In this episode of he Judgment Call Podcast Jonny Price and I talk about:

• 00:03:38 Why Crowdfunding is so hot right now? Why was the ban on ‘consumer financing’ in place for almost 100 years?
• 00:11:02 What is the rate of return (IRR) for WeFunder investments? How can you hedge your bets with Crowdfunding?
• 00:24:11 Have we missed out on innovations during the last 20 years because Crowdfunding wasn’t available? Will it raise the amount of entrepreneurial activity?
• 00:29:30 Are we in a ‘seed stage’ accelerator bubble? How does WeFunder compete with startup accelerators? Does Crowdfunding only work if you spend heavily on marketing?
• 00:44:08 Why was kiva.org so successful and why did it stop growing eventually?
• 00:56:08 Why kiva.org re-invented a Business Credit Score and why it withdrew from general interest marketing?
• 01:07:36 How does WeFunder get rid of ‘bad actors’?

You can also watch this episode on Youtube – #61 Jonny Price (Wefunder, Crowdfunding, Kiva, Online Marketing).

Jonny Price is the Director of Fundraising at Wefunder, which helps startups and small businesses raise capital through investment crowdfunding. Before that Jonny worked at kiva.org.

Find more episodes from the Judgment Call Podcast:

• Apple iTunes
• Google Play
• Spotify
• Reddit

 

Welcome to the Judgment Call Podcast, a podcast where I bring together some of the most curious minds on the planet. Risk takers, adventurers, travelers, investors, entrepreneurs and simply mindbogglers. To find all episodes of this show, simply go to Spotify, iTunes or YouTube or go to our website judgmentcallpodcast.com. If you like this show, please consider leaving a review on iTunes or subscribe to us on YouTube. This episode of the Judgment Call Podcast is sponsored by Mighty Travels Premium. Full disclosure, this is my business. We do at Mighty Travels Premium is to find the airfare deals that you really want. Thousands of subscribers have saved up to 95% in the airfare. Those include $150 round trip tickets to Hawaii for many cities in the US or $600 life let tickets in business class from the US to Asia or $100 business class life let tickets from Africa round trip all the way to Asia. In case you didn’t know, about half the world is open for business again and accepts travelers. Most of those countries are in South America, Africa and Eastern Europe. To try out Mighty Travels Premium, go to mightytravels.com slash MTP or if that’s too many letters for you, simply go to MTP, the number four and the letter U dot com to sign up for your 30 day free trial. You know the best way to become was it millionaire? It’s to start as a billionaire and then invest in airlines. Wasn’t that Warren Buffett? Maybe it was Richard Branson. I never know who said it. So Johnny, I really wanted to have you on the podcast. I really like your extremely honest approach to building Kiva. You used to work at Kiva and the way you wrote especially about what happened with marketing at Kiva, very few companies divulged that information and even fewer marketing executives get to talk about it later on. And now you run a different crowdfunding startup and you’re involved with VFundr. So give us a bit of an idea where the crowdfunding industry stands. I’m really excited about that industry. A lot of people see it. We know there’s some sweeping regulations, changes in regulations that have happened in the last couple of months. But where is that industry and where do you fit into that industry? Yeah, so the investment crowdfunding sector is going through some really exciting changes right now and seeing a lot of growth. So to step back, as of the securities act of the 1930s, the only people that were able to invest in cool startups in America were rich people, accredited investors, which is basically like millionaires and billionaires. And along with other people, our founders back in 2012 said, this isn’t great. You know, they were serial entrepreneurs. They knew a bunch of other founders. They wanted to invest in their friend’s companies, but they were legally unable to do so because they weren’t accredited. So they said about changing the law in America. They lobbied Congress with other people and managed to get the jobs act through Congress in 2012. And part of the jobs act is what’s called regulation crowdfunding, which is what we do at WeFunder. And regulation crowdfunding allows anyone to invest in startups they love, not just rich people. So it’s a more democratic approach to early stage investing. So anyone can go invest in Starbucks on the stock market today. But up until the passage of the jobs act, they weren’t able to go invest in their local independent coffee shop. Well, now they can. WeFunder is the biggest regulation crowdfunding platform in the country. The law was rolled out by the SEC in 2016. It took the SEC a few years to implement the regulations. But May 2016, they rolled out the regulations. That was the birth of regulation crowdfunding. And the sector’s been growing for the last five years. And as of two or three weeks ago, the laws were updated and improved to allow founders to raise up to five million through regulation crowdfunding. Previously, it was one million. And so just in the last couple of weeks, we’ve seen an absolute explosion in investment volume. We roughly doubled in March over February in terms of WeFunder’s investment volume. We think this is just the beginning. And so we kind of fast forward and dream of a world in a few years time, like almost the expected way to raise a friends and family round, raise a pre seed, seed even series A, maybe alongside conventional institutional ambassadors or angels. Founders can raise from their community, from their fans, from their customers, from their friends and family. They can publicly promote the offering. And we think this is just an easier way for early stage founders to raise capital and also a pretty powerful way to equip them with an army of customers and champions and brand ambassadors who can add value for them and help them as they take on the Herculean task of growing a startup. I’m really excited that it finally happens. It’s something that I’ve been looking at for years here as early as 2000. I felt this is something what was really confusing to me. It’s one of those financial crisis 1930s regulations like the Glass Steagall Act that was finally repealed. I think about 20, 25 years ago and we saw this huge expansion in financial services. We also saw a huge bubble that burst in 2008. Exactly. That’s a double edged sword. That’s the reason why it was not legal for 80 years. There’s some definite downsides here and some risks as with the repeal of Glass Steagall that led to some problems. There’s a double edged sword. More regulation typically reduces risk but it also reduces opportunities. Fortunately, America is still a country of opportunities. Sometimes I forget about that and I feel like, well, we’re also depressed and we don’t even think about the opportunities anymore but this is a big one, I feel. There was no way for, as you said earlier, for consumers to be relatively early in the investment cycle. When you think back to this original legislation from the 30s, obviously there were a lot of scams in the financial crisis and the Great Depression in 1929, 1930. What was the hypothesis why this law was upheld for so long and that things have changed and the Internet has been around for quite some time but we have had the Glass Steagall Act repealed much sooner. Why was this law still in place for such a long time? Yeah, I maybe kind of highlight three points there. Firstly, there was an assumption and there’s probably some validity in this but generally we would want to debunk this that we fund there and that’s why we do what we do but there was probably an assumption that if you are accredited, i.e. rich, then you might be your more sophisticated investor and so you might be better able to assess risk in early stage private companies than if you are not a millionaire. Now, that’s unfair to your point. It’s foreclosing on opportunity for ordinary people, 95% of the population so obviously I work at WeFundit to change that but there’s probably some element of truth in that so I think that was one reason for the continued existence of that securities act. Another probably more important one that I would not argue with is the fair point is if investing in other such startups is very risky, you tie up your assets for a long time. It’s an illiquid investment. It’s not like the stock market where there’s a vibrant secondary market for selling your shares that you’re investing through WeFundit in a startup so it’s highly risky, highly illiquid and so the idea I think was if you’re a billionaire then you have more money and you can afford to lose it, right? Whereas if you’re a kind of moderate income, retired person, then if you invest $1,000 in a startup and that startup goes to zero, which startups are wants to do, then that’s a higher percentage of your wealth that is at risk. One way in which the FCC and how they rolled out the regulations for regulation crowdfunding, they tried to tackle that one is that there’s a limit on what anyone can invest. So anyone can invest $2,200 in startups through regulation crowdfunding per year and then it goes up. So I think it’s like the greater of 5% of your income or wealth I think is the formula. So they’re trying to cap the amount that someone is willing to or is able to invest in startups through regulation crowdfunding. And then another one I guess to your point about the internet, for me like you know in the 1930s it was harder, the flow of information was much, much less rapid and widespread than it is today with the internet, right? So the idea that sunlight is the best disinfectant, like if you’re raising on a platform like WeFundit, there’s going to be thousands, tens of thousands of pairs of eyes on your campaign. There’s great questions that our investors are asking. If you look at the Q&A on any WeFundit campaign, it’s amazing like how much sophistication and how deep our investors are going in asking very, very probing questions that the founders say. I think part of the reason why that law now has been repealed and replaced by the JOBS Act is that the internet allows us to kind of expose where there might be fraud or nefarious actors trying to con investors out of their money. Yeah, I feel like the information dissemination that we have is just on a different level than it was in the 1930s. A lot of people compare what we have right now to what happened in a hundred years ago with newspapers and more radio stations than explosion of early TV. So there was a lot of information and a lot of misinformation, but nobody really knows what’s misinformation or information until you’re 10, 20 years later, right? One thing I was curious, if you guys already have numbers on this, I know some of the VC funds they publish over time and these numbers have been leaked. It’s certainly not necessarily public. They’re rate of return, right? It’s called IRR, the internal rate of return from some of those venture funds. And they try to hatch their bets by investing in a good amount of startups, something maybe is a little special. They miss a billion in anything that raises their hand, I feel sometimes. It’s not like that. They’re very clever investors. But I’m curious if you have any ideas already from crowdfunding and I know it’s new, but it was there before just with smaller numbers. If you have any expected returns and also realize the returns over the last 10 years that you’ve seen from a certain portfolio of startups, you can certainly not necessarily look just on one startup. Yeah, so the first answer is we don’t have great data on that. So we’ve been running regulation crowdfunding now for coming up on five years. And there’s been significant growth over time and so the kind of weight age of our portfolio is pretty young. So even if we had great data, I think it’s too early to say we haven’t had too many exits. We’ve had some small exits. We’ve had no unicorn exits from the Reg CF portfolio. If you go back to before the law changed, so refund was found in 2012. And then there was four years. We went through a wide combinator in 2013. And it was kind of four years in our early days when we were waiting for the laws to change. And so between 2012 and 2016, we were doing regulation D investing, i.e. like from accredited investors, what our founders jokingly refer to as rich people crowdfunding. And if you look at the IRR on our Reg D portfolio, it’s good. I forget the percentage off the top of my head. I want to say 25%. That’s spectacular, 25%, right? So I think a lot of VCs are going around with 10% expectation. That’s somewhere where they want to be up to 10 years, so every 10% every year. This is unrealised, by the way. But we fund the got into four unicorns, Checker, Ginkgo Bioworks, Rappie and Xenovitz. Because we were in YC, we were kind of our founders were friends with other YC founders and say four of these companies are now valued at over a billion dollars. And so that’s what’s driving that’s pretty good, like four unicorns out of the number of companies we did. And so that’s what’s driving how many companies were in a lot of venture capital. Just to get an idea of the numbers. Or like 100 or 50. I would guess about 100. I would guess about 100. Yeah. I think this is this is important to keep in mind is that crowdfunding gives us the opportunity to invest into something we’re really excited about, kind of like a VC, right? We can all be our own VC. But for most VCs, it’s very important to get to get their portfolio sizing right. So not invest too little, but also not too much in each particular investment. And when we look at these portfolios, obviously, every VC fund has a slightly different idea. It seems to be 50 investment minimum to hatch your bets, right? Because you just don’t know who’s the next unicorn. If they would know, then you could just invest into this one. But even the most most skilled VC investors that have been in that market for 30 years, they have trouble picking the next winner necessarily. They know within that group of investments, most likely going to be one of the winners. But still, they don’t know who is the particular winner. There’s too many factors to consider. When you see individual investors on the site, are they going for a similar portfolio hedging or like a portfolio spread? Or they really just know two or three brands to invest in them. But that’s it. Yeah, it’s a really good question. One thing, I think one of the benefits of democracy is that and we funder is democracy applied to early stage investing, right, rather than kind of an aristocracy where a kind of small number of lords and you know, kings and queens like control the reins of power in the democracy individual people have a vote and we funder rather than you know, a small number of VCs like controlling and gatekeeping the decisions, which by the way, has resulted in a pretty pretty inequitable allocations of capital over the last 20 years, I would argue. You know, everyone is investing with their hundred dollars in casting their vote democratically. So I’d say, you know, we funders crowdfunding is democracy applied to finance. But one of the cool things about democracy is everyone gets to assert their own tradeoffs. Right. So to your question, you know, there are going to be some people who are using we funder to build a portfolio of investments and startups, and maybe they diversify the portfolio and they think about what’s my capital allocation strategy, you know, to real estate investments here and the public stock market here and risky, but high high potential reward early stage private investing over here and then within that private investing portfolio, like how do I want to think about friends and family runs versus seed versus series A. So there’s some people that are taking that kind of maybe traditional, like investment portfolio based approach to their activity on we funder. I would say that’s the vast minority. I think the vast majority of investors on we funder are investing in one company. Well, I know actually that historically, or at least today, 75% of people on we funder have made one investment. And that’s 75% of people, I think, are investing in that one company because they’re a customer of that company, or because they went to high school with the founder, or because, you know, they worked with the founder at their last company and they saw how much drive she has. So they’re trading an entire information. Well, yes, that’s absolutely legal. Yes, it is legal. It is legal in the private markets. Yes. And that actually gives me hope. So going back to what I said earlier, if I get kind of rich versus poor, but like venture capitalists, they spend their whole week doing research on and they are experts in evaluating early stage startups. And so you might say like, how on earth is the crowd going to be able to cope and compete or like make informed decisions? Because firstly, they’re not spending their whole time doing it. And secondly, they are not experts in evaluating startups, right? I think the hope that you might be able to make a counter argument is that, you know, VCU will evaluate a pitch deck in two minutes. I saw a meme on Twitter the other day that I thought was quite funny. It was like a screenshot of, I can’t remember what that software is, where you can kind of view a pitch deck and you log in and you can kind of see how long someone has been engaging with your pitch deck. And it was like, you know, this user viewed the pitch deck for like 93 seconds or something. And the meme on Twitter was like, well, this is the extent of a VC’s due diligence on like a hot Y Combinator company, you know? But it’s a meme, but like, I think, yeah, like VCs are making snap decisions on reviewing a pitch deck in three minutes, right? Or like, who they got that referral from, right? And so what the crowd, maybe it’s information asymmetry, right? If you have known that founder for 10 years, you might not know much about this, the deep tech that they’re working on. But like, you do have a massive information advantage in terms of like, you’ve seen that founder’s drive. And so maybe that can kind of compensate for the retail investor not having as much expertise or time to evaluate the investment. Oh, the wisdom of crowds is when properly managed and properly distributed is obviously super computer that’s very hard on average to beat. We think about that for mutual funds, right? So it turned out that the wisdom of crowds over a long time is as good as pretty much anyone on the planet and few exceptions apply, like Warren Buffett. That’s a good point. I think one thing we have learned though, as we, when we launched, I think in 2016, we were really just talking about the wisdom of the crowd. Now we’ve come to also talk about wisdom of the experts. And so we see a need for both. And so we wrote out a product feature last year called Lead Investors, where there is a lead investor who’s putting a decent amount of money into the deal, who’s negotiating and kind of kicking the tires on the deal. We have an expert interview panel where founders that launch on WeFunday, they are put through their paces by angel investors or experts in the sector. And so we’re trying to do what we can to capture the wisdom of the experts to complement the wisdom of the crowd, because sometimes pure democracy can get you in trouble. So there’s definitely wisdom in the crowd. But if we can complement that with wisdom of the experts, I think that’s kind of where we’ve evolved to over time at WeFunday. Well, yeah, you don’t know beforehand, right? It’s a bit like Wall Street bets. On one hand, we look at Wall Street bets and it looks crazy to us. But on the other hand, they made a lot of money. Some of them, some of the individuals evolved. You can’t say someone is crazy before these things play out. I mean, you can obviously say it, but as a verdict, as a judgment, it’s really difficult. It’s good to make that and have that insight. But a lot of VCs that I know personally, they’re really surprised about some of the portfolio companies that they maybe even kind of beat out or would it against, but they were invested anyways by their fund. And there’s a lot of investments that they missed and they made it big in their very unicorn two years later. Amit Rathore, he told me this. He said, well, think about it. If you already have been beaten down, if you have a lot of experience as an entrepreneur as a VC, you know what doesn’t work. But the problem is the world has changed and you might miss and expect things because things have changed completely. And that’s often, figuring out that tipping point is very difficult. One thing I wanted to ask you. I was just going to kind of say, you know, we’re in an age of Airbnb versus like conventional hotels or Uber versus like taxi, taxi companies or Twitter versus, you know, conventional journalism and media. So we’re in this age of like democratization of various things. And basically, we fund a, you know, Robinhood on the, you know, investing in a public salt market and we funders that applied to private private stage investing. And one thing I like to kind of have fun on and just kind of ruminate on is, you know, the VCs that have gleefully embraced disruption of, you know, journalism, let’s say with Twitter or hotels with Airbnb, like it would be interesting to see what the, what the reaction is to the disruption of themselves. I mean, we funders tends to be kind of pretty early stage. So usually pre, pre most venture capital. But yeah, the VCs are in on this. So I talked to Kelly Perdue, who has his own angel investor investment fund plus slash, slash, slash VC fund needs like, well, if LinkedIn would just add an investment functionality. So basically, you see a company in LinkedIn, you like it, and you say, okay, I want to want to buy $100 of your stock, like, like it could be through V funder in the end, will whoever actually executes that, it doesn’t really matter. He said that that’s something that will take off right away. That’s, that will be so, so wonderful because LinkedIn already has the distribution, right. And well, what I wanted to that’s cool. I like that integration of we funded with LinkedIn. Yeah, some of them will do it. What I wanted to, to ask you is, there’s a certain type of startup that seems to do very well on using crowdfunding platforms or using Kickstarter, right, something that that you have to explain to me why it is quite a little different, or maybe it’s similar. And do you feel so a, which companies do best and be, do you think we have missed out on innovation and on companies starting up because we didn’t have a massive crowdfunding opportunity the last 10, 15 years? Yeah, it’s a good question. So three aspects of that. Firstly, Kickstarter versus we funder. I mean, Kickstarter is perks, right? So you’re, you’re, you’re prefunding a product or a cause or, or, or an album or a film, and then you’re, you’re getting perks. So maybe you get the product at a discount, maybe you get a front receipt at the premiere of the movie. With we funder, you’re investing, right? You can actually invest in loans on we funder. We do debt as well, but 90% of what we do is equity, either price drowns, straight equity or convertible nights or safe future equity contracts for early stage startups. But as an investor, you’re looking to make a return, or at least you have the hope of making a return. And I say a caveat that because I invested, and going back to your earlier question on investor motivations, I invested $125 in Chattanooga FC. And I don’t really care if I make a return on that. I just think it’s cool to be an owner of a soccer club in Chattanooga. And so, but as an investor on, on we, and my name is on that jersey, which I think is kind of cool. And I’m in Nashville. So it’s like in my home state now of Tennessee. But you know, the point is that on we funder, as an investor, you have the hope of earning a financial return. And so the average Kickstarter project raises $25,000. The average we funder project historically has raised $350,000. Now with the law changing to increase the cap from $1 million to $5 million, we think that average might go up. But historically, it’s been $350,000, so more than $10x. And then individual backers on Kickstarter on average are backing $80 on we funder, it’s $1,000. So the idea is if you offer a rate of return to backers slash investors, you can, you can raise a lot more money. So that’s kind of the big difference with perks based crowdfunding like Kickstarter versus we funder. And then, you know, to your question on like the fact that we funder investment crowdfunding hasn’t existed, have we missed out on a bunch of, you know, startups getting funded, I would say 100% yes. And you going back, I wanted to make this point earlier, but to circle back around to it, you mentioned the word opportunity and how we funder kind of expands opportunity earlier. Let me highlight three ways in which this investment crowdfunding world creates opportunity. The first is in aggregate, we think that if this thing grows over time, we are going to get a lot more capital flowing to early stage startups. Rates of entrepreneurial activity in America have been on the decline for decades, like fewer and fewer people starting companies. The large companies in each industry sector account for a higher share of revenue in GDP today than they did 20 years ago, basically across any industry sector. Amazon, great example, ring. And so we believe that at least a part of the reason why, you know, there’s less entrepreneurial activity today than there was 30, 40 years ago is lack of access to early stage capital. And so if we through enabling anyone to participate in investing in startups, company down the street from them or a startup that their friend is running, hopefully we can get more capital in aggregate flowing to startups. And then second, second aspect of opportunity is within that. So more capital flowing to startup founders in aggregate. But within that, right now, 1% of venture capital goes to black founders. 3% goes to female only founders versus 80% going to male only founders. 3% for female only 80% for male only. And 77% of venture capital goes to three states, California, New York and Massachusetts. And so part it’s not just the aggregate amount of capital flowing to startup founders, but also we hope that a more democratic approach to investing can can level the playing field a little bit and result in a more equitable allocation of capital, e.g. more more dollars going to women. So that’s the second aspect of opportunity. And then the third is on the other side of the marketplace on the investor side of the marketplace. And I give this one story of Jason Calicanis, angel invested invested $25,000 in uber seed round. And when they IPI, he made 125 million. So 5000 extra 10. And my thing is imagine if that uber seed round had been on we fund there, and rather than him investing 25 K 125 people had invested $200 each, and that creates 125 new millionaires. So the opportunity for ordinary people to participate in the vast wealth that’s been created by startups. And more and more of that wealth now has been created pre IPO versus post IPO, at least in the last 10 20 years or so, versus like a Microsoft in the 90s. You know, let’s let’s allow ordinary people to participate in those wealth creation opportunities as well. So three aspects of opportunity. And yet to your question, yes, I think we’ve missed out on many, many awesome startups and founders over the last decades, because there wasn’t this kind of more organic kind of, you know, democratized approach to raising capital. Yeah, I’ve been talking about that reduction in opportunities that I see even in Silicon Valley, that’s been going on for quite some time. Strangely enough, there is a ton of seed stage investment opportunity, or funds, let’s put it this way, who are very selective on what they invest in, accelerators, but all kinds of seed stage funds, that’s been a bubble. A lot of people say, well, the valuations are incredible. If we invest, then it’s usually there is a competition with being a couple of different seed stage funds and the valuations are way too high to make that deal of interest to us. So you wouldn’t get the valuation that most people got with Uber, for instance, in the first round. But then strangely, there isn’t a lot of activity in the mid tier. Say you have a series B, C, D, E, it’s a dearth of opportunity. So you either get picked up by Softbank and you basically have a monopoly on that market because no one else can invest that much money in a certain market and you better hope it works it as big as Softbank once an exit. But they definitely are a strong force also in bringing you IPO and now you have the aspects. So I feel that the trouble over the last 15 years has really been this mid market where we see companies, they get an initial seed stage, a million, two or three million, even a series A, and then they don’t get the traction everyone was hoping for. And obviously there’s a very high target that most VCs have. So they’re probably different crowdfunding investors. VCs have a very strong expectation of how this growth looks like, where they just shut the company down. And that’s like 12 months later, 18 months later, there’s not much to do anymore. And your cap table just, you can’t rescue it in most days. That seems to be the biggest problem here in Silicon Valley. Now, this doesn’t really apply necessarily to all over the world where you see a similar depression in entrepreneurship and in opportunities. And you see this a lot with the 22, 30 year olds, the millennials that really complain about this dearth of opportunities that’s big enough. There’s plenty of opportunities to make some money, do any kind of job in the gig economy or even in an entrepreneurial set up like an accelerator. But then building a career on this, making a decent amount of money seemed almost impossible, especially if you want something that’s a little more long term, it has a certain five year trajectory. What do you think about that situation? Do you feel that’s something that crowdfunding can solve relatively soon? Yeah, I think less about the kind of Series A, B crunch that you’re talking about there, the kind of mid stage. I mean, we fund the kind of our range, our sweet spot is 50k to 5 million. So we’re actually kind of more at the early stage. And then the mid stage, you can do a regulation A plus campaign, where you can now raise up to 75 million. So we could actually theoretically go later and that might start to happen more and more. But I kind of tend to think about the problems of kind of homogeneity, less from a stage perspective, and more either from a sector perspective, or a kind of investment structure perspective. So what I mean by that is I don’t have the data on this, by the way. So this might be wrong. But my intuition is that, you know, the kind of venture capital paradigm that has kind of dominated the lexicon of like early stage, you know, investing in startups over the last decades is kind of over indexed on like Uber, DoorDash, you know, kind of consumer consumer kind of apps, I guess, and under indexed on tackling climate change, or like improving our healthcare system, or improving our education system. Again, I might be wrong. If you have any data on that, I’m happy to be corrected. But that’s like the brand I think of the reputation, the intuition I would have. And so there, I hope that again, going back to like democracy, allowing for different people to assert they’re in different motivations and reasons for investing. I would hope that the crowd might allocate more capital to tackling climate change, for example, or education startups to improve education for their kids than institutional investors have done historically. So that’s on the sector lens. And then in the investment structure lens, the right now, it is kind of insane that the kind of the paradigm is like, well, it’s a bank loan, you know, which is like zero risk, right, for an established company with like, where it’s like, you got cash flows, and you don’t really need the money. Versus like venture capital, where it’s like, unless there’s a billion dollar time, then we’re not interested, right. And so I love, there’s this movement called kind of revenue based financing, right, where startups are looking at basically taking out a loan, an uncollateralized loan maybe, but, you know, I went to this revenue based financing conference at the Kaufman Foundation in Kansas City, and had this one revenue based fund manager saying he built a SaaS company with 3 million of ARR growing at 30 or 40% a year. And he wasn’t able to raise any funding from VCs to grow it, because the town wasn’t big enough. And when he’s gave that story, it was just like, that is really insane. There’s this VC called Ernest Capital, and that’s live on we fund it right now, actually, you can invest in them. And they pioneered this investment structure called a SEAL, shared earnings agreement, which is basically a hybrid between a safe or a convertible note, future equity contract, and a kind of instrument where the investor is getting paid back on their principal. And it’s kind of a hybrid between the two. And so I also think like, crowdfunding, and again, democracy applied to early stage finance, can allow for a more kind of kaleidoscope of different investment structures, rather than just this kind of one size fits all, or two size fits all of like bank loans on one side and billion dollar TAM VC power law investing on the other. Yeah, I feel like the sector problem, which you spoke to earlier, is really the over regulation in certain sectors like health care. And a lot of an aspect of it, yeah, a lot of VCs have burned their fingers. I don’t every VC I talked to said they’re really excited about this, but they’ve burned their fingers so many times. And that might be to our earlier point that we say, well, we’ve been burnt so many times, we don’t touch it anymore, right? But maybe the the market has changed. And there is especially in education, we have this whole distance learning that is completely new, right? So the the rights on the ground have changed. And maybe VCs haven’t adopted to this too. I think it’s a competitive industry. I guess there’s that point around a regulation. The other aspect of it, I think is externalities. I guess that’s kind of more my my hope for the crowd. It’s less even around like, you know, is there a miscalculation on like potential investor returns? Although there’s probably some potential for that as well. But it’s more like, you know, it’s like the Chattanooga FC thing, right? Like, I invested 125 bucks in them because I thought it was cool to be an owner of a soccer club. Or maybe I invested $1,000 in this climate tech solution. Because like, I want to there’s this company on WeFunner right now, YC company called Lea Labs, they’re trying to cure cancer and dogs. And, you know, you see a lot of the notes that their investors are writing. And it’s like, you know, I my dog died of cancer, and I’m investing $1,000. And they probably hope to make a return on the $1,000 if he manages to cure cancer in dogs. That’s a that’s a big, you know, business. But also like the motivation of that investor is because they want to try to come up with a solution so that people’s dogs don’t need to die from cancer in the future. Whereas if it’s an institution making that decision, it’s solely looking at the financial returns. They don’t care about that’s not technically true. I guess there are impact investing VCs, but your typical VC probably this is probably a good thing. Because when you think about the long term trends in human evolution, so to speak, it’s all about productivity growth. Like for a while, you can ignore productivity growth, and you can etch it moral or political agenda to whatever investments you do, you know, whatever whatever is your your agenda. But it carries typically a cost, and you lose out on people who don’t have that agenda. Now, there’s positive costs and negative costs. So we’ve covered this on another podcast and I’ve helped we really got somewhere. Sometimes this cost is actually negative. And your moral agenda actually produces more money than the non agenda driven investor. I spoke to Simon about that. But it’s relatively rare. I think it’s really the exception. It happens, but it’s really exceptional. Once we make this discovery, I think it becomes part of the height of mind relatively quickly, it’s becoming adopted relatively quickly. But I think that’s really rare. That’s way more rare than a unicorn, especially long term. But you’re also competing with accelerators, right? So another way to get a company off the ground. And I spoke to Daniel Grass a while ago, he built really interesting accelerator who he never sees the teams, he never talks to anyone, literally, they even don’t care about the pitch deck, but they care about your striper account and how much money you make there. But when one problem that a lot of people when I spoke to VCs and him also about crowdfunding, they say, well, crowdfunding works, but only if you can pull up this massive marketing push. So it’s this push to bring people on the crowdfunding platform, which only works for a certain number of startups that have a consumer affiliation, that have a consumer product that look great in the eyes of the consumers at an early stage even. But say if you invest in cancer therapy or nuclear fusion, people won’t understand that they won’t care unless there is a political agenda, right? And that’s could be good. How do you feel can crowdfunding and companies who are on crowdfunding platforms, how can they solve it that their product just isn’t sexy yet, it might take 10 years to get anywhere? Yeah, I just, I mean, that’s not really true based on the data. I mean, we funded many, you know, deep tech startups, like, you know, the Leo Labs company I mentioned, then there is 600 grand in their previous round and we funder, which according to their CEO was like absolutely transformational for the kind of survival and growth of the company. So obviously, if you have a huge audience, I think there’s two reasons why B2C is in sweet spot for we funder. One is if you have a huge audience, then you can go to that audience and get them to come and invest in you, right? And it goes without saying. And secondly, probably B2C companies get a little bit more value from recruiting an army of brand ambassadors and champions. I still think that can be valuable for a B2B SaaS company, you know, your 1000 investors might work for enterprise potential customers, or they might be able to help you with hiring an engineer. So there’s still value in the social capital of having an army of investors even for a B2B company, but I think there’s even more value on the B2C side. So I do think B2C is in the sweet spot, but yeah, we’ve had many, you know, deep tech or kind of companies that do not have a consumer facing audience do well on we funder. My paradigm for what succeeds on we funder is threefold. The first, as you say, is audience. That’s definitely one, one important factor and not just the size of the audience, but also the quality of the audience, right? So how much do they love the products and the company and probably how rich are they as well, unfortunately, or fortunately, the second would be kind of the hustle of the founder. So are they someone that is going to be willing to put the time and effort into run the marketing campaign to meet with every investor? As is any, always the case with like Reg D fundraising, right? It’s tough. Like you hear the Airbnb founders, they had like dozens of meetings before they got their first yes, right? So are you willing to follow up with investors, take those meetings, pound the pavement, and with we funder, then the number of tactics that you can employ to run the campaign and raise the money are much, much larger, right? So you can do outreach to journalists or you can run a social media campaign or you can, you know, write updates to your investors and or come up with an email drip sequence, etc. So that’s the kind of hustle. And then the third component is honestly how good is the company, right? So we’ve had many, many founders on we funder over the last five years here. You know, they didn’t have a huge audience. And sometimes even they didn’t like put a ton of effort in. Eric Franks is the CEO of Tesseract, which is a YC company that was making satellites. And he raised about a million on we funder in his words, like, I did nothing. Didn’t have an order. I mean, satellites, right? Didn’t have an audience, but raised a million mostly from the we funder investor base. So if it’s a great company, I think you put this on Reddit, there’s a huge, huge audience for exactly that topic, like SpaceX right now makes that really popular, you know, exactly. There’s a couple of space subreddits. There’s tons of people really, really curious about this. And one post might be enough, right? So this is the power of the internet. That’s pretty amazing. You just literally just need one or two posts, posts they take off. And sometimes the topic is more trendy than others. And I think this this would be one like, like there was this the space elevator, I don’t know if you remember that that Google invested in. That was a huge topic for a couple of years. I don’t know if they ever did not remember that. Yeah. Yeah. It’s a couple of years ago. I was just reading Charlie, Charlie and the chocolate factory to my to my four year old daughter. So the space elevator and the elevator and the Charlie and the chocolate factory are probably being mixed up in my head. Well, Robert Subrin, who wrote this book, The Case for Space, he really goes into detail and explains that this sounds ridiculous, but it’s actually a real thing. We can’t make it work financially right now. But it is something that would drive down the cost of launching something into orbit and bringing it down obviously as well without a lot of effort. It’s something that’s quite, how do we say that? It’s doable, right? It’s definitely not something that would make money for quite some time. But the ability to launch something with zero cost into orbit, that’s incredible if it ever works. I want to stick to the marketing topic for just a second. And I know how important that is for crowdfunding. It’s important for anyone, I think, doing business online or doing something with a lot of digital followers. You worked before at Kiva, and maybe you can tell us a little more about that time. Kiva always struck me as something that really had the sweet spot. It had a cost. It seemed like, and I know there’s different business units, and maybe you can tell us more about that. But there was a cost. You help, you designate certain micro loans to people who really need it. They make their lives better. It was proven, it was economically proven that it worked. And it was that sweet spot of, it’s a cost, it makes money, it’s kind of risk free. Why doesn’t everyone sign up to Kiva and put in a couple of hundred dollars? Or maybe people did by now? I joined Kiva. I volunteered there in 2009 on a break from my management consulting company and then came back 2011 to launch this pilot program, Kiva Zip, which initially was in Kenya in the US. Then a few years later, we focused it on the US. And then, so I led that team for seven years and then left Kiva in early 2018. So that was my journey with Kiva. Kiva was founded in 2005. And I think in its earliest years, it was the perfect moments for startups. It’s a bunch of factors, but one of the things we hear is timing. And so in 2005, I think that was the year Muhammad Yunus won the Nobel Peace Prize for his work on microfinance in Bangladesh. So microfinance was super hot. And then crowd funding was basically new as well. I think this was pre kickstarter. So Kiva was one of the first crowdfunding ideas. And this third idea, philanthropy, was not going to be giving your money to a big wasteful NGO with a big head office in Geneva, but rather you can just lend $25 and that money goes to the farmer in the fields of Uganda. And then she pays you back that $25 and you can relearn that $25 to help someone else. So in the first two or three years of Kiva, all these forces combined to mean that Kiva just exploded out of the gate and run Oprah Winfrey’s favorite things one year and had this frontline documentary about Kiva, got some great press which catapulted the growth. And Kiva absolutely exploded like VC, hockey stick, growth as a nonprofit, which is just amazing. Normally nonprofits do not have that kind of hockey stick growth gap. And then it kind of plateaued over time and it kind of struggled to recapture the growth rate that it had seen in its early years. And there’s a lot of reasons for that which we can go into if you want to, but it’s probably quite nuanced and multi tested. But the growth rate kind of really slowed down. The loan volume was always growing at Kiva. I think right up until the last one or two years, the aggregate loan volume was growing year over year. But the percentage growth kind of really slowed right down to maybe single digits. A couple of things. One, we found it, or sorry, Kiva was always struggling to, you want to go on mute by the way, Torsten, if you’re not speaking right now because there’s a lot of background noise. Awesome. It was really off putting, sorry. Yeah, I know it’s too loud. So what we were doing on the Kiva US team was trying to re inject growth into the Kiva lender base. And to do that, we were trying to tap into this dynamic that has basically propelled every other crowdfunding platform apart from Kiva, which is like project owner self fundraising. So the reason why GoFundMe has grown so quickly, why Kickstarter grew so quickly, why we fund it has grown so quickly, is that the project owner promotes the project to all of their network. And then the network comes in and backs them, invests in them. Whereas on Kiva, when the project owner is a farmer in Cambodia, then she can’t get her network to invest $25 to her on PayPal. And she doesn’t really need to because of the way that the Kiva mechanics worked. And so Kiva was never able to tap into this dynamic of borrower self fundraising. So one thing that our team kind of evolved into over time, the Kiva US team, was the small businesses throughout America that we were funding, we kind of require them before they went publicly on the website, you have to get your network to come to you and lend to you. And then obviously that helped them get the ball rolling on their campaign. But also for Kiva, that came to be, I think by the time I left, that was the majority of new users on Kiva, new lenders on Kiva, were people invited to Kiva by the borrower. So we were trying to tap into that dynamic. I mean, to your question of like, why didn’t Kiva take over the world? I think there’s kind of two pretty easy answers to that. The first is that we never really figured out an end revenue stream. So, you know, the reason why Amazon takes over the world is because they are a profitable company, and they can plug the profits and reinvest that into growth. And with Kiva, it was still like heavily reliant on donations and grants. And there was no kind of end revenue stream, we weren’t charging an interest rate on the loans that we made. And so we can use that interest rate to drive growth. And so that was a constraint on the growth. And then probably the even bigger constraint, I think, and this goes back to the kickstart of us is we fund the comparison is that on Kiva, the most you can get back on your $25 loan is your principal, right? And there are some defaults on the loans as well. So on average, maybe if you lend $25 on Kiva, you get back, you know, $23, $24. And because we are not offering you a rate of return, then the capital pool that Kiva is able to tap into on the lender side is basically philanthropically motivated. And that pool of capital is much, much smaller than the pool of capital that is motivated by financial returns, which is why, you know, the average loan on Kiva is in the US is like $5,000, $10,000 versus $350,000 on refund. So those earned revenue business model and then investor returns were probably the two biggest breaks on Kiva’s growth over the last decade. Yeah, I always wondered why Kiva didn’t venture more into being a part owner of the company, right, as a shareholder and never never seemed to go towards that direction. Well, one thing that this is really about marketing dynamics. I think internationally that would have been tough just. Yeah. Go ahead. Sorry, say that again. No, I’m saying we always expected that would be part of the Kiva model at some point, but given that they were really strong in places where it was very difficult to enforce any property rights, say in Cambodia or say in Kenya or Tanzania, at least from the US, right, where the headquarters are, this would be a major challenge. And I was amazed when I saw Kiva in the first place that a lot of people would repay their loans. I expected that to be a full write up, but it wasn’t the case. I think 90, 95% of the loans are paid back and that’s pretty spectacular for such a platform. There’s something I never expected. Would you attribute this to the quality of loans that Kiva made or is it the oversight that Kiva provided? I would have expected the opposite, 95% is lost, 5% comes back. Yeah, it’s getting a little in the Kiva weeds, but I think generally speaking, repayment rates in microfinance are pretty good. So the innovations that Mohamed Ines pioneered around kind of group lending and social trust, I think, really helped to kind of drive very strong repayment rates. So generally around the world, microfinance repayment rates and kind of infrastructure paradigms have high repayment rates. And so Kiva kind of benefited from that. And then Kiva had a portfolio team that would work with microfinance institutions and do a lot of due due diligence and really be focused on that. Sometimes there were some maybe slight quirks of the Kiva system where most of the Kiva model, you’re not actually funding that entrepreneur. She was funded two weeks ago by this intermediary microfinance institution and you are backfilling the MFI. And so Kiva didn’t become a kind of, it wasn’t like causally having that loan go to that entrepreneur, but we were kind of a source of capital for the institutional lending MFI in the middle. And because Kiva’s capital for the MFI was zero interest, the MFI was very, very keen to keep that Kiva capital coming. And so sometimes there was a suspicion, which was technically not allowed in the Kiva policy, but enforcement of this was probably tough. There was a suspicion sometimes that like some MFIers would cover up defaults on Kiva loans because they wanted to make themselves look good on the window to the world that was their Kiva partner page. So there was probably some slight quirks in the system that was driving that. That was one of the interesting things about our program, our team, Kiva Zip, which became Kiva US. We were actually cutting out the middleman MFI and lending directly to the entrepreneur using Mpeso, which is a mobile payments platform in Kenya to put the loan directly on the mobile phone of a borrower living in the slums of Kibera, which was honestly like the coolest thing ever. And then you would have a lender in Sweden who loaned $25 to that borrower, and the lender in Sweden would write a message on the Kiva website that the borrower gets as an SMS on their phone and replies to the SMS and the lender in Sweden is seeing that message. And so we’re not just financially connecting, but like through a message connecting this lender in Sweden as borrowing the slums of Kibera or rural Kenya. It was absolutely amazing what we were doing. It’s giving me goosebumps to talk about it and think about it. But and then on the US side as well, we were also cutting out the US MFI middleman and lending directly from Kiva lenders to the US small business owners. And on our direct program, we were kind of managing the risk ourselves versus having these MFI intermediaries. And we were deliberately trying to take more risk. We were trying to make loans where US MFI’s were not willing to lend to, because it was seen as too risky. And our whole idea was, well, we want to take risk and lend to low income entrepreneurs, low income entrepreneurs, probably riskier. And so our repayment rates were something like 85% versus like 97% for international Kiva. I think the US model when we were working with MFI’s was about 85% as well, actually. So we were kind of in line with the partner based model, but so the direct programs repayment rates were certainly lower than the partner based repayment rates on Kiva. But yeah, overall, I think on well over a billion dollars of loan volume over the last 15 years, I think Kiva’s repayment rate is about still about 97%. It’s an amazing success story. And I didn’t know that Kiva is to an extent like a reinsure, right? So it takes a portfolio and then finances that portfolio, which makes a lot of sense, right? You save yourself a lot of work on the ground. And then our team was coming in to reinsert that work on the ground and say, it was a return to Kiva’s original business model, but it was like a lot more operationally expensive, it was a lot riskier. And there was some really, really cool aspects of that. But it was also presented new challenges. Two things that I learned from that article that I read that you wrote is one thing you kind of reinvented the whole credit score. So I think the credit score for business is broken in the first place, you try to reinvent that which is pretty spectacular. And then on the other side also, you kind of withdrew from general interest marketing, as you put it, from a wider audience, from Facebook ads, from lots of paid ads. And you really focused on basically getting more out of existing customers or existing leads that you already had, which is a pretty crazy decision for most companies that have that kind of marketing budget and this kind of ambition that Kiva had. Maybe you can tell us a little more about those aspects. Yeah, absolutely. So remind me the first one again. So one was the credit score, which was usually ambitious. I think that’s like a start up on its own, a trillion dollar not, or maybe a trillion dollar start up. And then the other question is, what happened to marketing in general interest paid marketing seems to be extremely risky. Yeah, thanks. So on the credit scoring side, yeah, we had fun over the seven years that I was there kind of iterating on experimenting around some themes. And like as a nonprofit, I think it gave us this kind of pretty interesting ability to experiment because we weren’t required to maintain a 3% default rate because our investors were expecting a 3% IRR and we charged a 6% interest rate. Our investors were lending for motivations of philanthropy. And so it kind of some most of them to your point were maybe okay or expected like a much higher default rate. And so it gave us this opportunity, which honestly, I never really thought about before, like the model and nonprofit nature of the model and the philanthropic nature of the capital that we were investing like give us this kind of playground, I guess. And so we experimented a lot with this concept of social underwriting. And so banks going back to the conversation earlier around like, it’s harder and harder for early stage businesses, small businesses to access capital like from banks, there’s just like, it’s too risky, like it’s too much work, like banks are doing larger and larger loans and say smaller businesses just have a really hard time raising capital. And so, you know, part of that we were thinking was it’s kind of underwrites as lenders are just looking at financial data, right? So what’s your credit FICO score, you know, how much money is in your bank account? And that is obviously then discriminating against lower income people. You know, and if you look at the number of bank loans that are going to entrepreneurs of color, for example, or women of color, then it’s the same problem that you see in VC, right? And so we were we were trying to get up, how do we tap into kind of social data points, or kind of character based lending is a phrase that you might have heard, and compensate financial data with that social data. And so and we found some pretty cool things that like, there was a very strong correlation between like, the number of lenders on loan and the repayment rate of those loans, which I think one was because lenders were good at assessing risk in their decisions. And probably secondly, it was because if you have 200 lenders on your loan, you’ll kind of feel maybe obligated to pay back those 200 people. And then, you know, the coolest thing we did was what was called the private fundraising period. And so we basically said, you know, to an extent, like, we’re not going to say no to anyone, anyone has a chance of like getting their business funded on Kiva. But before you can be public to the Kiva lenders, you need to recruit a certain number of people from your own network to lend to you. And then we could have fun with it where we would say, you know, if your business is financially riskier, e.g. less years in business, or like don’t have any revenue yet, or, you know, your credit score is low, you know, so a normal lender would said, no way, we’re not lending to you. We would say, you can actually still get funded on Kiva. But because you’re financially riskier, you need to recruit more people from your own, you know, friends and family network, or from your own community to lend to you before we put you publicly up on Kiva. And then we had even more fun, because we would say, if you are low income, you know, we will make it easier for you to get up on Kiva, because we will lower the number of people that you need to invite, or lower the threshold for you to get public on Kiva, which is like, absolutely like counter to any lender, right? Normally, it’s like, oh, yeah, if you have a ton of money in collateral, then sure, we’ll make it easier for you to get a loan. And because of our nonprofit mission, we were explicitly flipping that, which was super fun. And all these loans were 0% interest. So we kind of experimented around this, these ideas of kind of complimenting like financial numbers and financial underwriting with kind of social underwriting. So that’s on your first question. And the second question, yeah, the community focused growth, I wrote this blog post community focused growth. And I think this really depends on the business. So one thing we found at Kiva was that we couldn’t get the economics to work on Facebook or Google ads. So, you know, we kind of basically experimented with that, tried it out, and then put a pause on it. Now, our LTV was pretty low. And keywords, Google keywords on loans, small business loans are pretty expensive. So there were kind of economic reasons why that channel wasn’t working for us. But the fact that the kind of classic digital advertising strategy wasn’t working kind of went hand in hand, actually, with like a whole brand and a whole vibe, we use the word community just like incessantly, right, we were trying to build like a community based lending platform, where it’s people helping people, you know, and the loans are being crowdsourced and, you know, your community and your social kind of data points are like the underwriting algorithm that we employ. And so that we had a, or we kind of evolved towards a community based growth strategy, where, you know, we’re trying to get, which is another way of saying is like virality, I guess, is the kind of Silicon Valley buzzword way of saying it. But we kind of were, we evolved it to that growth strategy rather than the digital ad strategy that we can get to work. And yeah, I also talked about trying to spend more time with our existing customers and less time trying to find new customers, but more time delighting existing customers or adding value for existing customers. And that probably is a paradigm that probably does apply to a lot of businesses. I look at Wefunder and I think like, I probably could relearn that lesson now, where, you know, it’s always like, let’s grow, grow, grow more, more, more. But then sometimes it’s like, well, maybe I should be spending more time just like adding value, like doubling down on kind of existing portfolio companies, so that then they have a super high net promoter score, which then actually drives high quality growth and viral growth. And that’s another thing on the lending side, or on Wefunder, the kind of investing side, the quality of growth is super important as well, right? And so the quality of loans that we got from borrower referrals at Kiva or founder referrals that Wefunder is way, way higher than the quality of growth that you’re seeing from, from like a Facebook ad. I was sitting as questions around attribution, like, I’ve looked at kind of digital ads that we’re running to investors now on Wefunder. And it’s like, you know, it’s, I think there’s some pretty spurious attribution that is going on, which of course, Facebook and Google are highly, highly incentivized to claim more attribution than they actually deserve. So kind of not embracing that channel, like Kiva kind of got us out of any kind of attribution challenges as well. It’s super interesting. I think you know so much about how to take a relatively complex model and then lay it out in a, in a way that makes sense to as a marketing strategy. And I think a lot of startups, and I think we see is included make that mistake that they basically see a historical lifetime value, say it’s $130, $200, whatever the value is, which is all across their friend channels, typically. And then they go into a new channel and they say, well, say it’s 150 lifetime value, we can bid up to $149.99 in core version. And it turns out that new channels out to be as any 50 bucks. Yeah. And you can’t just mix those channels because a referral channel is somewhat free, right? And these, the referral is often, if it is a real friend referral, you get a real different, a very different quality of user that is much more incentivized to listen to you and maybe buy additional services and really gets your model. But if you go into that sharp pool of, of, of Google ads and Facebook ads, that’s not necessarily true. And I think people understand this to some extent, but then they say, Oh, well, we just need a real number. And then we either invest or not, can you bring us enough people that sign up that’s for a lower than our lifetime value that’s lower than our lifetime value. And I think this is a mistake people make. It was an oversimplification. And I think like when you talk about quality of users as well, by channel, there’s this kind of maybe with a business like Kiva or WeFunday, there’s kind of two aspects of quality, right? So the obvious one is like, how many dollars is that company going to raise on WeFunday, right? And so you might find that the average Facebook lead might raise 50K on WeFunday, whereas the average referral from a great founder might raise a million dollars on WeFunday. But then another aspect of the quality of the lead is the conversion through the sales funnel, right? And so, you know, there’s this one founder, Dan Kertzrod, the founder of Regrain, social entrepreneur, awesome companies, like basically upcycling the wasted ingredients and beer and turning that into food, like bread or, you know, he has this line of puffs. And so he had a great experience on WeFunday, he’s sending me, you know, probably sent me 10 companies since he raised just a few months ago and say, hey, check out WeFunday, here’s Johnny. And he’s like doing a 30 minute sales call about WeFunday with each of them before he puts them in touch with me. So then they get on the phone with me and I’ll, yeah, Dan’s already sold me, where do I sign? Versus like someone that saw the Facebook ad, he’s like, actually has no contacts, not bought it in at all. So it’s not just the dollar amount that those leads are going to raise when they launch, but also the percentage conversion to launch is so much higher when you have a kind of viral or kind of community driven approach to growth. Yeah, absolutely see that. And I think it’s, it’s this number driven investment and decision making we’ve seen reaches its limit right there. There’s often more to the story. One thing that people always ask when we think about crowdfunding, when we think about new enterprises is how do we get rid of that problem of scams? How do we get rid of the bad guys? How do we come up? And that’s why I asked you about Kiva, how do we, we come up with this scoring system, the social scoring system. So we know these startups are not intentional scams. And obviously that’s a very fine line, right? So we as entrepreneurs, we, we make up stories that’s the best case scenario. And then we say, oh, this is actually a more conservative scenario. And then we just, we just changed the spreadsheet. This is what these are accustomed to. They know that, right? They’ve been dealing with this for 20 years and they discounted enough. So they know that your conservative scenario is probably based on assumptions that are very shaky. Let’s put it this way. But I’m not sure if maybe, maybe individual investors are even more, more protected from this, because maybe they have, they are more distant than you’re not in the room. And you, you know, they don’t necessarily know all the reputation. So maybe they discount even more. I don’t know about that. But do you have at Vfunder a good system in place that filters out the bad actors? Yeah, I think so. Pretty good one. I mean, we have, you know, a lot of kind of due diligence and fraud checks that we do. I think that you’re never going to eliminate it completely, right? And, you know, the kind of the alternative to Vfunder or regulation crowdfunding is regulation D, right? And you look at a company like Tharanose straight that, you know, you can have fraud and victims of fraud on the regulation D side as well as the regulation crowdfunding side. And, you know, I think this is one of our biggest challenges. I actually think the question you asked earlier about IRR and investor returns, for me, that’s the thing that keeps me up at night more than fraud. I think fraud is definitely a risk and we, I’m sure will have fraud on Vfunder, you know, and that’ll be like a challenge for us to communicate about that. To IRR, right? When you think of it, like the default ratio, so to speak, and then non proper handling. We want to make people happy over time, which is IRR is obviously the best number to look at. Yeah, I would maybe disagree with that. Just because I think fraud is going to be so rare and most startups are super risky. So most startups probably go to zero, not as a result of fraud, but just as a result of the fact that startups are really hard. And so I think like we could totally eliminate fraud and still have negative IRR. And so I actually think the challenge of like, how do we get the biggest thing is selection, which is like, how do we get the best companies on WeFunder in the first place? And then the second thing is once the best companies are on WeFunder, then how do we ensure that the valuations and terms are in line with market and retail investors are not paying too much? And then the third thing is like, hopefully, you know, getting invested in through WeFunder is good for your company. There’s maybe a world where, you know, if VCs are investing, Andreessen Horowitz gets Elon to interview Vlad on Clubhouse and that blows up Clubhouse and say, the VC is bringing valuable capital. And unless WeFunder can compete and the crowd can bring equally valuable capital, then there’s a worldwide. Even if we get great companies on WeFunder, even if they raise on good valuations, maybe we’re not kind of catalyzing them as much as venture capital and say, we need to kind of win on all three of those points, right? And those are the things that I think is like the real, the real, the biggest challenge. But obviously, there’s a lot on the fraud side as well. And we take that very seriously. And one of the things we’ve done is this lead investor thing that I mentioned earlier, where the average lead investor puts in 25K into a WeFunder deal and the primary role of the lead investor is to help negotiate the terms of the offering of the outset. And so we at least have someone who’s putting in a decent chunk of money to kick the tires. And I think if you have mechanisms like that, and there’s obviously many, many more that we will build in over time to mitigate fraud, hopefully, you know, we can try to reduce the risk of that as much as possible, we’ll probably never get it to zero. Yeah, I like what you said earlier about this more social community aspect. So, so just putting a social pressure on the investor itself. And especially on the entrepreneur, less on the investor, but on the entrepreneur who receives the funds, I think that helps a lot. Maybe this is what accelerators do, right? This is maybe what my combinator does a lot. It’s not just knowledge. It’s also this, you know, you in the hallways of where people build unicorns. So you better do it right. You don’t just run off to Russia and party with the money. Exactly. And there’s actually a top goal. There’s 39 Y Combinator companies that launched on WeFunder yesterday. WeFunder.com slash YC. So on that first aspect of investor ARR, which is like getting the best companies and WeFunder really, really exciting development for us and launch for us this week. Is that a batch from this year? Where did these 39 come from? There’s some from previous batches and some from the latest batch. That’s a great sign of approval. Is that something that Y Combinator promotes actively? Or that’s just like a random selection? Obviously, this is a good selection. What we’ve known so far. I think it’s the latter. I don’t think Y Combinator have done too much promotion of it. But just a lot of Y Combinator companies are choosing to raise money on WeFunder. And I think there’s kind of three reasons to do that. One is might make it easier for them to raise capital if they need a boost in rounding up the round. Secondly, some of them might see value in recruiting an army of brand ambassadors and champions. And then thirdly, and this is a conversation that I think is coming up more and more these days. Conversations around DEI and equity is kind of the blunt way of saying it is like if you build a unicorn and you create a ton of wealth and building a massive startup that then ICOs and creates a ton of wealth, who do you want to create that wealth for? Like some rich people that you don’t really know or like your friends and family and customers and earliest supporters and champions. And I think more and more founders actually, I’m having really cool conversations where it’s like, sure, this seems like an easy way to raise money. Sure, I think this will be a good thing for my business to recruit an army of champions. But the thing I’m really excited about is having my fans and community members get to be along on the ride and hopefully I’m building wealth for them as well as or even instead of, you know, some some millionaires. I always find family and friends investments really risky for your social portfolio, so to speak, because most investors will not get any handling, right? So they have like two or three startup investments. And in all likelihoodness, most of them won’t turn out so well, like on average, the returns for venture capital are great and early stage investments. But for the individual investment, it might be a different story. And they don’t have a lot of control over this. I as an entrepreneur have a lot of control, but they don’t have a lot of control. And I’ve always been a little hesitant with this. But yeah, what you’re saying is absolutely correct. If it works out and if that model works out. Exactly. That’s a double edge sword, right? So, you know, I’m painting the positive side here. And I think probably the founders that will use refund the like, have that positive mentality, right? There’s also the double edge sword, the negative side is like, yeah, if the startup goes to zero, then I’ll probably hear about it at the next, at the next, you know, holiday family holiday party. If my investors were were my aunts and uncles versus some accredited investors that I didn’t know before. You probably have to change states. Johnny, it’s getting me out here again. I think the construction is back. Anyways, I, I really wanted to thank you for doing this. I really appreciate you taking the time. And I learned so much. And I think crowdfunding is the future. I hope you guys succeed. Thank you, man. This has been super fun. You asked great questions. And yeah, I hope to stay in touch. And yeah, we’ll do a reunion episode in a year’s time. And I’m predicting a lot of growth with these new law changes. I think the growth of regulation crowdfunding is going to be pretty explosive over the next year. So you can chat back in a year’s time and see if that prediction is going out to be accurate. Hopefully so. We’re looking forward to it. Johnny, this was awesome.