Republics' Chuck Pettid on Crowdfunding Equity Investments

Chuck Pettid of Republic.co - Podcast Transcript

Scott:

Welcome to Founders and Friends Podcast with Scott Orn at Kruze Consulting. My very special guest today is Chuck Pettid from Republic. Welcome Chuck.

Chuck:

Thanks Scott. Thanks for having me on your podcast today. I look forward to it.

Scott:

My pleasure. I should say Republic is a client of Kruze Consulting, so we’ve seen the company grow over a couple years now. It’s super exciting, there’s tons of momentum, and I was talking to Chuck recently, and practically begged him to come on the podcast. He’s a very generous man, so he said yes, so it’s great to have you here.

Chuck:

I wouldn’t say it was beg. I wanted to be on your show, too. I like to get the word out there about Republic. Thank you again.

Scott:

Yeah. So, tell me how you got involved with Republic, and how you guys came up with the idea.

Chuck:

The story for me is, I knew Ken Nguyen, and Paul Menchov. Ken was a general council at AngelList, Paul was their CTO. They were formulating the plan to launch Republic. They were going to spin out of AngelList, and launch this Title III equity crowdfunding portal. I stayed in close contact with them during that time period. My focus, at the time, was to actually make an investment in the company, to be an investor. It took a lot of-

Scott:

I didn’t know that. So it was so convincing you voted with your work time too.

Chuck:

It was immediately. I begged for a long time, and it took a few nights up, and a lot of drinks to get Ken to say, “Okay.” so, I did that. It was very small, but I’m extremely grateful that I got a small investment. Came on, actually, as an advisor to build out the deal team. That was a couple months after launch. A little more color on launch, so we officially spun out of AngelList in May of 2016, the same time Title III Law went effective. That’s when we got our license from FINRA, and then officially launched the company in July of 2016. So, we’re barely a year and a half old, or not even. Just after that, late September of ‘16, I came on to build out the deal team, and I knew I was gonna love it. Everything worked out really well, so I stayed on. Right now I lead the deal team, I do a lot of other things for the company. We are an early stage start up. We’re a year and a half deep. A 10 person team, so everyone’s gotta throw their hands in, roll up their sleeves, and I’m totally into that. I’m loving that. It’s been a really good time.

Scott:

That’s actually one of my favorite parts of being a start up, too, is wearing all the different hats, doing things that you never thought you would have ever done, and learning that way, too. There’s also, everyone around the table knows everyone else is doing things that maybe, make them slightly uncomfortable, or not the greatest at, but everyone has that air of appreciation. It’s a really good vibe.

Chuck:

It’s a great vibe. I’m not sure if your listeners know, but Title III, like I sad, it started in May of 2016, that license allows us to raise capital from anyone in the world, 18 or older. Whether they’re accredited, or unaccredited. It’s for the masses to make investments in private companies. So, what we phased over the last year plus, is basically, bringing people up the learning curve. That includes founders, their investors, adventure capitals, and Angels. Even their team members, especially their attorneys. So, we’ve been on a bit of an education tour for the last year plus, and thrown a lot of mud at the wall, and we’re doing it the right way, and things are finally starting to stick. We have a significant amount of traction right now. Just to give you an idea, we’ve had 20 companies, actually I guess, now 21, as of yesterday the 22nd, and possibly the 23rd will go today, in the history of the company. But I have, between companies that are onboarding, and companies that are about to launch, close to 50.

Scott:

Oh my God, are you kidding me? That’s amazing. Well, you told me, a while back … Maybe explain what managing the deal team means. ‘Cause I used to work in Venture capital, I understand deal flow, but maybe talk about what that means for everybody else.

Chuck:

There’s a lot to it, but in short, I’m typically the first, and last person to talk to founders before we agree to move forward with them. We are a highly curated platform, it’s not an open the flood gate situation, where we let everyone, and anyone who wants to campaign, campaign. In the last year plus, unfortunately had to reject over a thousand plus companies, because they weren’t a fit, and they probably weren’t going to be viable investment opportunities for our investor base. That is one of the main things I do. On top of that, a lot of it’s client service. We’re a service industry, and we’re making sure that companies get through things with proper attention to regulatory matters, and compliance matters. We always make sure people put their best foot forward, after the regitorium, and compliance is done, because we want investors, and new Angel investors who are visiting that deal page, for the first time, to be able to easily consume, and make an informed decision. We want them to do due diligence, and we want them to become an investor, a client, or an evangelist. Also, one of the ways to do that, is to really it’s one of our main focuses too, is our product. That’s probably what you find our biggest strength. We try to make everything before, and after a campaign, as easy as possible for founders to process, and execute on, because the real bread, and butter, is the campaign. That’s where they get hundreds of thousands, sometimes millions of eyes, upon what they’re doing. If they don’t have their best foot forward, if someone hasn’t told them how to do it, based off of experience, they’ll lose a lot of opportunity, and we don’t want that to happen.

Scott:

Yeah. There’s so many good things of what you said. One of my favorite is, this is a way for people who are evangelists, or who really believe in the product, to participate in the growth of the company, the upside of the company, and just get further entrenched. I love that, it’s actually like what the internet is for. It just seems like Republic is such a natural … If someone was creating internet 30 years ago, or 40 years ago, this is something that probably, everyone was thinking of, even back then. How can we reach a lot of people who are interested in this specific thing, and help them get behind this idea, this moment, and participate? I’m sure you’ve read this, and you’ve probably been involved in some of this stuff. There’s things that have gone off on Kickstarter, or Indiegogo, that have raised a lot of money, and the people who participated there, they didn’t get any of the equity. Then, the next thing you know, Facebook’s buying Oculus for two billion dollars, and all the Kickstarter people are like, “Oh, great. I didn’t even really get a working device. Not so great for me.”

Chuck:

Yeah, precisely. Someone who would’ve purchased an Oculus Rift on Kickstarter, I think it was 450, or $500, had that have been an equity stake instead, it would have had a totally different outcome. I think in the several hundred thousand dollars of return on just that $500 purchase they made. We do incentivize, and we encourage our issuers to incentivize their investors by, not only, giving away stake in the company, but sometimes a product, as well. In the case of that, that company, they could’ve given away, say, an Oculus Rift plus an equity stake in the company. Obviously, they’d make the math work, and whatnot to be able to do the fulfillment, and stuff, but that definitely potential on our platform. People have actually benefited form that in a big way.

Scott:

Have you noticed certain kind of companies do better, or what have you seen? ‘Cause you’ve done 20 deals now, and obviously you got 50 in the pipeline, which by the way, congratulations. That’s incredible.

Chuck:

Thank you. Yeah, it’s insane.

Scott:

Incredible. Yeah.

Chuck:

I’ll touch on that number a little bit more, too.

Scott:

What do you see works?

Chuck:

What I see works, honestly, I’ve been an Angel investor, myself, for a long time, and one of the things I always really just would ultimately settle on, is the individual that I’m investing in. It wasn’t so much about the product, or whatever they were building. It would really come down to the individual. Can that individual execute, and from Republic’s standpoint, these things they need to do to be regulatorily compliant, and build their deal page, and actually run a campaign strategy. It makes them execute on a lot of things. So, the ones that work really well are the individuals who can … They’re just proving that they’re good at executing. When they run through our onboarding process, in a matter of 10, or 12 days, or they have a very systematic approach to it. People who can handle it smoothly, because they’re organized. There’s a bunch of different ways they can do it in a really good way. Those are the individuals that end up having the best campaigns. We set up each issuer with specific campaign strategies. A lot of it’s based off of our, basically, our hard work, and going out and finding the right partners who can help those companies get additional exposure during their campaign. It could be something like, we have multiple podcasts that want to have Republic’s issuers on. We have a WGN radio show that gives them a couple hundred thousand exposures. We’re a sister company of Product Hunt, so we’ll have these companies also do a placement on Product Hunt during their campaign. That gets them about 500,000 exposures. We have live events across the country, we have our newsletter that goes to 40,000 people. We have, even down to the details of this is probably you’d want to communicate to people who are in your direct network, like friends, and family. This is probably the way you’d want to communicate to the people on the fringes, like in LinkedIn, or Facebook. This a great opportunity for them to cast an extremely wide net, and we want to make sure that they do it, and they’re also doing it right. As of saying all these things, you’re probably, “That’s a lot of work.” But that’s where people who can execute come into play, and if they can execute on these things, they’re doing great.

Scott:

I totally agree. We see that with Kruze Consulting, where when we onboard clients, it’s exactly what you’re talking about. We see people who get shit done, for lack of a better word, and can onboard in a week, or two, and we see people who dilly dally around for two months. It’s very clear. For you guys, I didn’t know that you guys were getting so much media exposure through so many different outlets. That is really, really smart. Have you found media being super receptive to your story, and the story of your clients?

Chuck:

Yeah, we definitely have. At least once during an issuers campaign, they’ll be picked up by some sort of media outlet that’s interested, and curious about what they’re doing, and how it’s actually impacting that individual’s community. One thing that we actually have coming up in the next two, three weeks, is a television program with Sony Entertainment. It’s called Meet the Drapers. I’m sure a lot of your listeners know who the Drapers are, it’s one of the most prominent Venture capital families out of California. You have Bill, who is one of the first BC’s ever in the world, we have his son Tim, who everyone knows, and then Tim’s daughter Jesse. Individuals that we’ve helped identify, founders, and start up companies are going on to the program to pitch their company to the Drapers, plus one guest investor. Then, those individual companies are also running a Republic campaign. So, when the show comes on the air, November 19th, on Sony Entertainment Television, which is available through Comcast, and Dish Network. Those viewers at home will, not only, be able to sit there, and potentially be a client, but they’ll also potentially be an investor. They’ll come to Republic, and they’ll be able to make a direct investment in those companies that are pitching the Drapers. So, that will be probably our biggest media splash to date. Before that, and I think you know a lot about it, too, from day one, our mission was always about diverse founders, tech enabled companies, and companies with social missions. We stuck to that. We’re not just talking the talk, we’re actually walking the walk. Roughly 80% of the funds raised, to date, have gone to female founded companies. I don’t know the exact number, but certainly, north of 50% have gone to minority founded companies. The current pipeline indicates that those won’t change much, at all, if anything. We’re continuing down that path of making just wise, and impactful, and we’re doing the right thing, which is great. Part of the reason why I

love beingScott:

Feels so good.

Chuck:

‘Cause a lot of people are talking the talk, but they’re not waling the walk, and we’re actually do that. I get pretty excited about that, and I think it’s gonna be reflected through that television program, it’s gonna be reflected through 2018 for us. We have new products, and new initiatives, and new partnerships coming out. They all reflect those values, and it’s doing a really good job, for the ecosystem.

Scott:

I find, especially Venture capital, or where you’re working with start ups like us, or you guys, doing the right thing, and being an upstanding person in company, like pays 1,000 X dividends. The word of mouth, and you start getting critical mass, and people are just more likely to talk about you, and tell their friends. You guys are already kind of, past that real small stage. You guys are getting pretty big, and people know about you, and you’re getting all these media outlets. That’s what’s gonna take you from these next 50, to the next 500. It’s gonna make … Go ahead.

Chuck:

We’re 10 strong right now, employee headcount, but it feels like 100. We have a really strong team, and we have two attorneys, we have multiple engineers, multiple designers, multiple business side people. Then everyone has a little bit more to their repertoire than just that, too. So, it ends up … We’re really busting it here, and it’s great to see that, too. The team’s in cruise control, for lack of a better explanation for it, but-

Scott:

You’re not obligated to say

Chuck:

I did decide to use that. No, seriously. It’s been awesome to see, and there’s been a lot of things going on. A television show is no easy task to complete. That’s 13 filmed episodes, a lot of hours, a lot of talking with Sony, a lot of talking with the producers, and the Drapers. At the same time we have 10 other things going on. We have a new product coming out in November, multiple products that are ICO related coming out November. Just stay tuned for those. I think it’s gonna have a pretty big splash in the world of ICOs.

Scott:

Can you talk about when ICOs, just quickly, I know you don’t want to step on yourself, for two weeks from now, but maybe just explain what an ICO is, and why it’s important.

Chuck:

So, today an ICO is an initial coin offering. They’re really just available to accredited investors only. Most of the time, even to, non US based investors. It’s a highly hot, and controversial market. People are unsure if it is regulated, or if it’s not regulated. There’s a massive legal component to it. We are trying to break those down to get back to what those coins, and tokens are really all about, which is leveling the playing field and making a democratized system. Right now, the way it’s being treated, it is not. We hope to, in about two weeks, make that different.

Scott:

That’s beautiful. To give people some context, before Republic, and before AngelList, basically, the only way for start up people to raise money was to go parade down Sand Hill Road, or maybe some of the New York funds, or Boston funds, and get predominantly old white males to like your company, and write a very large check. I worked a fund like that, and by the way, I should point out, we had two female partners, and were one of the most diverse partnerships around, but even we had a lot of the same kind of people. People who didn’t always recognize the most innovative thing, because they were hanging out with the same kind of people. So, AngelList was one of the first icebreakers on that, and democratized a lot of online funding for start ups, and then Republic has taken that pattern, and play book, and probably some of the same technology, and made it even bigger, and did it for all the groups that you guys are targeting, that you mentioned earlier.

Chuck:

Right. I mean, the simple fact, that they focus on the accredited world, and we focus on the nonaccredited world. Our market is quite large, it’s literally 98% of the world population, essentially. Which our reach, is potential, but of course, it won’t ever be that big, but still. We also have a chance to cast an extremely wide net. It’s not just the issuers, and that’s something that we work on a lot of too.

Scott:

You guys are doing amazing work. There’s one thing I wanna circle back on, that you talked about, really quickly when you first introduced, was how you’re kind of, evaluating a lot of these companies before they get on the platform. I think that’s really important to talk about, in that, this is not like throwing spaghetti against a wall, and buyer beware. It’s actually the exact opposite. There’s real, professional investors who know what they’re doing, who are scanning … You guys are gonna be wrong once in a while, there’s probably gonna be times where you don’t let a good company on, unfortunately. Not all your companies are going to work out, because that’s not how life works, but you are the first line of defense for me, as a potential investor. I can’t stress how important that is, enough. There’s other people who would just rather take your money, and let you throw money away on bad companies, and Republic doesn’t let you do that.

Chuck:

Exactly. Two things, and first is, I wanna kind of toss aside a myth that’s out there is that unaccredited investors aren’t capable, or sophisticated enough to make decisions in investing in private companies. That’s totally not true. Learned that very quickly here at Republic, by interactions with those investors that do the same due diligence as professional Venture capital, and Angel investor. They ask the same questions, they take their time, and the money they’re investing seriously. Whether it’s $25 or 25,000 or something in between. They really do have a lot in it, and it’s not just because it’s doesn’t matter if you’re rich or poor.

Scott:

It’s also, like the Peter Lynch school of investing. Peter Lynch was a very famous mutual fund manager in the ’80s, and ’90s. He basically said, “Invest in what you know, and what you use every day.” The guy killed it, like killed it as one of the top five fund managers of all time. I have to laugh when people … I think the accredited investor thing is … I think in some ways it’s helpful, but for the most part, I think it actually, really limits people’s investment opportunities. This is a great example of … There’s sites, or services that people are using in their every day life that they wouldn’t want to invest in, and support. I think you guys are gonna be the ones that break through that and let the general public invest in lots of different companies. Plus, you guys allow them to get their diversification, which is actually the other big thing in investing, and if you’re putting all your money in one Republic, or any other kind of investment, even just investing in the stock market, in one company, that’s usually dangerous. With the dollar sizes that you guys, at Republic, let people invest with, they can get a lot of diversification, and that actually mitigates quite a bit of risk.

Chuck:

For sure. Let me put get color, too, on the due diligence stuff, all right? Definitely wanna address that question. It does start with me, but it kind of starts with our network first, as well. So, we have a pretty vast network, and a strong one in the ecosystem, who is a primary source for companies that are referred to us. We’ll have that conversation, start our internal due diligence process, right then. Whether that be like market analysis, competitive analysis. Floating it across someone else’s desk that we know well, who’s active in that industry, and come to some sort sort of comfort level, or conclusion at our weekly deal team meetings. Basically, our investor committee meetings. After that decision’s been made, if it’s a, “Yes, this is something that we should start to pursue.” We have an external due diligence process. We’ve partnered with, and hired, a company that does external due diligence for us. They actually then have a phone call with the founder, or the founding team, and they do some serious digging, and they come back to us with a full fledged report, that we again, use at our deal team meeting, once a week, and we’ll review that and decide if this is something that we, again, want to pursue. We have multiple layers, whether it be our network, our internal review, or our external review. The last thing is that, if a company is moving forward, they are starting to onboard, onboarding is due diligence, also. They have a regulatory filing that looks like a government styled business plan. There’s a lot of information that they have to disclose. We do a lot of spot checks, and additional checks, if things comes that weren’t previously disclosed, or known. In addition to that, they have a financial review that’s being done, more times than not, by a licensed CPA, for the smaller raises, if they’re only gonna raise a certain threshold, less than 107,000, the can self certify. We still do cross check those. The ones above 107,000 have to go to an independent licensed CPA. I consider that to be continued due diligence. Same thing when they’re making their deal page, the one that you see on Republic, for any current or past issuer. Again, providing more information, and those are things that we do spot checks, and cross checks on et cetera. So, due diligence really carries through until the very last day, when the campaign goes live. Then, just like any other fair team, or fair investment platform, if something comes up during the actual campaign that’s going to be extracted, called out. It’s going to be remedied, or disclosed the proper way. We’re very serious about diligence, we’re very serious about being compliant, and following the regulator’s laws.

Scott:

It’s unbelievable I didn’t know you hired an independent third party to do those diligence calls. That’s fantastic.

Chuck:

It’s the best for us to scale honestly. That’s the only thing they do. They do due diligence on private companies.

Scott:

All the private equity firms do that. That is a best practice in the private equity world. That is very smart that you guys instituted that. That’s amazing.

Chuck:

I think, there’s no stone unturned, for sure. One thing I always tell investors as well as, “Read the deal page. Read their regulatory filing.” It’s really no stoned unturned. Everything’s out there, and it’s all been properly disclosed, and disclaimed, and written about. It’s just a matter of how much do you wanna read. Like I said before, the nonaccredited world is actually reading, and they’re doing due diligence.

Scott:

I totally agree. Let me ask you a fun question. Is there one company you guys have done, that really spoke to you personally? I think that light phone is pretty awesome, but, which ones have really touched you, at a personal level?

Chuck:

I have my compliance hat on, and my “If FINRA happened to listen to this.” hat. To be honest, it’s like life also, there’s a lot of ups and downs with these teams, as we go through the process, and we go through the campaign, but ultimately, at the end of the day, this is a long term partnership. We continue, and I continue to have conversations about non equity happening things. Even to this day, for campaigns that closed a year ago, we’re serious about a community, and that long term partnership, and there’ll be more things to do with that once we get a larger crowd of say 50, or 75, or 100 plus companies that have campaigned with Republic. That’s on the horizon, too. That could be another future product angle for us as well, because we do stay in touch with these individuals, and they do stay in touch with us, because there’s always something that goes on in start up life that people want others to be involved in, too.

Scott:

For sure. Another digression question, but you probably don’t know this about me, but I started an internet non profit, 10 years ago, called Ben’s Friends, and we do patient support communities for people with rare diseases.

Chuck:

Yeah I’ve seen it.

Scott:

Yeah, okay. So, we’ve always done Indiegogo stuff. Have you investigated the non profit world, and how … I’ve heard of these innovative structures where people can do almost like a debt thing, and repay the money back, is that anywhere on your guys’ radar?

Chuck:

It’s not. It’s technology compliant, it’s allowed by regulators. We’ve done a lot of research, and discussions with our investor base, and we feel like bringing on a no profit, not for profit company, would be a little confusing.

Scott:

Yeah I can see that. I was just hoping. Hoping against hope. Well Chuck, this has been amazing. Maybe you could kind of tell everyone where they can find Republic, how to reach out to you. Both as an investor, but also if they have an interesting company. How do they refer that company over?

Chuck:

Definitely. So, we’re at republic.co, republic.C-O. If you would like to look, or if you’d like to become an Angel investor. You wanna learn more about potential investments, they’re all right there on our homepage. The currently campaigning issuers. You can also learn about the past campaigns by just going down a little further on the page. We’ll be on Sony’s Meet The Drapers, starting November 19th. It’s on the handle SET Sony Entertainment Television, which is also on Comcast, and Dish Network, the North American based program. For those who wanna apply, or refer, you can also do that on republic.co, there’s also republic.co/startups/intro. Right there, that page, that one page, /startup/intro, is gonna have everything under the sun that you’d wanna know about what it takes to run a campaign, what it’s going to be to run a campaign, et cetera, and you can apply on that page as well.

Scott:

Awesome. Chuck, amazing to have you on the podcast. I’m a huge believer in what you guys do. Congratulations on the success to date, but I know it’s just a start, and I can’t wait to see those next 50 come out, that’s gonna be so exciting.

Chuck:

It’s gonna be exciting and busy. Thank you Scott.

Scott:

By then, you’re gonna be like some gray hair, and talking about the next hundred. You’re always one step ahead, which is awesome.

Chuck:

Awesome, man. I appreciate having me on today, it’s awesome.

Scott:

Yes, thank you Chuck. Really appreciate it. All right, Chuck Pettid from Republic, thank you Chuck. You can find Chuck, and the rest of the team at Republic, at republic.co. It is an awesome company, and please check it out, and please tell your friends. Talk to you guys soon. Bye.

Chuck Pettid of Republic on Crowdfunding Equity Investments into Startups

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