what Crowdfunding is, and how it can transform the way we invest, make sure to peruse the following article.
Andrew is the Chief Executive Officer at Crowd for Angels an equity crowdfunding platform. He often attends and speaks at events on Crowdfunding, Alternative Finance and Investment. Previously, he worked at NinetyTen, a web application developer and provider of Private Social Networks, whose clients included Nokia, Channel 4 and Shop Direct
You were one of the original Co-Founders of Crowd for Angels. Can you discuss the inspiration behind launching this business?
I was indeed one of the Founding team at Crowd for Angels, but the inspiration for launching the company comes from our Director Tony de Nazareth, who combined his decades of financial knowledge with the ‘social media’ approach. This was to get the community involved when funding and supporting a business, thereby creating brand advocates that not only financially supported the aspirations of a company but also became a voice and customer of the company.
How much do you involve yourself in the pitch decks and packaging the deals that are found on Crowd for Angels?
I am involved in most companies that seek to list on Crowd for Angels. I take a genuine fascination in the lives of start-ups and companies looking to expand. Each has its own story and passion, which I am enthused by. Having raised funds for my own company and invested in many others, I hope to provide insight for the company.
What type of due diligence is performed on the companies that are listed?
A lot! Crowd for Angels breaks due diligence down into 3 key areas, firstly, we conduct factual checks such as KYC, AML, PEP, Credit Checks on the directors, reviewing accounts produced by the company and verifying facts stated on their pitch. Secondly, we conduct market checks, for instance, is the product available and as described, is there an addressable market, is the valuation reasonable, what legal challenges the company might face and is it ethical. The final check is one of sanity, which is not only tested by Crowd for Angels, but also by our Angels, who will ask the company their own questions.
What are some of the main reasons behind companies being turned down for listing on the platform?
There can be a number of reasons but a few we find most common are as follows:
- The valuation is simply too high in comparison to the companies position
- The company does not provide documentation (business plan, management accounts, incorporation documents)
- The product is too early-stage or not yet developed
- The directors have no ‘Skin in the Game’
What are the biggest benefits of equity crowdfunding?
I personally believe the biggest benefit is the ability to create brand advocates, people who support your business financially and become active customers, drawing in others to check out your brand, whether that is through word of mouth or social media.
Could you give us a success story of a company that raised funds on the Crowd for Angels platform?
One of my favourites is a company called CNPPS. A young entrepreneur, who was studying engineering at university at the time had created a permeable pavement solution that used recycled aggregate. Now that might not sound as fascinating as an app, but our world is covered in roads and pavements. His solution, used 100% recycled aggregate and was carbon negative, furthermore, it allowed water to pass through. Working with the entrepreneur we were able to raise £100,000 for a phase of testing that has now led on to a commercial contract and further funding for the company.
What made it interesting was the ethical approach the company had took to change an old industry, the tenacity the entrepreneur showed never giving up and that a business can truly be grown from the ground up, out of university none-the-less. So far in a 2 year period, the company’s valuation has increased 4 fold, delivering a solid return for the Angels involved.
Crowd for Angels is one of the few crowdfunding platforms that accept bitcoin. How many investors use bitcoin, and where do most of these investors originate from?
Yes, we have been accepting cryptocurrency as a form of payment for investment since early 2016. At that time, we integrated this payment option to allow foreign investors to invest in UK companies without the costs and time associated with international bank transfers. Initially, we saw a number of Australians, Chinese and mainly Asian investors utilise this form of payment. However, as bitcoin and other cryptocurrencies gained in popularity, we did see growth in European investors utilising cryptocurrency. Partly this is due to the gains they might have experienced and I believe the convenience cryptos offered. Now, we have over 14,000 members registered with a cryptocurrency wallet on our platform, with many of them in Europe.
A few years ago, the ANGEL token was released. What are the use cases for this token?
The ANGEL token was released to drive down the user acquisition cost of investors whilst rewarding stakeholders for interacting with our platform. It is hoped that when users interact and share content in the network, say an investment they had just made in a fledgeling company, that they would be rewarded with ANGEL. Crowd for Angels has then committed to buy back and burn ANGEL linked to the revenue generated from our pitches, thus creating a virtuous circle. We hope in the future, our Angels will also be able to use the ANGEL token as a method of payment towards an investment.
How do you see digital assets and digital securities eventually merging with crowdfunding?
Crowdfunding utilises technology to allow the masses to invest small amounts into pitches, but the shares are usually held with a nominee and should you wish to sell them or give them to someone else, it is difficult. Therefore, the integration of digitalised assets should be a no brainer, because it potentially gives the control of the asset back to the investor and follows a set of rules, that can’t be broken. In a utopian world, you would allow investors to purchase, hold and trade any assets that they wish. With the blockchain, you benefit from an immutable ledger that would record these transactions, giving you efficiency and transparency. I believe we are only a stones throw away from some big changes.
Is there anything else that you would like to share about Crowd for Angels?
We are always open to ideas, a conversation can go a long way.
Thank you for the interview. Readers who wish to learn more may visit our Crowd for Angels business listing or the Crowd for Angels website.
In an exciting development, equity crowdfunding platform, Republic, has just announced the acquisition of Fig.
Fig is also a crowdfunding platform, however, with a specific niche – gaming. Gaming has never been bigger, and represents a perfect avenue in which developers and investors, alike, can benefit from such methods of capital generation.
While Fig has, indeed, been acquired by Republic, the companies have noted that the status quo will remain for now. Each entity will continue to operate as they have been, with a merger between platforms being a gradual process, over time.
Equity Crowdfunding
What separates both, Fig and Republic, from the competition, is their approach to crowdfunding. Due to cost, complexity, compliance measures, and a myriad of other reasons, traditional crowdfunding platforms do not reward investors with equity/dividends from listed companies. Rather, they typically provide investors the promise of a product, or future access to a service.
What about those that believe in the potential of gaming, and associated financial windfalls, but are not gamers themselves? How can they contribute and still receive something in return? The answer is increasingly common – equity/dividends. Check out the following article to learn more about this form of crowdfunding, and the benefits associated with it.
Commentary
Upon announcing the acquisition, representatives from each, Republic and Fig, took the time to comment.
Justin Bailey, Founder of Fig, stated,
“Joining Republic means more investors, more ambitious games, greater exposure, and the opportunity for higher returns. I’m ecstatic Republic contacted me and excited about how this acquisition will further aid us in our mission to empower independent developers”
Chuck Pettid, CEO of Republic’s Funding Portal, stated,
“When I first talked to Justin I was blown away by his industry knowledge and connections to the best game developers in the world. It’s no wonder Fig has been so successful.”
Republic
Founded in 2016, Republic is an equity crowdfunding platform, which operates out of New York, New York. The company has noted that their overarching goal is to provide investors, of any ilk, access to quality opportunities – essentially ‘democratizing investing’.
CEO, Kendrick Nguyen, currently oversees company operations.
Fig
Founded in 2015, Fig is a crowdfunding platform operating out of San Francisco. The company maintains a unique and focused approach towards the development and funding of video games.
CEO, Justin Bailey, currently oversees company operations.
On the Rise
In a time when capital is notoriously hard to generate, equity crowdfunding has garnered the attention of many. This is no more obvious than another recent partnership, developed between StartEngine and Kevin O’Leary (aka Mr. Wonderful). While Kickstarter and Indiegogo may be the most notable names when discussing crowdfunding, StartEngine is a much closer rival to Republic. This is due to the focus of each platform on equity based offerings.
Mr. Wonderful Aligns Efforts with Equity Crowdfunding Platform ‘StartEngine’