Say you’re trying to launch a tech startup in Houston, would you know where to start? Or who’s investing? Nick Carnrite has created a community where startups can pitch and equity investors can support them.
Russ: Hi, I’m Russ Capper and this is HXTV, championing Houston’s innovators and entrepreneurs. Our topic today is creative financing for your business. And I’m very pleased to have as my guest, Nick Carnrite, Co-founder and CEO of LetsLaunch. Nick, welcome to the show.
Nick: Thanks, Russ. Happy to be here.
Russ: Tell us about LetsLaunch.
Nick: LetsLaunch is an online crowdfunding platform. What that means is we connect investors or anybody, any American who wants to make an investment in a private business, and take an equity position in a private business, with companies that are private companies that want to raise money on our platform. Currently, there is about four to five companies raising money on our site. Anybody with a user account can log in and make an investment and support those businesses, and most of them are right here in Houston.
Russ: Ok, so it’s very straightforward, but this is pretty cool. This is somewhat new that one can become an equity investor in a company without being an accredited investor. Do I have that right?
Nick: That is correct. So, just in 2012, Congress passed what’s called the JOBS Act. That paved the way for what’s called Regulation Crowdfunding, which was passed by the SEC, finally, in 2016, so it took them a few years of messing around with the laws to get it right. What Regulation Crowdfunding did was, previously, if you didn’t have a million-dollar net worth or $250,000 a year in income, you basically were not legally allowed to make a private investment in a private company. I can’t remember exactly what the stats are, but there’s something like 30 million accredited investors with a million-dollar net worth, and that excludes your primary home, by the way, on this planet. So, it comes out to just under half a percent of the global population that’s accredited by US rules. So, what that whole rule did was just opened up the other 99.5% of the population to be able to invest in private companies. So, that’s the trend that we’re trying to take advantage of here.
Russ: Well, cool. I think the theory before was that it was definitely discriminatory, but it was that if you haven’t accumulated that much wealth or earned this much you kind of weren’t worthy of being an equity investor. Was that right?
Nick: You could not be trusted to take your own risk, I would say was the posture before, which we obviously don’t agree with. Now, with Regulation Crowdfunding, there’s still—there’s limits on it, there’s protections to make sure that people don’t lose their life savings and things like that. Depending on still your net worth or still your annual income there’s caps on how much you can invest, but basically it opens you up to take your own chances, make your own decisions.
Russ: I also noticed though that when it was first announced and we all became aware of it, I expected there to be a lot of companies like LetsLaunch, and there seems to be sort of a hesitancy. Did I read that right?
Nick: No, I agree with that. I think there is a hesitancy and I think there is a few reasons for that. I think we’re seeing a global trend where younger generations in particular aren’t really investing. We’re not invested in the stock market, we’re not buying houses, so where does that capital go? I think most of the stats show we buy things and we buy experiences, like travel. We also see this willingness to invest, it’s just in non-traditional types of vehicles. And so, I think we’re fighting that trend, but on the flip side you have this huge movement that is crowdsourcing. Whether it’s rides with Uber, or grocery delivery, or my house with Airbnb, we are crowdsourcing all sorts of activities and I think that’s finding its way to finance, it’s just taking time. And there’s a huge educational component to make sure that people understand how it works and what it is and what it means for them.
Russ: Isn’t that millennial capital that’s not being invested sometimes referred to as stranded capital?
Nick: I absolutely view it as stranded capital. I think it’s stranded in two ways. It’s stranded capital because it’s purposefully sitting on the sidelines and then it was stranded capital because we purposefully alienated 99% of the population.
Russ: Wow. You’ve been in business now for how long?
Nick: About a year. We got started in December, January in earnest, of 2018, and then we just launched the full site, started taking our first investments through the site in about January of this year.
Russ: And how is it going?
Nick: It’s going well. We have four businesses on the site. I think if we’ve learned anything, there’s no shortage of companies that need capital. Now the challenge is finding investors to get them funded.
Russ: We probably already have viewers that are saying, whoa, where is—it’s LetsLaunch.com, right?
Russ: There’s four companies there right now that people could show up and invest in?
Nick: I think so, thereabouts. And then a couple more that are going through what we call our backend process right now that will be live and available for investment here in the next couple of weeks.
Russ: Ok, but do you have to go through an application process or something like that?
Nick: From the business standpoint we have two primary user groups. There are the businesses and there’s the investors. From the businesses standpoint you get on, create your—what we call a pitch, which is basically just a business plan that’s through a standard online template. From an investor’s standpoint, I can compare A to B to C, that they’ll have the same look and feel to them and I know where to go for the same information. After that pitch is completed, I click ‘Go Live,’ and then that triggers a couple of events in the backend, which is what I was referring to earlier, which is setting up an escrow account. So, we never actually touch the money. It goes through to a bank, flows straight through us to a bank. That way it’s safe and protected. So that’s in the escrow account. And then we also run what’s called a bad actor check on all the founders and executives of the business to make sure there’s no securities fraud or anything like that in their history to protect our users. We don’t actually screen the merits of the company. We are industry agnostic and from my past experience screening investment deals for investment opportunities, we don’t know which ones are going to hit and which ones aren’t, to be honest with you, so we don’t want to get into the business of picking winners and losers. We leave that to the crowd.
Russ: Okay, so if I showed up to be an investor, is that easy to flow through? Can I show up, register, and make an investment all in the same day?
Nick: Five minutes.
Nick: Five minutes. So, you could land on our site, peruse the investment opportunities that are there, select one that you feel passionate about, and then you’ll vet the terms and all the due diligence that you’ll conduct yourself. There is a comments board if you want to get on and initiate a conversation with either the founder or other investors with any questions you have, and then if you decide to make an investment after you’ve done your homework, you click ‘Invest,’ and five minutes later you’re done.
Russ: So, a company showing up and raising a very early stage round on LetsLaunch, I mean, does that maybe preclude them from venture capital firms, from doing a Series A and big time, or does it set them up even better?
Nick: Frankly, I think it sets them up even better. The problem that we’re trying to solve is this valley of death where I start up, I can’t raise funds because I’m too early and I don’t have a proof of concept, so I can’t raise sophisticated investment dollars. So, what are my options? I can’t get banked at least without a personal guarantee, which most people don’t put up, and then I might be able to access friends and family money. That’s about it. So, that’s the problem that we’re trying to solve that you can’t really worry about venture money if you never get there in the first place. Having said that, once you’re there, moving onto a Series A or a Series B with more sophisticated dollars, I think depending on the group there are some more antiquated ones that view a crowded cap table due to crowdfunding investors as a negative. I think we’re starting to see that perception change, that people are a little more open to it. The reality of it is they’re small investments, which is what crowdfunding is, so there’s not a whole lot of influence amongst those investors and, in most cases, they’re non-voting shares. It’s more just perception than reality about any issues that come along with that.
Russ: I imagine you get some very early stage companies that might not know much about fundraising or even how to present their company, but your way is so appealing they show up there. Is that accurate?
Nick: That is very accurate. I think we have two camps of companies that raise money on our site. One is what you just described, in which case, our creative pitch process basically forces them to think through their business plan and how that should work and look, which results in a whole bunch of questions, honestly, as they go to create it. We’re there to help guide them through the process. There is a whole bunch of one-on-one interaction that we do as a company to make sure that that business owner is successful in creating a pitch that’s appealing to users. We’re not weighing the merits of the business, we’re not giving them advice on investment terms or anything like that, but we will help them think through the business idea and make sure that it’s a pitch that’s appealing to our users.
Russ: I know, too, that a lot of very early stage companies don’t have a realistic perspective at all on valuation. When they’re doing this process, they’re claiming a valuation. If they were just totally unrealistic, would you not allow them to be on?
Nick: We would allow them to be on, but this is where the marketplace needs to take over and where the crowd needs to vet those deals. Just like offline, there should be deals that fail. There should be offerings that fail on our site. Not everything should get funded. I think that’s been part of the educational piece that people just assume that, I’m crowdfunding, I’m going to get funded. That’s not the case. If you set unrealistic terms or your business idea simply is not appealing or is not presented well, you’re not going to get funded and you probably shouldn’t. That’s just part of crowdfunding or raising money through any mechanism.
Russ: You’ve already mentioned your background before LetsLaunch but take us back to the beginning of LetsLaunch. What triggered the idea, wow, I think the time is right to do it this way.
Nick: At its core, we view private capital as a horribly inefficient market. We use the analogy a lot that it’s like real estate before Zillow, or before HAR. I’m literally looking around—driving around looking for a sign in a yard. It’s like that if you’re trying to find investment opportunities. You find them almost by dumb luck, to be honest. Showing up at a pitch event, they’re largely regional, and if you’re raising money as a company, where do you start? It’s a full-time job going to pitch events and meeting with investors and it’s hard to tell ahead of time, are these the right investors for me? What we wanted to do is basically create a marketplace in between those two parties that extends beyond regional lines and connects investors that are like minded with startups to allow the transfer of funds and that support to flow to the companies. My co-founder, a guy named Brian Coyle, was actually watching Shark Tank when this idea came to him because there was an idea on there that was kind of silly, it was like a toilet light that was motion activated so that when you go into the bathroom at night the light comes on. The Sharks kind of ate it alive and didn’t end up investing in this company, but he and the friends he was sitting around with, who all at least have a little bit of disposable income said, “we would have funded that. It might not be good enough for Mark Cuban, but it’s good enough for us. How do we get access to these types of private investment opportunities?” That was really what started this whole conversation of how do we create a marketplace where investors that are interested in private companies and private investments can access them?
Russ: Ok, so take us into the future. What do you think? Where would you like to be five years from now?
Nick: I want to continue to build the core business, let me start with that, which is true open source crowdfunding of any company that wants to raise capital can come on our site and access both their own personal network, we just give them a tool to pass the hat, and the crowd. And then, we want to continue to build out this, what we call closed network crowdfunding, which is like The Cannon Ventures opportunity of, there are loosely assembled investor networks, let us help them expand their reach and transact investments they couldn’t previously access. And then longer term, we’re pursuing something we call LetsLaunch Connect, which is really just, forget about the actual transaction of the investment itself, this is more just—if I’m in Houston, how do I even know who the investors are that are interested in early stage tech companies? Currently, I couldn’t tell you, and this is the world we live in. Same thing if I’m an investor, how do I know the universe of startups that are out there that I might want to reach out to and learn more about? So, we want to create the Angie’s List, or the Zillow, so to speak, of private capital that allows these two things to intersect and connect with one another.
Russ: Interesting. And you are located in Houston, Texas.
Nick: We are located right here in Houston. All of our founders are actually from right here in Houston, so we’re Houston grown.
Russ: Tell us a little bit more about your team. You mentioned your co-founder, but how many employees do you have today?
Nick: So, full-time employees, we have three. Two on the development—software development front, and then one that leads all of our business development efforts, and then we have some part-time folks that helped us start the business. Brian Coyle is my co-founder and he and I are obviously heavily involved as well.
Russ: Well, Nick, I really appreciate you sharing your story with us. We wish you good luck, and thank you for being in Houston, Texas.
Nick: Thank you for having me.
Russ: You bet. And that wraps up my discussion with Nick Carnrite, Co-founder and CEO of LetsLaunch. And this is HXTV.
brought to you by