April 18, 2023 • 38 mins
Do you think you’re going to get financing from a bank? Good luck with that! Instead in today’s world, crowdfunding has increasingly become the money raising vehicle of choice for many companies. In this podcast, Mike Brette – the CEO of Small Cap Equity Advisors – explains all the reasons why crowdfunding is a better bet over traditional bank financing if you really want to raise money successfully – especially if you’re just starting out or have a pre-revenue deal.
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(00:22):
Welcome USA podcast where we put youon the map. This is Ron Costa
Broadcasting lives from the Mappable USA Studiosin Las Vegas, Nevada. Folks,
is your banks hilarious? They getpicked pretty quickly as you see what's happening.
We're always collapses. We're talking aboutthat today and how it relates to
crowdfunding. And before we get doingthat, let's introduce Vicky Hmala from the
(00:45):
worldpook At Market. Vicky, howare you today? Fabulous? Run like
always, I'm fabulous today And finallythe weather has become why we live in
Vegas seventies and eighties and beautiful andwe have a different take on our podcast
(01:06):
today we have a regular guest,but we're going to talk about cloud funding
from a different point of view.So let's get started right, All right,
sounds good. Let's introduce Mike Breath. He's from the Small Cap Equity
Advisors. You've seen them on theshow many times. Mike, how are
you doing today? Doing well?Thanks for thanks for the spot today,
(01:30):
absolutely, thank you, my pleasureto have you on the show. Yeah,
no, no, no question.And I know you've been really busy
over the last couple of months andlive it in San Diego. You'll always
have the life there. It's great, right, yeah, can't complain.
And and and my messu playing thepadres today as we speak, So if
(01:52):
you're a baseball fan, that's athat's a good thing for me. I
will be in front of the TVlater on watching it for sure, so
that's always fun. But anyway,we're gonna talk about crowdfunding again today,
Mike. And before we do again, I'm sure people know who you are,
but if they don't, real quickly, how about a little elevative speech
on who you are in small captell us all about that too. Yeah,
(02:13):
yeah, yeah, I have.I'm the president CEO of Small Cap
Equity Advisors. We've been in businessover thirty years, advising consulting with companies
on how to raise capital legally,how to comply with state and federal security
laws, how to do crowdfunding.What's the difference between reggae, the reg
(02:36):
D and reg CF crowdfunding? Andso we help companies kind of maneuver through
that muddy murky water of raising capital, you know, to keep my jail
so they comply with seating federal securitylaws. You know, so many people
think, you know, the securitylaws don't apply to them, and we
try to tell them, yeah,if you're selling securities stock to investors,
(03:02):
you got to comply with satan federalsecurity laws or otherwise you're gonna have a
problem. So we help companies dothat, and we also take companies public.
We like the reggae vehicle because youknow, once you file and get
it qualified with the SEC, ifyou decide you want to go public later
on, you could use that filingto go public. So our position here
(03:25):
at small Kapeic or what the advisorsis to help companies, educate them,
help them make a decision with directionto go, and then we work with
them to make it a reality.Okay, excellent man, And and and
you know, and then let's justreally just dive right into it. You
(03:46):
know, what's going on with thebanks today. You know, you have
the whole Filick and Valley Bank thingand the collapse and and all these news
about banks going under and I mean, what's what's what's happening here? Why
is this happening? And musters,Yeah, a good point. I mean
it's usually the small regional type banks, you know, like Silicon Valley Bank
(04:09):
and Republic. And you know someof those banks that have had the problems,
the big banks like you know,Wells, Farville, City, Chase,
UH, you know, be A. You know, they're they're fine,
they don't have any problems. It'sthe smaller ones that have, you
know, just really bad management inplace. You know, I don't want
to take up the show with SiliconValley Bank, but you know everybody's heard,
(04:30):
you know, the horror story therewhere they were long on bonds and
doing short term loans to businesses andworking with VC firms up in the Silicon
Valley area, and you know,the long bonds that they were invested in,
UH and making short term loans justcaught up with them and they had
a cash crunch. And then whenthe word got out they were having problems,
(04:54):
people just started making a run onthe bank and pulling their money out.
And I mean billions of dollars anddepart as you know, came out
of the bank. So what thatmeans for small businesses now, and what
it's always meant is traditional bank financingis not a way to go for somebody
who wants to either start a businessor do some additional follow on financing.
(05:16):
For an existing business. Banks donot, despite what banks advertise and promote,
banks do not make business loans.They make real estate loans, secured
loans. You know, if youwant to, if you want to use
the money, if you want toborrow a million dollars in the bank to
put into your business, the bankdoesn't care. They'll tell you they care.
(05:38):
But as long as you put uptwo million dollars in collateral for a
million dollars loan, you can usethe money. And if you lose the
money in a business, they'll takeyour house and all the real estate you
flashes collateral. That's really what bankfinancing is, and one reason the crowdfunding
was passed about twelve years ago nowwas to help small business access capital markets
(06:00):
without having to go through the traditionalroute of credit checks, collateral, loan
committees, delays and delays where it'sout of your control. Crowdfunding is you
know reggae, It's it's a regD and it's also REGCF crowdfunding that allows
(06:21):
businesses, whether again whether you're astartup or a late stage business, it
allows you to structure and offering,reach out to investors on your terms and
conditions, and raise money by sellingequity in your business. Now, the
benefit when you're selling equity is there'sno interest payments, there's no collateral,
(06:44):
there's no loan committees, there's nocredit checks. Uh. You know,
as long as you have a propervaluation in a solid business, you can
attract investors to it and raise yourmoney. You know. So that's kind
of a theme for this show isyou know, stay away from bank financing
and take crowdfunding uh in your controland raise money that way. Yeah,
(07:10):
that's a lot of times the bankswhen you when you go to the bank,
everything is all you know, rosycolored and they make you submit the
application and you leave there thinking okay, well maybe this is a good route
and you find out that it neverreally happens, or they want, like
you said, they want so muchcollateral. If they have the collateral to
put up with, you would needthe roan to begin with. But there's
also a factor where you know,you've left out the whole venture capital world
(07:38):
where these people want a high percentageof your company. So that leaves really
crowdfunding through reggae and like the otheravenues that you mentioned over there. Uh,
it really is. It's sad tosee some of these people who are
going to the banks at this pointand they're just not getting their loans done,
and you know they wonder why.So after you mentioned, yeah,
(08:03):
you mentioned vcs, I mean,that's just, uh, that's a myth.
You know, only less than onepercent of companies out there actually get
VC financing. You know, theythese VC companies are in the news quite
a bit, and you know,companies are always saying, oh, I
got VC funding, and you knowit's really it doesn't happen. I mean,
(08:24):
I've been in this business over thirtyyears and vcs. Look, they
get about two thousand deals sent tothem a year. They look at ten
and they fund two. And thetwo that they fund are always from people
that they've worked with in the past. It's a closed club circle. You
know, they work with attorneys andadvisors that have referred deals in the past.
(08:50):
You know, if you're on theoutside looking in, you don't stand
a chance. That's why, youknow, the statistics are less than one
percent of companies actually get a checkfrom VC. Ninety nine percent don't even
get a phone call or a meeting. So I always tell people, you
know, forget forget VC financing,forget bank financing. I even have clients
(09:11):
that have long standing twenty year relationshipswith their bank and they can't get financing
for their business from their bank.They're just not they've tightened up all the
credit requirements, and so you know, again there's no guarantee when you're trying
to raise money. Again, I'ma care for its banks or whatever,
(09:33):
or crowd funding. It's a lotof work, it's it's time consuming,
it's an expensive process with legal feesand audit fees and platform fees and marketing.
But you know, if one thingis for certain, if you don't
try, you're never going to succeed. So you've got to get out there
and get your deal out in frontof investors. And and that's that's the
(09:58):
point you know, we running Ido these podcasts, as you know,
Mike, because we want to provideinformation and education to our listeners to help
them with what they're doing. Andyou know, you don't really need to
know very much to understand that abank will lend you all the money you
want as long as you can collateralizeit twice as much, so they're not
(10:22):
going to lose anything. Even ifyou do an SBA loan it's because it's
guaranteed and the bank is happy todo it. But the requirements in the
criteria and the process you have togo through is just excruciating and it makes
crowdfunding more appealing. But people don'tknow how to do it. They're not
(10:43):
aware of it. They don't knowanything if we try to educate them.
But why aren't people learning this,Mike? Why are are they being taken
by by the bad guys who arejust using and abusing them. Well,
the problems is that the majority ofpeople out there trying to raise money,
the majority of companies don't understand theprocess of raising money. They you know,
(11:09):
they look on they go on socialmedia and they look at a funding
platform. I'm not going to mentionnames, but you know there's about fifty
of them out there. There's aboutten that are any good. But almost
platforms say the same thing, signup with us, put your crowdfunding offering
(11:30):
on our platform. We have theforty or fifty thousand investors. That's a
big lie. These platforms do nothave investors. What they have are people
who signed up on their website toaccess deals and look at stuff. Well,
they're not looking at your deal they'relooking at one hundred other deals and
(11:52):
you know, it comes down toan educational thing. And I have to
feel these questions daily from people,Well, I want to go on this
platform, they guarantee me. Isaid, look, there are no guarantees.
And there was there was a poston LinkedIn last week by a platform
and which I was surprised to seethis person put that information out there.
(12:15):
You hit big bold letters it saidyou know we're and they were one of
the premier platforms out there for reggae. But he came out and said,
we do not raise money. Weare a platform, but we don't raise
money. We're a platform that youcan upload your offering to and we process
payments. It's up to you toget out and markets are offering and raise
(12:37):
money. Now, that was refreshing. I've been saying that for three years.
Oh yeah. To hear that fromhear that from a platform, you
know, it was refreshing. Ohabsolutely. And not only is it refreshing,
but it's it's like, Okay,somebody taking the high road doing it
right. That that alone is freshingbecause there's so many people trying to,
(13:03):
you know, for every good thingthat happens there's always some shyster under you
know, in the bushes, tryingto take advantage of it and of the
people using it. But you know, Mikey said, you said, the
most important thing I could have anidea that's better than sly spread ever was.
But nobody's going to know it ifI don't tell them and if I
(13:28):
don't market it. So when it'stime to launch, people already know about
me and they're ready to invest.If you start marketing at that point,
you're you know, kind of outof luck. Yeah, And that's a
good point. And that's the otherthing that people don't understand about crowdfunding or
racing capital. You have to startinvestor awareness marketing well before you have your
(13:56):
offering done. Now, in somecases, like in reggae, can do
it. It's called test the watermarketing. You could pre market before you're
offering is qualified by the SEC.You just can't take a check, but
you can lay the ground work bytalking about your company, your products,
that you have a reggae coming outand do what's and get indications of interest
(14:18):
from investors, and then when you'reoffering is qualified, you can go back
to that same list of people andsay okay, we're ready to go,
you know, write as a check. But that's a big myth and the
fallacy that a lot of people theythink, well, I don't have to
do any marketing. I don't.But to your point, Vickie, investors,
(14:39):
if they don't know you're offering oryour product exists, how are they
going to contact you and write acheck? You know, it's you know,
but people don't want to People don'twant to hear that because they've been
conditioned through years and years of fallaciesthat money raising money raising capital is free,
it doesn't cost anything. They don'thave to comply with state and federal
(15:03):
security laws, a blue sky laws. So you know, you have to
overcome and I have to do likeI said, I have to do this
on a daily basis. You know, I might get five people a day
contact with me, you know,but there's none, none of them that
are qualified. They don't understand theprocess, and they're broke. And you
know, when you tell them theygot to comply with state and federal security
(15:24):
laws, they've got to have aregistration or an exemption from registration, like
route funding, it's like you're speakinga foreign language to them. You know,
so it's they just don't understand theprocess. Now, and that's that's
a lot. You know, nomatter what you do, if you don't
understand what you're doing. And ifyou're the owner of a company, potential
(15:48):
or existing, you are the onewho supposedly is the best person to sell
that company or that idea or thatproduct, whatever it is. If you
can't do it, it doesn't matterwho you hire to do whatever it is.
If you can't sell your company oryour idea, then you know,
(16:11):
and you're the owner. Well,you know, that just adds another thing
to make it more difficult to besuccessful, because you've got to be able
to talk to yourself. Yeah.One of the other things with crowdfunding again,
whether it's reggae or reggy, youknow, you see on social media
sites or in articles or whatever,that Hey, we've got a list of
(16:34):
investors we can sell to you,a list of it. Yeah, right,
you're going to buy that list alongwith a thousand other people, and
the thousand of you are going tobe spamming these so called investors on the
list, And it doesn't work thatway. In other words, if you
know, I've got investors that investedin oil and gas project over the years.
(16:56):
But that doesn't mean they're going toinvest in a cannabis deal. Just
because they invested in something doesn't meanto go to invest in everything. You've
got. What I say, whatI tell people, You've got to tell
them. Look, you've got tofind your own investors specific to your deal.
There's nobody out there waiting with acheckbook to write you a check for
(17:18):
your specific deal. Regardless of whatthese platforms tell you to get you to
sign up. They don't have specificinvestors for your fintech deal, your cannabis
deal, your solar deal. You'vegot to get the word out there and
let people know who you are,what you're doing, and what you're trying
to accomplish. And that all requiresmarketing, advertising, promotion. Again,
(17:41):
that's the reason crowdfunding was passed abouttwelve years ago was to allow companies to
advertise and promote. Prior to that, you couldn't advertise and promote. You
had to rely on pre existing businessrelationships in order to put your deal out
in front of people that already knewyou. And that's why small companies couldn't
(18:03):
raise money and bank financing. It'snot the answer either again despite what they
tell you. So it's a wholeeducational process. People don't want to take
the time because they're desperate, right, Yeah, that's right. And that's
a lot of people see these likeovernight sensation stories about somebody who didn't have
(18:27):
anything and with five hundred dollars inhis garage he created a billion dollar company,
and they think, oh, yeah, that'll happen to me. I
know I can do that, andI'm going to have a billion dollar company.
But no, you're not. Andnot only that, but every small
company, every startup company that's tryingto get funding is competing with every other
(18:52):
company doing the same exact thing,especially on the platforms where you go and
here's the four thousand investors you've beenwaiting for, but they're they're looking at
a hundred deals and if you don'tstand out, then you get overlooked.
It's like, yeah, that's crazy. But but let's get back to our
(19:14):
original original concept of is there away that if you're doing kind of a
crowdfunding launcher platform, is there away that you can also have a relationship
with a bank for to help youalong the process, Or it's one or
the other or what do you think, Well, yeah, that's a good
(19:38):
point. It really depends on whatkind of a banking relationship you have and
what you expect that bank to do. Again, most companies don't have the
collateral and the credit, especially comingout of the pandemic. Small business just
you know, the owners just don'thave the credit in collateral to get anything
(20:00):
done with their bank, so it'salmost like a waste. My advice would
be, look, do the crowdfundingright and raise a half a million to
a million dollars true crowdfunding, andyou know, show your bank that your
business has it's viable because you raiseda million dollars from investors and crowdfunding.
(20:23):
And then you go back to thebank and say, you know, look
my business is solid, I've hadrevenue coming in, now, I have
sales, I have a proven concept, and see if them, you know,
make the loan to you. Butif they don't, then you go
back to crowdfunding. But I,you know, I would not start with
a bank. It's like I said, I have clients that I have twenty
(20:44):
year relationships with their bank can't getbank financing. So really it's like you
said, VICKI, it's one orthe other I would tell people, Look,
don't waste time with the banks.You have to post collateral, You
got to make interest payments, youhave to have credit checks. With crowdfunding,
you don't have any of that.You don't have credit checks, you
(21:06):
don't have interest payments to make,unless you're offering debt financing to investors,
which I tell people, don't dothat. And you know you don't have
to post collateral. You're selling equity, and if you do it right,
you don't cause so much delution toyourself because there's ways of structuring deals where
you don't give up control. Yeah, that's true. That's that's one of
(21:33):
the things I think is a goodpoint as well. You know, when
you go to these banks and likeyou said, they're looking at so many
deals sometimes and it's not probably notin your best interests to take a loan
out of them with all the interestrates and all that other stuff you have
to deal with. But when youget to the point where you have a
slam like a real winner, andyou're making money, like you said,
(21:56):
you have revenue, you have this, you know you don't really need the
bank at that point to give youa long you're doing your offering, You're
you're proving to your investors that you'reviable. It's almost like, okay,
well, I'll use this bank justfor a checking account for example. I
don't need I don't need them toload need money, but I'll use them
for everyday business services that kind ofthing. Yeah, yeah, exactly.
And if you treat your investors right, you can always go back to them
(22:18):
a second, third, fourth,fifth time to raise additional capital. Again,
once you reach certain milestones in yourbusiness, so you know, the
bank avenue becomes you know, uselessat that point, you can just use
them, like you said, aroundthe checking account or savings account or something
like that. But again, that'swhy crowdfunding was passed twelve years ago to
(22:40):
give companies the alternative and the abilityto raise money on their terms without giving
up control. Night Round. Youmentioned vcs at the top of the hour
here, and that's one of thepoints with VC financing. You know,
if you're successful in getting something fromthem, they're going to want more seats
control. You're basically working for them, and then they can they can fire
(23:04):
the CEO and founder anytime they want, uh, And that's giving up control,
giving up your business you don't needto do that with crowdfunding Reggae,
reg D, reg CF, they'reout there to benefit small businesses. Uh,
people just need to take advantage ofit or yeah, yeah, like
(23:33):
that's going to happen to most ofthem, you know, Yeah, I
mean, you know, all theseall these years, I've never watched the
whole episode of Shark Tank. Ijust get so frustrated hearing all those guys,
you know, they're so called investors, and and I just I don't
know, It's just not the waythe real world works. But I guess
it's entertainment, and that's all itis. Entertainment. Yeah, I wonder
(24:00):
how many of those deals in SharkTank actually closed or or move forward.
You know, they always tell youabout the winners here and there, but
now there's there's what four pitches pershow times X amount of shows times so
many seasons. How many of thosedeals really look out? But anyway,
um, it's almost same day theVC room. I don't I don't particularly
(24:21):
care for it too much. I'mI'm in your camp as far as the
regulation ages. And another thing aboutRegga two is you know you talked about
marketing before, and you know there'sa lot of people out there who talk
about how easy this is. It'slike, okay, well, just you
know, use your social media,you'll get you'll get investors. Post to
(24:41):
Facebook, post Instagram, you getten thousand followers, and then do this
and do that. Yeah, that'sthat's that's hard to do. It's hard
to get that thing going, andit's hard to target people who actually have
movie that want to invest in yourfeel it's not easy. Well, I
mean, there there's plenty of investmentcapital out there, even even with things
(25:02):
that are going on the economy,on the stock market now. Investors have
plenty of money. They just arepicky who they're going to put that money
with. And I tell people,look, if you're a pre revenue startup
just an idea, you're not goingto get financing in today's market from investors.
It's just not going to happen.I mean, you might get five
(25:22):
thousand dollars from an angel investor,but that's not enough to jump start your
company. Investors have choices. Youhave to convince the investor that you're worth
a risk for them to give youone hundred thousand dollars or more. How
are they going to get their moneyback. What are they going to get
it back? You know, what'syour success rate? You know, it
(25:44):
all comes down to the strength ofthe management, the people involved with the
company. Can you execute the businessand does the investor believe that you can
execute the business and give them areturn on their investment. And also I
tell people, look, you needto have investors contacting you. You need
to put enough news out there andenough information. Get on television, get
(26:08):
on Fox, get you know,put up You have to generate enough pr
to where people listen to that gohey, I think I'm going to call
John Smith and find out more aboutit, and they call you and want
to get a dialogue going. Andthat's how you find investors for your deal.
It's not just setting back and relyingon social media and you know,
(26:33):
putting it up on a platform.I hear so many times from people saying,
well, we tried crowdfunding, itdoesn't work. And I say,
what was your marketing budget? Oh, we didn't have a marketing budget.
We were told if we put itup on X y Z platform, we
could sit back and watch the moneyroll in. It doesn't work that way.
Sixty percent of the companies failed sixtypercent of the companies failed to raise
(26:56):
money because they don't have a marketingbudget and they and that's one reason.
The other one is the valuation istoo high, but they just don't have
a way of reaching out to investors. They're all setting back thinking the money
is going to roll in. AndI tell people, look, if that
was the case, everybody would besuccessful at raising money, and they're not.
(27:17):
A lot of people just don't raiseanything. Yeah, if you're a
pre revenue company and you go toa bank for a loan, what's the
odds of you getting that loan?Zero percent? Yeah, zero, yeah,
yeah, you know, I meanunless unless than zero, you know,
I mean, they're just gonna laugh. You know, they'll they'll humor
(27:37):
you, especially here in existing customerof theirs, they'll humor you. But
you know, they'll give you anapplication and you know, tell you to
go home fill it out, andyeah, they're not going to give you
the time to day. It justdoesn't work that way. Not in the
real world. Yeah, and youknow, sometimes that's okay, go ahead,
(28:00):
Ryan. In the real world,a lot of times people will look
at a deal and you mentioned thevaluation again, that's really one of the
big stickling points for a lot ofpeople, because even if you're accredited,
and if even if you're sophisticated,it's somehow hard to determine whether or not
that valuation is too high, right, And yeah, what do you do
(28:22):
in that situation? I mean,how do you how do you build?
Yeah, that that's a good point, you know, I mean with startups.
You know, you really can't valuewith startup, especially you don't have
sales and revenue. That's almost likeyou know, throwing darts against the wall
or something. But if somebody doeshave a valuation, you know, you
got to look at how that valuationwas arrived at. Did they have a
(28:45):
third party valuation firm? Do it? And so they have a concrete report
is to support that valuation or theyjust pulling numbers out of the air.
I had somebody called me the otherday saying, trying to raise a million
dollars and we're giving up ten percentof the company. And I said,
so you're telling me your company's worthten million dollars because that's what the post
(29:08):
money valuation would be. That that'show your company would be valuable. I
give you a million dollars and Iget ten percent, that means your company's
worth ten million dollars. How canyour company be worth ten million dollars when
you don't have any revenue, youdon't have a product, you don't have
any sales, you know, Soyou have to look behind the numbers and
question. That's why investors like tosee a lower valuation because they get more
(29:33):
equity for their money, as opposedto the entrepreneur wants to see a higher
evaluation. So you have to lookat the pre money valuation before the investment
and the post money valuation after theinvestment. And again, startups are really
tough, but you can if youlook at other startups in the marketplace where
(29:56):
they started and what their evaluations are. But you got to look behind the
number just kind of figure out istheir reality with this company? Can this
company execute the business and make areturn? Yeah? And then if you
take that a little further, theyshow you their their quote five year forecasts
for the projection. Those are yeah, you know, okay, well you
(30:22):
know who came yeah, and theword you know who came up with all
those projections? Yeah, you knowwho came up with the projections? People
people who put business plans together fora living and in charge of these these
unsuspecting entrepreneurs, put a fancy fiftypage business plan together, all pie charts
and everything, um in five yearprojections. Yeah, that's just that's a
(30:45):
gimmick. Yeah it is. Andpart is that after they give you the
projections, they always they always clotheswith oh and these are conservative numbers.
Yeah really if we're we're we're gettinginto a ten Yeah. The other thing
too, that we're getting into aten billion dollars market segment. If we
(31:07):
just get one percent of that,you know, yeah, right, you
know that's out all the time.Yeah, they start out these presentations.
You know, we're ten billion,we get one percent. We're gonna make
it easy about the fuck reality.We're here and now what do you have
to what do you have today?Yeah, exactly. And if you're setting
(31:30):
that in front of a banker andhe starts laughing at you, and you're
probably setting himself while you laughing atlast projections and he was fought now I
was gonna laughing. Yeah, youknow. And I think that that's also
an important thing for new companies isyou know, hire the right people to
(31:52):
give you the right advice. Butif you're the owner of a potential new
company and you're looking for investors,and you don't give the investor a reason
to invest aside from the figures andthe performer and all of this is how
(32:13):
much you're going to make and allof that the most important from my point
of view. The most important thingyou can do with an investor is get
an emotional connection. Because if theylike you and they like what you're doing
and you've touched their heart in someway, then they're going to invest with
you. But if you don't knowhow to do it, they're going to
invest with the guy down the streetinstead because they like him better. Well,
(32:37):
yeah, the trust, yeah,construction. What you have to do
is build a relationship with the investorsalong before you ask for a check.
They have to trust you and knowthat you know understand you exactly, and
if you don't know how to runyour business, they're never going to like
(32:59):
you because they can see this isI think this was the problem with the
Silicon Valley Bank. They didn't knowwhat they were doing and it fell apart
because they didn't know what they weredoing and they thought it would take care
of itself, and it doesn't.Yeah, and one of the Silicon Valley
Bank. One of the one ofthe other issues with that bank was,
(33:21):
you know, they were heavily involvedwith VC firms up in Silicon Valley.
So if the vcde made a madea ten million dollars investment in your company,
they would say, you know,go to Silicon Valley Bank and bank
with them. So you put yourten million dollars on deposit with Silicon Valley
Bank and then they would say,oh, we'll make you a fifty percent
(33:42):
We'll give you a fifty percent lineof credit on that ten million dollars,
but you got to keep the moneyin our bank. Yeah, okay,
fine, Well that's when when theproblem developed. A lot of those tech
companies couldn't make payroll because they couldn'tget access to the money right away.
So you know, it's kind ofa closed circle. And that's well again,
why crowdfunding was developed was so thatsmall companies can get around that then
(34:05):
raise money. Yeah exactly. Solet's let's let's recap what we talked about
today. If you're looking at abank loan, the bank wants you to
pay it back. That's all theycare about. Otherwise they'll take your house
and everything that your own. Ifyou go to a VC, they want
all your company, they want allthe high percentage, and then they're going
to kick you up the book.Or you can go crowdfunding with reggae or
(34:28):
via reggae, etc. And youkeep controlling your company and you raise money
or the way you want, right, is that a val we talked about
today. Yeah, that that's howI look at it, and that's what
I advise companies. You know,look at all aspects of you know,
accessing the capital markets. But ultimatelyyou got to figure out what's going to
(34:49):
work best for you. And it'snot bank financing, it's not VC money.
You're just wasting your time with vcs. But like I said, less
than one percent actually get a check. The other ninety nine percent don't even
get a phone call or a meeting. So why are you chasing that?
I mean, that's the reality ofVC money. So you get back to
crowdfunding, reggae five or six,C reg D and reg CF crowdfunding.
(35:15):
Those are the avenues you should takea look at and approach it as a
professional. Hire the right advisors,structure your deal correctly, offer the equity
to investors, give them a reasonto want to invest in your company,
build a trust relationship with them.And I mean you have to. If
you're going to the bank, thebank has to trust you as well,
(35:37):
even though you're giving them collateral.You know, they want to look at
you in the eye and figure areyou worth us making an investment? And
syncing with crowdfunding, you've got tobuild that trust relationship with investors and that
starts out long before you ask fora check, right right right, Well
(36:00):
when they come up with you,Mike, that's for sure. So how
do they get a hold of you? What's the best way to reach you?
Yeah, the best way is myemail, which is Mike Barrett vr
ette a Gmail. They can goto LinkedIn and they can view my profiles
and my posts and my articles,my contact information desire as well my telephone
number nine five one two three sixeight four seven three. So either email,
(36:24):
LinkedIn or my phone. Okay,excellent, that sounds great. And
and Ky, did did we makethe case today for crowd funding? Do
you think or where where you thinkabout today's podcast? Well? Absolutely,
Ron, And you know I saidit before and I will say it again.
(36:45):
If you are going to do something, do it right the first time,
or don't do it at all becauseit will waste your time and waste
your money. And if you're goingto start a new business and you're looking
for funding, then you need tocall Mike because he is the expert in
crowdfunding that you need to know.Because if you call him, you will
(37:10):
do it right. He will guideyou doing it right and you will be
successful. It's a simple thing.So just call Mike. He'll help you.
Because Mike, you're appreciate the paddleof the bag. Appreciate it absolutely,
Mike. It's the absolute truth.Mike. I think you should bring
Vicky to all your trade shows.Yeah, yeah, I hold the balloon
(37:36):
boy you, Mike, so peoplecan find you. Thanks so much for
being here guess on the show today. Really appreciate your time and thanks.
Yep. You're listening to the MappaboleUSA podcast at mapthibo USA dot com.
To the website to scroll down thehomepage and through all authentication sources. Pick
(37:59):
the one you like best and you'llnever miss another one of our episodes.
If you want to do a gueston the show, like Michaels said to
the guest tab Date, you feelthat out. We'll see what you do
about getting on the show, andif you like we to heard today,
send us an email at info atmapp ufore you utsay dot com, or
just leave a message on whatever pageyou're listening to this song right now.
So thanks for your support, thanksfor listening with you at your next time
(38:20):
with another guests, have a greattoge
Welcome USA podcast where we put youon the map. This is Ron Costa
Broadcasting lives from the Mappable USA Studiosin Las Vegas, Nevada. Folks,
is your banks hilarious? They getpicked pretty quickly as you see what's happening.
We're always collapses. We're talking aboutthat today and how it relates to
crowdfunding. And before we get doingthat, let's introduce Vicky Hmala from the
(00:45):
worldpook At Market. Vicky, howare you today? Fabulous? Run like
always, I'm fabulous today And finallythe weather has become why we live in
Vegas seventies and eighties and beautiful andwe have a different take on our podcast
(01:06):
today we have a regular guest,but we're going to talk about cloud funding
from a different point of view.So let's get started right, All right,
sounds good. Let's introduce Mike Breath. He's from the Small Cap Equity
Advisors. You've seen them on theshow many times. Mike, how are
you doing today? Doing well?Thanks for thanks for the spot today,
(01:30):
absolutely, thank you, my pleasureto have you on the show. Yeah,
no, no, no question.And I know you've been really busy
over the last couple of months andlive it in San Diego. You'll always
have the life there. It's great, right, yeah, can't complain.
And and and my messu playing thepadres today as we speak, So if
(01:52):
you're a baseball fan, that's athat's a good thing for me. I
will be in front of the TVlater on watching it for sure, so
that's always fun. But anyway,we're gonna talk about crowdfunding again today,
Mike. And before we do again, I'm sure people know who you are,
but if they don't, real quickly, how about a little elevative speech
on who you are in small captell us all about that too. Yeah,
(02:13):
yeah, yeah, I have.I'm the president CEO of Small Cap
Equity Advisors. We've been in businessover thirty years, advising consulting with companies
on how to raise capital legally,how to comply with state and federal security
laws, how to do crowdfunding.What's the difference between reggae, the reg
(02:36):
D and reg CF crowdfunding? Andso we help companies kind of maneuver through
that muddy murky water of raising capital, you know, to keep my jail
so they comply with seating federal securitylaws. You know, so many people
think, you know, the securitylaws don't apply to them, and we
try to tell them, yeah,if you're selling securities stock to investors,
(03:02):
you got to comply with satan federalsecurity laws or otherwise you're gonna have a
problem. So we help companies dothat, and we also take companies public.
We like the reggae vehicle because youknow, once you file and get
it qualified with the SEC, ifyou decide you want to go public later
on, you could use that filingto go public. So our position here
(03:25):
at small Kapeic or what the advisorsis to help companies, educate them,
help them make a decision with directionto go, and then we work with
them to make it a reality.Okay, excellent man, And and and
you know, and then let's justreally just dive right into it. You
(03:46):
know, what's going on with thebanks today. You know, you have
the whole Filick and Valley Bank thingand the collapse and and all these news
about banks going under and I mean, what's what's what's happening here? Why
is this happening? And musters,Yeah, a good point. I mean
it's usually the small regional type banks, you know, like Silicon Valley Bank
(04:09):
and Republic. And you know someof those banks that have had the problems,
the big banks like you know,Wells, Farville, City, Chase,
UH, you know, be A. You know, they're they're fine,
they don't have any problems. It'sthe smaller ones that have, you
know, just really bad management inplace. You know, I don't want
to take up the show with SiliconValley Bank, but you know everybody's heard,
(04:30):
you know, the horror story therewhere they were long on bonds and
doing short term loans to businesses andworking with VC firms up in the Silicon
Valley area, and you know,the long bonds that they were invested in,
UH and making short term loans justcaught up with them and they had
a cash crunch. And then whenthe word got out they were having problems,
(04:54):
people just started making a run onthe bank and pulling their money out.
And I mean billions of dollars anddepart as you know, came out
of the bank. So what thatmeans for small businesses now, and what
it's always meant is traditional bank financingis not a way to go for somebody
who wants to either start a businessor do some additional follow on financing.
(05:16):
For an existing business. Banks donot, despite what banks advertise and promote,
banks do not make business loans.They make real estate loans, secured
loans. You know, if youwant to, if you want to use
the money, if you want toborrow a million dollars in the bank to
put into your business, the bankdoesn't care. They'll tell you they care.
(05:38):
But as long as you put uptwo million dollars in collateral for a
million dollars loan, you can usethe money. And if you lose the
money in a business, they'll takeyour house and all the real estate you
flashes collateral. That's really what bankfinancing is, and one reason the crowdfunding
was passed about twelve years ago nowwas to help small business access capital markets
(06:00):
without having to go through the traditionalroute of credit checks, collateral, loan
committees, delays and delays where it'sout of your control. Crowdfunding is you
know reggae, It's it's a regD and it's also REGCF crowdfunding that allows
(06:21):
businesses, whether again whether you're astartup or a late stage business, it
allows you to structure and offering,reach out to investors on your terms and
conditions, and raise money by sellingequity in your business. Now, the
benefit when you're selling equity is there'sno interest payments, there's no collateral,
(06:44):
there's no loan committees, there's nocredit checks. Uh. You know,
as long as you have a propervaluation in a solid business, you can
attract investors to it and raise yourmoney. You know. So that's kind
of a theme for this show isyou know, stay away from bank financing
and take crowdfunding uh in your controland raise money that way. Yeah,
(07:10):
that's a lot of times the bankswhen you when you go to the bank,
everything is all you know, rosycolored and they make you submit the
application and you leave there thinking okay, well maybe this is a good route
and you find out that it neverreally happens, or they want, like
you said, they want so muchcollateral. If they have the collateral to
put up with, you would needthe roan to begin with. But there's
also a factor where you know,you've left out the whole venture capital world
(07:38):
where these people want a high percentageof your company. So that leaves really
crowdfunding through reggae and like the otheravenues that you mentioned over there. Uh,
it really is. It's sad tosee some of these people who are
going to the banks at this pointand they're just not getting their loans done,
and you know they wonder why.So after you mentioned, yeah,
(08:03):
you mentioned vcs, I mean,that's just, uh, that's a myth.
You know, only less than onepercent of companies out there actually get
VC financing. You know, theythese VC companies are in the news quite
a bit, and you know,companies are always saying, oh, I
got VC funding, and you knowit's really it doesn't happen. I mean,
(08:24):
I've been in this business over thirtyyears and vcs. Look, they
get about two thousand deals sent tothem a year. They look at ten
and they fund two. And thetwo that they fund are always from people
that they've worked with in the past. It's a closed club circle. You
know, they work with attorneys andadvisors that have referred deals in the past.
(08:50):
You know, if you're on theoutside looking in, you don't stand
a chance. That's why, youknow, the statistics are less than one
percent of companies actually get a checkfrom VC. Ninety nine percent don't even
get a phone call or a meeting. So I always tell people, you
know, forget forget VC financing,forget bank financing. I even have clients
(09:11):
that have long standing twenty year relationshipswith their bank and they can't get financing
for their business from their bank.They're just not they've tightened up all the
credit requirements, and so you know, again there's no guarantee when you're trying
to raise money. Again, I'ma care for its banks or whatever,
(09:33):
or crowd funding. It's a lotof work, it's it's time consuming,
it's an expensive process with legal feesand audit fees and platform fees and marketing.
But you know, if one thingis for certain, if you don't
try, you're never going to succeed. So you've got to get out there
and get your deal out in frontof investors. And and that's that's the
(09:58):
point you know, we running Ido these podcasts, as you know,
Mike, because we want to provideinformation and education to our listeners to help
them with what they're doing. Andyou know, you don't really need to
know very much to understand that abank will lend you all the money you
want as long as you can collateralizeit twice as much, so they're not
(10:22):
going to lose anything. Even ifyou do an SBA loan it's because it's
guaranteed and the bank is happy todo it. But the requirements in the
criteria and the process you have togo through is just excruciating and it makes
crowdfunding more appealing. But people don'tknow how to do it. They're not
(10:43):
aware of it. They don't knowanything if we try to educate them.
But why aren't people learning this,Mike? Why are are they being taken
by by the bad guys who arejust using and abusing them. Well,
the problems is that the majority ofpeople out there trying to raise money,
the majority of companies don't understand theprocess of raising money. They you know,
(11:09):
they look on they go on socialmedia and they look at a funding
platform. I'm not going to mentionnames, but you know there's about fifty
of them out there. There's aboutten that are any good. But almost
platforms say the same thing, signup with us, put your crowdfunding offering
(11:30):
on our platform. We have theforty or fifty thousand investors. That's a
big lie. These platforms do nothave investors. What they have are people
who signed up on their website toaccess deals and look at stuff. Well,
they're not looking at your deal they'relooking at one hundred other deals and
(11:52):
you know, it comes down toan educational thing. And I have to
feel these questions daily from people,Well, I want to go on this
platform, they guarantee me. Isaid, look, there are no guarantees.
And there was there was a poston LinkedIn last week by a platform
and which I was surprised to seethis person put that information out there.
(12:15):
You hit big bold letters it saidyou know we're and they were one of
the premier platforms out there for reggae. But he came out and said,
we do not raise money. Weare a platform, but we don't raise
money. We're a platform that youcan upload your offering to and we process
payments. It's up to you toget out and markets are offering and raise
(12:37):
money. Now, that was refreshing. I've been saying that for three years.
Oh yeah. To hear that fromhear that from a platform, you
know, it was refreshing. Ohabsolutely. And not only is it refreshing,
but it's it's like, Okay,somebody taking the high road doing it
right. That that alone is freshingbecause there's so many people trying to,
(13:03):
you know, for every good thingthat happens there's always some shyster under you
know, in the bushes, tryingto take advantage of it and of the
people using it. But you know, Mikey said, you said, the
most important thing I could have anidea that's better than sly spread ever was.
But nobody's going to know it ifI don't tell them and if I
(13:28):
don't market it. So when it'stime to launch, people already know about
me and they're ready to invest.If you start marketing at that point,
you're you know, kind of outof luck. Yeah, And that's a
good point. And that's the otherthing that people don't understand about crowdfunding or
racing capital. You have to startinvestor awareness marketing well before you have your
(13:56):
offering done. Now, in somecases, like in reggae, can do
it. It's called test the watermarketing. You could pre market before you're
offering is qualified by the SEC.You just can't take a check, but
you can lay the ground work bytalking about your company, your products,
that you have a reggae coming outand do what's and get indications of interest
(14:18):
from investors, and then when you'reoffering is qualified, you can go back
to that same list of people andsay okay, we're ready to go,
you know, write as a check. But that's a big myth and the
fallacy that a lot of people theythink, well, I don't have to
do any marketing. I don't.But to your point, Vickie, investors,
(14:39):
if they don't know you're offering oryour product exists, how are they
going to contact you and write acheck? You know, it's you know,
but people don't want to People don'twant to hear that because they've been
conditioned through years and years of fallaciesthat money raising money raising capital is free,
it doesn't cost anything. They don'thave to comply with state and federal
(15:03):
security laws, a blue sky laws. So you know, you have to
overcome and I have to do likeI said, I have to do this
on a daily basis. You know, I might get five people a day
contact with me, you know,but there's none, none of them that
are qualified. They don't understand theprocess, and they're broke. And you
know, when you tell them theygot to comply with state and federal security
(15:24):
laws, they've got to have aregistration or an exemption from registration, like
route funding, it's like you're speakinga foreign language to them. You know,
so it's they just don't understand theprocess. Now, and that's that's
a lot. You know, nomatter what you do, if you don't
understand what you're doing. And ifyou're the owner of a company, potential
(15:48):
or existing, you are the onewho supposedly is the best person to sell
that company or that idea or thatproduct, whatever it is. If you
can't do it, it doesn't matterwho you hire to do whatever it is.
If you can't sell your company oryour idea, then you know,
(16:11):
and you're the owner. Well,you know, that just adds another thing
to make it more difficult to besuccessful, because you've got to be able
to talk to yourself. Yeah.One of the other things with crowdfunding again,
whether it's reggae or reggy, youknow, you see on social media
sites or in articles or whatever,that Hey, we've got a list of
(16:34):
investors we can sell to you,a list of it. Yeah, right,
you're going to buy that list alongwith a thousand other people, and
the thousand of you are going tobe spamming these so called investors on the
list, And it doesn't work thatway. In other words, if you
know, I've got investors that investedin oil and gas project over the years.
(16:56):
But that doesn't mean they're going toinvest in a cannabis deal. Just
because they invested in something doesn't meanto go to invest in everything. You've
got. What I say, whatI tell people, You've got to tell
them. Look, you've got tofind your own investors specific to your deal.
There's nobody out there waiting with acheckbook to write you a check for
(17:18):
your specific deal. Regardless of whatthese platforms tell you to get you to
sign up. They don't have specificinvestors for your fintech deal, your cannabis
deal, your solar deal. You'vegot to get the word out there and
let people know who you are,what you're doing, and what you're trying
to accomplish. And that all requiresmarketing, advertising, promotion. Again,
(17:41):
that's the reason crowdfunding was passed abouttwelve years ago was to allow companies to
advertise and promote. Prior to that, you couldn't advertise and promote. You
had to rely on pre existing businessrelationships in order to put your deal out
in front of people that already knewyou. And that's why small companies couldn't
(18:03):
raise money and bank financing. It'snot the answer either again despite what they
tell you. So it's a wholeeducational process. People don't want to take
the time because they're desperate, right, Yeah, that's right. And that's
a lot of people see these likeovernight sensation stories about somebody who didn't have
(18:27):
anything and with five hundred dollars inhis garage he created a billion dollar company,
and they think, oh, yeah, that'll happen to me. I
know I can do that, andI'm going to have a billion dollar company.
But no, you're not. Andnot only that, but every small
company, every startup company that's tryingto get funding is competing with every other
(18:52):
company doing the same exact thing,especially on the platforms where you go and
here's the four thousand investors you've beenwaiting for, but they're they're looking at
a hundred deals and if you don'tstand out, then you get overlooked.
It's like, yeah, that's crazy. But but let's get back to our
(19:14):
original original concept of is there away that if you're doing kind of a
crowdfunding launcher platform, is there away that you can also have a relationship
with a bank for to help youalong the process, Or it's one or
the other or what do you think, Well, yeah, that's a good
(19:38):
point. It really depends on whatkind of a banking relationship you have and
what you expect that bank to do. Again, most companies don't have the
collateral and the credit, especially comingout of the pandemic. Small business just
you know, the owners just don'thave the credit in collateral to get anything
(20:00):
done with their bank, so it'salmost like a waste. My advice would
be, look, do the crowdfundingright and raise a half a million to
a million dollars true crowdfunding, andyou know, show your bank that your
business has it's viable because you raiseda million dollars from investors and crowdfunding.
(20:23):
And then you go back to thebank and say, you know, look
my business is solid, I've hadrevenue coming in, now, I have
sales, I have a proven concept, and see if them, you know,
make the loan to you. Butif they don't, then you go
back to crowdfunding. But I,you know, I would not start with
a bank. It's like I said, I have clients that I have twenty
(20:44):
year relationships with their bank can't getbank financing. So really it's like you
said, VICKI, it's one orthe other I would tell people, Look,
don't waste time with the banks.You have to post collateral, You
got to make interest payments, youhave to have credit checks. With crowdfunding,
you don't have any of that.You don't have credit checks, you
(21:06):
don't have interest payments to make,unless you're offering debt financing to investors,
which I tell people, don't dothat. And you know you don't have
to post collateral. You're selling equity, and if you do it right,
you don't cause so much delution toyourself because there's ways of structuring deals where
you don't give up control. Yeah, that's true. That's that's one of
(21:33):
the things I think is a goodpoint as well. You know, when
you go to these banks and likeyou said, they're looking at so many
deals sometimes and it's not probably notin your best interests to take a loan
out of them with all the interestrates and all that other stuff you have
to deal with. But when youget to the point where you have a
slam like a real winner, andyou're making money, like you said,
(21:56):
you have revenue, you have this, you know you don't really need the
bank at that point to give youa long you're doing your offering, You're
you're proving to your investors that you'reviable. It's almost like, okay,
well, I'll use this bank justfor a checking account for example. I
don't need I don't need them toload need money, but I'll use them
for everyday business services that kind ofthing. Yeah, yeah, exactly.
And if you treat your investors right, you can always go back to them
(22:18):
a second, third, fourth,fifth time to raise additional capital. Again,
once you reach certain milestones in yourbusiness, so you know, the
bank avenue becomes you know, uselessat that point, you can just use
them, like you said, aroundthe checking account or savings account or something
like that. But again, that'swhy crowdfunding was passed twelve years ago to
(22:40):
give companies the alternative and the abilityto raise money on their terms without giving
up control. Night Round. Youmentioned vcs at the top of the hour
here, and that's one of thepoints with VC financing. You know,
if you're successful in getting something fromthem, they're going to want more seats
control. You're basically working for them, and then they can they can fire
(23:04):
the CEO and founder anytime they want, uh, And that's giving up control,
giving up your business you don't needto do that with crowdfunding Reggae,
reg D, reg CF, they'reout there to benefit small businesses. Uh,
people just need to take advantage ofit or yeah, yeah, like
(23:33):
that's going to happen to most ofthem, you know, Yeah, I
mean, you know, all theseall these years, I've never watched the
whole episode of Shark Tank. Ijust get so frustrated hearing all those guys,
you know, they're so called investors, and and I just I don't
know, It's just not the waythe real world works. But I guess
it's entertainment, and that's all itis. Entertainment. Yeah, I wonder
(24:00):
how many of those deals in SharkTank actually closed or or move forward.
You know, they always tell youabout the winners here and there, but
now there's there's what four pitches pershow times X amount of shows times so
many seasons. How many of thosedeals really look out? But anyway,
um, it's almost same day theVC room. I don't I don't particularly
(24:21):
care for it too much. I'mI'm in your camp as far as the
regulation ages. And another thing aboutRegga two is you know you talked about
marketing before, and you know there'sa lot of people out there who talk
about how easy this is. It'slike, okay, well, just you
know, use your social media,you'll get you'll get investors. Post to
(24:41):
Facebook, post Instagram, you getten thousand followers, and then do this
and do that. Yeah, that'sthat's that's hard to do. It's hard
to get that thing going, andit's hard to target people who actually have
movie that want to invest in yourfeel it's not easy. Well, I
mean, there there's plenty of investmentcapital out there, even even with things
(25:02):
that are going on the economy,on the stock market now. Investors have
plenty of money. They just arepicky who they're going to put that money
with. And I tell people,look, if you're a pre revenue startup
just an idea, you're not goingto get financing in today's market from investors.
It's just not going to happen.I mean, you might get five
(25:22):
thousand dollars from an angel investor,but that's not enough to jump start your
company. Investors have choices. Youhave to convince the investor that you're worth
a risk for them to give youone hundred thousand dollars or more. How
are they going to get their moneyback. What are they going to get
it back? You know, what'syour success rate? You know, it
(25:44):
all comes down to the strength ofthe management, the people involved with the
company. Can you execute the businessand does the investor believe that you can
execute the business and give them areturn on their investment. And also I
tell people, look, you needto have investors contacting you. You need
to put enough news out there andenough information. Get on television, get
(26:08):
on Fox, get you know,put up You have to generate enough pr
to where people listen to that gohey, I think I'm going to call
John Smith and find out more aboutit, and they call you and want
to get a dialogue going. Andthat's how you find investors for your deal.
It's not just setting back and relyingon social media and you know,
(26:33):
putting it up on a platform.I hear so many times from people saying,
well, we tried crowdfunding, itdoesn't work. And I say,
what was your marketing budget? Oh, we didn't have a marketing budget.
We were told if we put itup on X y Z platform, we
could sit back and watch the moneyroll in. It doesn't work that way.
Sixty percent of the companies failed sixtypercent of the companies failed to raise
(26:56):
money because they don't have a marketingbudget and they and that's one reason.
The other one is the valuation istoo high, but they just don't have
a way of reaching out to investors. They're all setting back thinking the money
is going to roll in. AndI tell people, look, if that
was the case, everybody would besuccessful at raising money, and they're not.
(27:17):
A lot of people just don't raiseanything. Yeah, if you're a
pre revenue company and you go toa bank for a loan, what's the
odds of you getting that loan?Zero percent? Yeah, zero, yeah,
yeah, you know, I meanunless unless than zero, you know,
I mean, they're just gonna laugh. You know, they'll they'll humor
(27:37):
you, especially here in existing customerof theirs, they'll humor you. But
you know, they'll give you anapplication and you know, tell you to
go home fill it out, andyeah, they're not going to give you
the time to day. It justdoesn't work that way. Not in the
real world. Yeah, and youknow, sometimes that's okay, go ahead,
(28:00):
Ryan. In the real world,a lot of times people will look
at a deal and you mentioned thevaluation again, that's really one of the
big stickling points for a lot ofpeople, because even if you're accredited,
and if even if you're sophisticated,it's somehow hard to determine whether or not
that valuation is too high, right, And yeah, what do you do
(28:22):
in that situation? I mean,how do you how do you build?
Yeah, that that's a good point, you know, I mean with startups.
You know, you really can't valuewith startup, especially you don't have
sales and revenue. That's almost likeyou know, throwing darts against the wall
or something. But if somebody doeshave a valuation, you know, you
got to look at how that valuationwas arrived at. Did they have a
(28:45):
third party valuation firm? Do it? And so they have a concrete report
is to support that valuation or theyjust pulling numbers out of the air.
I had somebody called me the otherday saying, trying to raise a million
dollars and we're giving up ten percentof the company. And I said,
so you're telling me your company's worthten million dollars because that's what the post
(29:08):
money valuation would be. That that'show your company would be valuable. I
give you a million dollars and Iget ten percent, that means your company's
worth ten million dollars. How canyour company be worth ten million dollars when
you don't have any revenue, youdon't have a product, you don't have
any sales, you know, Soyou have to look behind the numbers and
question. That's why investors like tosee a lower valuation because they get more
(29:33):
equity for their money, as opposedto the entrepreneur wants to see a higher
evaluation. So you have to lookat the pre money valuation before the investment
and the post money valuation after theinvestment. And again, startups are really
tough, but you can if youlook at other startups in the marketplace where
(29:56):
they started and what their evaluations are. But you got to look behind the
number just kind of figure out istheir reality with this company? Can this
company execute the business and make areturn? Yeah? And then if you
take that a little further, theyshow you their their quote five year forecasts
for the projection. Those are yeah, you know, okay, well you
(30:22):
know who came yeah, and theword you know who came up with all
those projections? Yeah, you knowwho came up with the projections? People
people who put business plans together fora living and in charge of these these
unsuspecting entrepreneurs, put a fancy fiftypage business plan together, all pie charts
and everything, um in five yearprojections. Yeah, that's just that's a
(30:45):
gimmick. Yeah it is. Andpart is that after they give you the
projections, they always they always clotheswith oh and these are conservative numbers.
Yeah really if we're we're we're gettinginto a ten Yeah. The other thing
too, that we're getting into aten billion dollars market segment. If we
(31:07):
just get one percent of that,you know, yeah, right, you
know that's out all the time.Yeah, they start out these presentations.
You know, we're ten billion,we get one percent. We're gonna make
it easy about the fuck reality.We're here and now what do you have
to what do you have today?Yeah, exactly. And if you're setting
(31:30):
that in front of a banker andhe starts laughing at you, and you're
probably setting himself while you laughing atlast projections and he was fought now I
was gonna laughing. Yeah, youknow. And I think that that's also
an important thing for new companies isyou know, hire the right people to
(31:52):
give you the right advice. Butif you're the owner of a potential new
company and you're looking for investors,and you don't give the investor a reason
to invest aside from the figures andthe performer and all of this is how
(32:13):
much you're going to make and allof that the most important from my point
of view. The most important thingyou can do with an investor is get
an emotional connection. Because if theylike you and they like what you're doing
and you've touched their heart in someway, then they're going to invest with
you. But if you don't knowhow to do it, they're going to
invest with the guy down the streetinstead because they like him better. Well,
(32:37):
yeah, the trust, yeah,construction. What you have to do
is build a relationship with the investorsalong before you ask for a check.
They have to trust you and knowthat you know understand you exactly, and
if you don't know how to runyour business, they're never going to like
(32:59):
you because they can see this isI think this was the problem with the
Silicon Valley Bank. They didn't knowwhat they were doing and it fell apart
because they didn't know what they weredoing and they thought it would take care
of itself, and it doesn't.Yeah, and one of the Silicon Valley
Bank. One of the one ofthe other issues with that bank was,
(33:21):
you know, they were heavily involvedwith VC firms up in Silicon Valley.
So if the vcde made a madea ten million dollars investment in your company,
they would say, you know,go to Silicon Valley Bank and bank
with them. So you put yourten million dollars on deposit with Silicon Valley
Bank and then they would say,oh, we'll make you a fifty percent
(33:42):
We'll give you a fifty percent lineof credit on that ten million dollars,
but you got to keep the moneyin our bank. Yeah, okay,
fine, Well that's when when theproblem developed. A lot of those tech
companies couldn't make payroll because they couldn'tget access to the money right away.
So you know, it's kind ofa closed circle. And that's well again,
why crowdfunding was developed was so thatsmall companies can get around that then
(34:05):
raise money. Yeah exactly. Solet's let's let's recap what we talked about
today. If you're looking at abank loan, the bank wants you to
pay it back. That's all theycare about. Otherwise they'll take your house
and everything that your own. Ifyou go to a VC, they want
all your company, they want allthe high percentage, and then they're going
to kick you up the book.Or you can go crowdfunding with reggae or
(34:28):
via reggae, etc. And youkeep controlling your company and you raise money
or the way you want, right, is that a val we talked about
today. Yeah, that that's howI look at it, and that's what
I advise companies. You know,look at all aspects of you know,
accessing the capital markets. But ultimatelyyou got to figure out what's going to
(34:49):
work best for you. And it'snot bank financing, it's not VC money.
You're just wasting your time with vcs. But like I said, less
than one percent actually get a check. The other ninety nine percent don't even
get a phone call or a meeting. So why are you chasing that?
I mean, that's the reality ofVC money. So you get back to
crowdfunding, reggae five or six,C reg D and reg CF crowdfunding.
(35:15):
Those are the avenues you should takea look at and approach it as a
professional. Hire the right advisors,structure your deal correctly, offer the equity
to investors, give them a reasonto want to invest in your company,
build a trust relationship with them.And I mean you have to. If
you're going to the bank, thebank has to trust you as well,
(35:37):
even though you're giving them collateral.You know, they want to look at
you in the eye and figure areyou worth us making an investment? And
syncing with crowdfunding, you've got tobuild that trust relationship with investors and that
starts out long before you ask fora check, right right right, Well
(36:00):
when they come up with you,Mike, that's for sure. So how
do they get a hold of you? What's the best way to reach you?
Yeah, the best way is myemail, which is Mike Barrett vr
ette a Gmail. They can goto LinkedIn and they can view my profiles
and my posts and my articles,my contact information desire as well my telephone
number nine five one two three sixeight four seven three. So either email,
(36:24):
LinkedIn or my phone. Okay,excellent, that sounds great. And
and Ky, did did we makethe case today for crowd funding? Do
you think or where where you thinkabout today's podcast? Well? Absolutely,
Ron, And you know I saidit before and I will say it again.
(36:45):
If you are going to do something, do it right the first time,
or don't do it at all becauseit will waste your time and waste
your money. And if you're goingto start a new business and you're looking
for funding, then you need tocall Mike because he is the expert in
crowdfunding that you need to know.Because if you call him, you will
(37:10):
do it right. He will guideyou doing it right and you will be
successful. It's a simple thing.So just call Mike. He'll help you.
Because Mike, you're appreciate the paddleof the bag. Appreciate it absolutely,
Mike. It's the absolute truth.Mike. I think you should bring
Vicky to all your trade shows.Yeah, yeah, I hold the balloon
(37:36):
boy you, Mike, so peoplecan find you. Thanks so much for
being here guess on the show today. Really appreciate your time and thanks.
Yep. You're listening to the MappaboleUSA podcast at mapthibo USA dot com.
To the website to scroll down thehomepage and through all authentication sources. Pick
(37:59):
the one you like best and you'llnever miss another one of our episodes.
If you want to do a gueston the show, like Michaels said to
the guest tab Date, you feelthat out. We'll see what you do
about getting on the show, andif you like we to heard today,
send us an email at info atmapp ufore you utsay dot com, or
just leave a message on whatever pageyou're listening to this song right now.
So thanks for your support, thanksfor listening with you at your next time
(38:20):
with another guests, have a greattoge
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