Crowdfunding

Eve Picker: [00:00:03] Hi there, thanks for joining me on Rethink Real Estate. I’m on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I’m on a journey to find the most creative thinkers and doers out there. I’m not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, please join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers.

Eve: [00:01:07] Today, I’m talking with Jonny Price, V.P. of Fundraising for Wefunder. Jonny Price, who spent most of his working life in the world of microfinance, first at the nonprofit Kiva and now with the crowdfunding platform, Wefunder. He started his journey from management consultant to crowdfunding guru in 2009 as a volunteer with Kiva. He made the full leap over to Kiva in 2011 to lead the Kiva Zip pilot project. This later became Kiva U.S. and a couple of years ago he transitioned to Wefunder, a crowdfunding platform where everyone over the age of 18 can invest as little as 100 dollars. Kiva and Wefunder have a common theme for Jonny. They are aimed at financially excluded and socially impactful businesses. Jonny talks about the crazy gap between bank loans for established businesses and venture capital for a select few. Venture capitalists almost exclusively focused on potential unicorns. A lot of businesses in the middle fall in between the cracks, and Jonny thinks that crowdfunding might serve them well. If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.

Eve: [00:02:49] Hi, Jonny. I’m delighted to talk to you today.

Jonny Price: [00:02:52] Thank you, Eve. I’m delighted to talk with you, too.

Eve: [00:02:55] I think I’m especially delighted because you have an accent closer to the mine.

Jonny: [00:02:59] My accent actually sounds pretty Australian these days after 10 years in America. It’s becoming more and more diluted, polluted by the day.

Eve: [00:03:10] I think I’m stuck somewhere between the two, yeah. OK, so I wanted to start by asking you how someone with a degree from Cambridge in history, economics and Italian ended up at Wefunder?

Jonny: [00:03:25] Yes.

Eve: [00:03:26] Take me on the journey.

Jonny: [00:03:27] The meandering journey. Yeah. So, when I graduated from university, which was, I think 2005, I didn’t really know what I wanted to do with my history degree. And the economics and Italian, are kind of embellishments for the LinkedIn profile to impress people like you. But really, it was a history degree. So even less useful, I think you know, than having the economics. And so I didn’t really know what I wanted to do and was just kind of looking for jobs. And the management consulting guys gave out really good wine and kind of looked at their recruiting event and sold a good story of, you know, fly around the world and advise, you know, senior executives of big companies on their strategy. And so I kind of fell into that a little bit and worked for a firm called Oliver Wyman in their London office, which kind of looking back on that, I kind of maybe think I would have enjoyed my 20s if I started my career in startups and entrepreneurship. But at the time I actually really enjoyed it. A lot of people don’t like it and leave after a couple of years, but I actually kind of liked it and I decent with some good skills that it taught me. And then four years into working for Oliver Wyman, I took a what’s called a non-profit fellowship. They had this awesome scheme where you could go and volunteer for a non-profit for a few months and they actually paid you part of your salary while you were there. And so I flew to San Francisco and worked for a non-profit called Kiva.org in their San Francisco office for five months. And you probably, do you know Kiva?

Eve: [00:05:15] Oh, yeah.

Jonny: [00:05:16] So as someone in the crowdfunding, a maven of crowdfunding, you probably would. So they are, as you know, crowd funded microloans for entrepreneurs all around the world. And they kind of really burst onto the scene in 2005. When they were founded, they were on Oprah’s favorite things. Muhammad Yunus won the Nobel Peace Prize for microfinance. Crowdfunding was a new thing. And so, in 2009, I went to volunteer there for a few months, kind of fell in love with the mission, the team and also a girl called Ali, who is now my wife. So she’s a big part of the story because after that five months was up, I went back to London, back to Oliver Wyman. We were dating long distance. Then I got Oliver Wyman to transfer me to their San Francisco office so we could be in the same city. Then we got married and then she was like, actually, you know, you flying to Toronto on Sunday nights and flying back on Thursday nights with this management consulting thing isn’t really working for me. So how about you leave consulting? And so that was 2011. And so then I was looking for what was next. After Oliver Wyman and the guys at Kiva were looking at launching this new pilot program at the time called Kiva Zip. And they knew me from when I was volunteering there. And so it was kind of perfect timing. And I got into that in 2011. Ran that team for seven years. We can get into my exit story from Kiva if you want. And since early 2018 I have been leading the business development team at Wefunder. Sorry, that was really long-winded.

Eve: [00:06:47] No, it’s great. So, you know, I remember when Kiva came to Pittsburgh when you launched in the U.S., it was a really big deal.

Jonny: [00:06:58] Yeah. So the Kiva Zip pilot that I kind of founded back in 2011 at the time we were in both the U.S. and Kenya. After a few years, we ended up kind of winding down the Kenyan side, which is a whole other question that we can get into. Basically, it was resource constraints of trying to with very, very limited bandwidth, trying to build for small business owners in Nairobi and Pittsburgh is quite hot.

Eve: [00:07:30] Oh, yes, very, very much so.

Jonny: [00:07:32] Peter tells of bison zero to one rate while he talks about kind of starting with a very targeted customer base. We didn’t really do that on Kiva Zip. So that’s why we kind of ended up winding down the Kenyan side and then we focused on the U.S. So over time, Kiva Zip came to be known as Kiva U.S., and we brought this international microfinance model that Kiva had pioneered and crowdfunded microfinance and then brought it to entrepreneurs in the U.S. And I think we launched in Pittsburgh I want to say maybe early 2015. And I think since then we funded well over 100 small business owners and probably coming up in 200 now in Pittsburgh.

Eve: [00:08:09] Just in Pittsburgh alone. And what about in the U.S.?

Jonny: [00:08:13] When I left, we had funded 5,000 entrepreneurs. That was in the first seven years, and we did 1,500 the last year I was there and it was growing at about 30 or 40 percent a year. I think it has slowed down in the last couple of years, unfortunately. But yeah, at the time I left we had done 5,000.

Eve: [00:08:35] So what does it mean to be funded by Kiva for people who don’t know about Kiva?

Jonny: [00:08:41] So in the U.S. model, Kiva does zero percent interest crowdfunded microloans, and when I left, they were up to 25 K, although the average was just 5 K. So, if you have a barbershop or a small farm, then you know, and you need 10,000 dollars for a specific purpose rather than getting that money from a bank. I mean, banks are just not lending to small businesses these days or a conventional community development financial institution or a credit card or on deck or whatever the other options are. You could go to your customers or the Wefunder lender base. What was interesting about Kiva, unlike most crowdfunding platforms, is 80 percent of the capital is coming from Kiva’s lender base and they’re not getting an interest rate on the loans. It’s all zero interest, no fees. So they’re just lending to help entrepreneurs maybe like invest in this business, in their community or, you know, they like the story and then they just want to help. And they have money in their account, and it’s being paid to them back. And then they just relend it and it keeps cycling over and over again. So, so that was the model. So for entrepreneurs and we were we were lending to people that no one else would lend to start-up businesses, low credit scores, you know, low income entrepreneurs, two thirds actually more of the loans we made were to women entrepreneurs, 70 percent were to entrepreneurs of color. The median household income was 42,000 dollars. So we were really extending loans to small businesses that no one else was touching. And instead of them paying exorbitant punitive interest rates, they were paying zero percent. It was very kind of fun to just buck that open economic paradigm in that way.

Eve: [00:10:25] I’ll bet. Yes, yes. And then, and then Wefunder seduced you away.

Jonny: [00:10:32] Kind of. Yeah. So I, there was a new CEO who came in at Kiva in late 2017. And he basically wanted to take their program in a different direction. He didn’t think the growth rate was fast enough was what he told me. And so he asked me to step down from running it in early 2018, which was quite a shock to me. I thought things had been going very, very well. And I think he maybe and some people in the Kiva board were kind of used to kind of venture capital backed growth rates and were looking for the hockey stick, which we suddenly weren’t delivering a hockey stick. Our growth rate, as I mentioned, was like 30 or 40 percent. So, yeah, he asked me to step down, which caused me to to move away from Kiva. And thankfully, I found Wefunder. And when I left Kiva, I kind of seen a couple of big challenges with the Kiva model. Firstly, Kiva wasn’t really earning any money from making these loans. We weren’t charging an interest rate or a fee to borrowers and say the model wasn’t very economically sustainable. Kiva, as a non-profit, was reliant on grant funding, which was challenging then for us to scale. And we weren’t able to attract venture capital funding, for example, to grow very quickly. And so the growth was a little more linear. So the economic sustainability of the Kiva side was one challenge. And then the other challenge was that the lenders, because they weren’t offered a potential rates of return, the capital that they were willing to deploy was also very limited. So I think we made 25,000,000 dollars of loans when I was there. 5,000 loans and 5,000 dollars average loan. But, you know, it wasn’t like two and a half billion.

Eve: [00:12:25] And I mean, in that period of time, how much venture capital was deployed to businesses?

Jonny: [00:12:29] Exactly.

Eve: [00:12:29] Like seriously, how much? What was the number? Compared to… billions and billions.

Jonny: [00:12:35] Right. So then at Wefunder we’re charging founders a fee to raise on the platform like Kickstarter does or any crowdfunding platform apart from Kiva. And then we are offering investors, is the hope of return. And obviously investing in start-ups is super risky. A lot of them will go to zero, but some of them might hit it really big. We do loans as well on the platform where you’re getting an interest rate back on the loan and so the Wefunder model, solved the two biggest challenges I’d seen with the Kiva model and so and got to know the team and was just very, very impressed and inspired with both the mission and the caliber of the people. And it’s really been a match made in heaven and it’s been a very, very exciting and fun three and a half years.

Eve: [00:13:22] Wow. So what’s your role at Wefunder?

Jonny: [00:13:25] So my title is VP of Fundraising, and I’m basically responsible for leading a team that is focused on getting founders fundraising on the Wefunder platform. So, you know, we are investing in tech start-ups and breweries and coffee shops and movies, and we really have a pretty eclectic portfolio. But, you know, finding those founders, developing relationships with accelerators or incubators or small business development centers and then, you know, talking to those founders, explaining to them the pros and cons of regulation crowdfunding, which is what we do, and then hopefully working with them and say as they launch on the platform.

Eve: [00:14:12] So, as you know, I’m also in the regulation crowdfunding industry.

Jonny: [00:14:18] Yeah.

Eve: [00:14:19] What excites you most about crowdfunding and regulation crowdfunding in particular. What’s the potential that you think it holds?

Jonny: [00:14:30] Yeah, many things. I’ll maybe highlight three. Firstly, getting more capital flowing to found this. So, I think both in aggregate and then kind of disaggregated. So, what I mean by that is I believe that, you know, one of the reasons why entrepreneurial activity has been on the decline for decades in America is that this kind of you know, it’s harder to raise capital for early stage businesses. VCs have been going later. You know, banks are just not lending to small businesses or start-up businesses. So it’s harder and harder to raise capital. So if you read Wefunder’s, Public Benefit Corporation Charter, one of the things we’re trying to do is, you know, use democracy and use the crowd to get more capital in aggregate flowing to start-up founders and early stage entrepreneurs in America, period. And I think that’s really cool. I think there’s a lot of positive social externalities that come from people starting businesses and funding businesses. So, I’m excited about that in aggregate. And then to disaggregate right now, one percent of VC goes to black founders and three percent goes to female only founding teams versus 80 percent to male only founding teams. And 77 percent of venture capital goes to three states, California, New York and Massachusetts. I live in Nashville, Tennessee now. I moved here about a year ago from San Francisco. And it’s pretty striking to me how hard it is for families to access capital here in the heartland. I was chatting to one founder. He said, you can’t get in front of angels here until you have a million dollars in ARR, which is just insane.

Eve: [00:16:15] Yes.

Jonny: [00:16:15] And so not just more capital flowing to founders in aggregate. If the investors, you know, kind of look like the women of color in Baltimore or Nashville rather than just a lot of kind of conventional investors being kind of white men on the coasts, then hopefully we can get more equitable allocations of capital happening as well. So that’s on the founder side. And then on the investor side, basically, it’s simple, right? Why should only rich people get to participate in investing in start-ups? There’s a lot of wealth that’s being created by start-ups like imagine if the people that benefited from Uber’s IPO, the people that made like five thousand X on Uber’s IPO from that investment in the seed round instead of being a bunch of millionaires. If that had been middle class people, I just think that can be a powerful vehicle for wealth creation, kind of socio-economic mobility. And then the third point is like, and we’ve really experienced this on our own rates recently, we’ve only just raised five million dollars on for using regulation crowdfunding ourselves in partnership with a platform called Honeycomb, who you know who based in Pittsburgh.

Eve: [00:17:25] Yes, also Pittsburgh. Yes.

Jonny: [00:17:26] So Wefunder raised five million on Honeycomb from the crowd. And you see some of the messages that investors write about how they’ve been involved with Wefunder this since 2012 when we were founded, and they’re so inspired by our mission, and they’re really excited about what we’re doing. And it’s you read those comments and it’s just truly inspiring. And the point, that this third point is that trying to forge connections and, you know, tissue between founders and investors, I think can do really good things for start-ups. So obviously, consumer facing businesses, it’s probably the easiest to see if a consumer facing business raises a million dollars from a thousand people. That’s a thousand super loyal customers, brand ambassadors, champions that can help them grow the business and are now, you know, involved, and have a front row seat, you know, for the for the growth of that company. So those are the things I’m most excited about with this kind of democratic approach to raising capital.

Eve: [00:18:30] So have you seen an increase in minority or women business owners over the last year or two?

Jonny: [00:18:39] I don’t know if we’ve seen one over the last year or two. I think kind of from the outset Wefunder is always over indexed. You know whether you look at the three lenses I mentioned earlier, gender, ethnicity, geography, I think we’ve kind of over indexed versus conventional venture capital, angel investing. But on both sides of the marketplace. Right. Like working capital, flowing to underrepresented founders, but also 85 percent of angel investors in a stat I found online, I don’t know if it’s accurate, but this stat said 85 percent of angels are men, 15 percent are women.

Eve: [00:19:11] That’s, I think, that’s actually surprisingly.

Jonny: [00:19:14] Probably generous.

Eve: [00:19:14] The number’s so high for women actually.

Jonny: [00:19:17] On Wefunder it’s 70-30. Right. So we’ve still got work to do.

Eve: [00:19:20] It’s pretty good.

Jonny: [00:19:20] It’s not 50-50, but it’s, and the same on the founder side. We’re not at a level playing field yet, I would say, but suddenly we’re doing much, much better than conventional.

Eve: [00:19:31] I think real estate’s even harder. Very difficult to find female developers. And we’ve seen a rise of minority developers over the last year, which is really amazingly encouraging. But the number of women that invest in real estate is just startlingly low. I can’t believe it. I just like I. Yeah, there’s a lot of education that has to happen.

Jonny: [00:19:57] Mm hmm.

Eve: [00:19:58] It’s interesting.

Jonny: [00:20:01] Yeah, well, it’s good to be good to be working in the same space space as you as trying to, trying to move things in the right direction.

Eve: [00:20:10] Ok, let’s talk about the regulation, because, as you know, I love regulation crowdfunding, too. But it’s not a panacea. It doesn’t fix all things. What you know, what do you think are its warts and how could it be better?

Jonny: [00:20:24] Yeah, I mean, honestly, the recent changes that the SEC made, I think are very good. So, as you know, March 15th of this year, 2021, the SEC brought up some changes, some of the highlights. The headline was that, you know, the maximum amount a founder could raise increased from 1.07 million to 5 million. And that has meant that the quality of companies that are interested in raising from the crowd has increased. Which is kind of our paradigm on how we’ve got to make this industry work long term. I think one of the biggest criticisms probably valid over the last five years since the rollout of Reg CF in May 2016 has been that there is an adverse selection effect. And, you know, the best companies are going to go the conventional route of VCs. And, you know, so regulation crowdfunding is for companies that can’t raise money from real investors. And so what we are really trying hard to do as a company at Wefunder is to make that not true. And I am optimistic, but in large part because of our team, Nick Tommarello, our CEO, Greg Belote our CTO, just very, very brilliant, inspiring people that are thinking about this very, very strategically. But we are desperately trying to get to that world. And since the five million cap increase, we’ve had 30 Y Combinator companies launched on Wefunder. We had Rome Research raise a million dollars in a day. I think they oversubscribed to nine million dollars and had to turn eight million dollars of investors away.

Eve: [00:22:15] Wow.

Jonny: [00:22:15] We’ve raised five million dollars ourselves. Gumroad raised on Republik. So, you know, there really is, I think, an increase in that kind of caliber of companies that are looking at and happy to raise through regulation crowdfunding. And SPVs was another aspect of the March 15th rule changes, so enabling founders to raise through one on the table using a special purpose vehicle, which is how, you know, normal companies raise using Reg V funding. So there’s a, there’s more to do. And I think over time, like, you know, as there are more success stories. And the key for me is going back to the third thing I mentioned, I’m excited about. If the value that an early-stage founder gets from raising money on Wefunder through regulation crowdfunding, if the value that they get from this army of champions and customers and ambassadors is so strong that, like. And obviously, it doesn’t need to be an either/or thing you can raise from VCs and also from the crowd, and if the value that you’re getting from that crowd to really compliment the value that you’re getting from institutional investors, I think that will be the moment. And when it’s like, well, why the hell would you not do this as an early stage, you know, start-up? And you’re kind of putting yourself at a competitive disadvantage if you’re not recruiting this army of champions in the early, fragile days of your business. So that’s the world we’re shooting for. And probably not there yet. But we try.

Eve: [00:23:51] No, I don’t think we are there yet.  I think we, I think we’re very much the underdog, like in real estate. When I see the things that developers have to deal with because they want to do crowdfunding and because their large institutional investors don’t want to be next to small investors. It makes me want to cry. Like does small mean fraudulent? I don’t understand it, but yeah, you shouldn’t…

Jonny: [00:24:18] Do you see it moving in the right direction in real estate? Because, especially with this March 15th thing, but also the pandemic, I think accelerated this as well for us, because especially in the early days of the pandemic, I spoke to a lot of families who, you know, we’re talking to angels and basically had their rounds fall apart. And, you know, so then they were like, OK, we need a different option. And then they came. And so it’s been growing. And the kind of the caliber of founders I think has been increasing for a year or so. But that’s really accelerated in the last couple of months. So I see it moving in the right direction in the kind of start-up side. What about in the real estate side?

Eve: [00:24:55] Yeah, I’ve been doing a number of things that have sort of changed direction slightly towards higher quality developers. So we’re absolutely seeing it. And I think the most gratifying thing that I’ve seen over the last year during the pandemic is the number of minority developers who have emerged and are raising funds on this site. And I really, I’m just so excited to be able to provide that opportunity, because if you talk to any of them and ask them what help do you need, they say access to capital.

Jonny: [00:25:32] Yeah. And hopefully that will also translate to returns. So I had this stat the other day. I can’t remember the exact number, but it was something along the lines of where an investor invests in someone that went to their school. The returns are worse because of the school connection. That kind of buddy buddy, you know, kind of…

Eve: [00:25:54] Empathy I’ll put up with anything.

Jonny: [00:25:56] They’ll kind of, you know, make slightly worse investment decisions because there’s some subjectivity that creeps in. Right. And I don’t know how robust the kind of statistical analysis that went into this was. But I mean, it’s intuitive to me that it would be true. I’d never heard something like that before in that black and white terms. But when you hear that, it’s like, well, then obviously, you know, if you have kind of a bunch of, you know, investors that look the same, investing in founders that look the same as them, then, you know, if you can…

Eve: [00:26:32] Yes.

Jonny: [00:26:32] Kind of get more diversity of investments happening by recruiting more diverse army of investors, then that should all other things being equal, kind of improved returns, which is kind of encouraging for us.

Eve: [00:26:45] Little bit different with real estate, because, you know, we’re really all about supporting projects that wouldn’t normally happen or have difficulty raising funds because they are you know, it’s the same thing as a small business. They’re innovative. They’re creative. They’re new. They’re in underserved neighborhoods that do not have a strong market yet. And so banks don’t want to lend to them. Or if they do, they have an equity requirement that’s very difficult for these developers to fill. Right. So they’re looking at needing to find 40 percent equity for a real estate project that’s maybe 10 million dollars because the bank won’t lend them more than 60 percent. And so because banks lend based on tried and true.

Jonny: [00:27:31] Right.

Eve: [00:27:31] And understand, you know, that’s what an appraisal is all about. Three like things that have happened before that can almost assure them that they’re going to get their return. But if you have a neighborhood or a developer who’s never done that before, that’s difficult for a bank to finance. And but you know them often. These projects are in poor neighborhoods where the neighbors who care and want it the most may not have the finances to support even a small amount of the crowd fund raised. So it becomes a little more difficult.

Jonny: [00:28:08] Well, when you said not a panacea before that, that’s usually one of the things that I think about. The downsides of crowdfunding democratic investment, you know, with respect to leveling the playing field. Yeah, exactly as you say, right. If if black household. Last time I saw the stat black median household wealth was I think it was 10,000 dollars.

Eve: [00:28:32] And it’s less than that, I think is the last time I saw the stat.

Jonny: [00:28:36] White median household wealth was 170 or something like that.

Eve: [00:28:40] Yes.

Jonny: [00:28:41] And so where does that discrepancy. Right. If a black founder launches on Wefunder and is going to that community, it’s going to be harder for them to…

Eve: [00:28:49] Much harder. Yeah.

Jonny: [00:28:50] So it’s definitely not a panacea. On the regulation side, I mean, going back to your question, which I kind of didn’t really answer. What could be improved on the legislation? The one thing the reason I started talking about the big game for us as a company is like trying to get the best companies to choose to go with the crowd as well as or even instead of the conventional VC. So that’s a big aim for us. One of the ways that I think the legislation could change to move us in that direction would be carried interest. So, we have this principle of lead investors and Wefunder, where there’s like, let’s say, a well-respected angel investor who, you know, has experience in that sector where the start-up is operating and that lead investor will kind of, you know, validate the terms of the deal. OK, this the valuation cap on this convertible note of five million makes sense. I’m putting in 50 K of my money in this deal, and that’s a great kind of signal to the crowd. And they actually vote for the shares of the individual investors who have protection and representation in the SPV. But the lead investor is fighting for the shares. So it’s kind of good, good for investors. But the lead investor we’ve been told recently by the SEC, pretty explicitly, cannot earn any carried interest on the Wefunder the round as they can in an AngelList syndicate in the regulation D world. So if a syndicate lead on AngelList raises a million dollars to invest in a company, that syndicate lead can earn, I think it’s 10 percent, maybe 20 percent carried interest.

Eve: [00:30:27] It’s usually 20, 20 percent.

Jonny: [00:30:27] On the profits from the million dollars. And that can’t happen in regulation crowdfunding. And so, then those syndicate leads will be more likely to put that high quality deal flow on AngelList versus Wefunder, which again, will be a force for kind of, you know, making it harder for the best quality deal flow to go on Wefunder. So it’s kind of a little in the weeds, but that’s certainly one area where we, I think, would want the legislation to go in the future, potentially. I mean, there’s reasons why the S.E.C., you know, didn’t want to move it in that direction. Good reasons, but that’s something we were we were advocating for that didn’t happen with the March 15th rule changes.

Eve: [00:31:09] And while we’re in the weeds…

Jonny: [00:31:13] Yeah, sorry. Have you listened to that podcast In the Weeds. Or The Weeds, I think it’s called by Vox, but yeah. So sorry.

Eve: [00:31:21] No, no. Don’t apologize. I like it.

Jonny: [00:31:23] We’re diving deep. We’re rummaging around in the undergrowth, Eve.

Eve: [00:31:26] The beautiful thing with a podcast is that the listeners can turn it off if they’re bored. But, you know, the thing I really, I find difficult and dislike is that we, the crowdfunding portals are not permitted to invest in these deals. And this is after we’ve spent zillions of hours with them making sure their disclosure packets are good and ready to go. And we have a really good sense of the project. You know, my employees, my spouse might like to invest and we’re not permitted to. And I, I really kind of don’t get that, do you?

Jonny: [00:32:04] Yeah. I mean, you can charge a part of your fee.

Eve: [00:32:07] You can charge a part of your, a part of your fee, but you, but that doesn’t really help. Like, I’ve been told by my attorney that my husband may as well be me, in terms of this rule. He can’t invest.

Jonny: [00:32:20] Yeah, it has been, it has been frustrating to especially our founders down the years. You know, they’ve seen some very, very awesome companies come and go on Wefunder and not being able to invest in them has been personally frustrating for them.

Eve: [00:32:37] Yeah.

Jonny: [00:32:37] Yeah, I agree.

Eve: [00:32:38] It’s a weird one.

Jonny: [00:32:38] I think that’s where we would seem to align incentives.

Eve: [00:32:42] Ok, so what keeps you up at night?

Jonny: [00:32:46] Yeah, that’s a good question. I think probably investor returns. So I think the reason why unaccredited investors being able to invest in early stage private companies was illegal from the 1930s until 2016 was, you know, kind of, are retail investors able to make sophisticated investment decisions, firstly. And then secondly, do they have enough kind of, you know, money to kind of sustain the losses that they might incur? Because investing in start-ups is super risky. Right.

Eve: [00:33:30] Right.

Jonny: [00:33:31] And so I welcome, the SEC has put limits around how much people can invest so everyone can invest 2,200 dollars per year. And then there’s a formula for how much people can invest. And if you’re accredited, you can invest an unlimited amount, which actually another thing that changed with these March 15th rules.

Eve: [00:33:49] Yes, that’s a nice thing.

Jonny: [00:33:50] Harmonized with Reg D. But, you know, the point is like, yeah, like investor returns is the thing that keeps me up at night. So if in aggregate in 10 years’ time, you know, Wefunder  investors have, you know, lost a bunch of money by investing in start-ups and Wefunder then I will be sad. And so, again, this is going that I mean, in venture capital investing. Right. Like there’s a power lure effect where if you get into Airbnb. If you get into Uber, it returns a whole fund and say there’s a risk with which kind of start-up investing from the crowd that if the hottest companies in the 2021 batch of companies, you know, don’t raise on Wefunder, that they raise through conventional venture capital, then, you know, in aggregate the portfolio of Wefunder investors is kind of negative returns. And so, trying to ensure that we are, you know, returning money to investors is probably the biggest concern that I have. And again, it’s if we can get the best quality founders, the best deal flow up on Wefunder for us, that is like the North Star in terms of how we prevent that that concern from coming true.

Eve: [00:35:13] Yeah, I think I’m with you. I’m with you on that. It breaks my heart if investors lose money. And breaks my heart more for those ones who’ve invested 500 dollars. And I know, I know it was a meaningful 500 dollars for them.

Jonny: [00:35:28] Yeah. And look, democracy is complicated, right.

Eve: [00:35:32] Yes. And not always fair.

Jonny: [00:35:33] Not always fair. Everyone has different motivations when they are investing.

Eve: [00:35:34] Yes.

Jonny: [00:35:36] So I invested 125 dollars in Chattanooga Football Club, which is a soccer club that raised close to a million dollars on Wefunder a couple of years ago and now my name is on their jersey, you know, and I didn’t look at the financials. I didn’t I didn’t care about making a return on that $125. I just thought it was really cool to be a part owner of a soccer club, you know, in Tennessee. And so the point is that, you know, some investors on Wefunder, it’s a mother investing in her son. Right. Or it’s someone investing in this company up there now that’s curing cancer in dogs. And you see some of the comments and the investors who had a dog that died of cancer and they love to be a part of maybe coming up with a cure for that, you know, so. And then there’s people that are like really diving deep into the financials and thinking about, you know, that kind of IRR. Right. But we’re trying to we’re trying to capture kind of all investors and their motivations. And so that makes this question of kind of investor returns, I think, even more complicated.

Eve: [00:36:50] Yeah, I totally agree with you and even, you know, and then there’s also I think the education that they’ve probably been exposed to is, quite frankly, one of, I think, immense greed. You know, investors in real estate who don’t want to look at anything unless it offers 25 percent internal rate of return. Well, you can’t do that when you’re building an affordable housing project. And what you know at what point is that okay?

Jonny: [00:37:20] Absolutely.

Eve: [00:37:20] You know, like 10 percent seems pretty good to me, you know, but yeah, it’s a weird world.

Jonny: [00:37:27] Yeah. One of the things we try to do on Wefunder is to reject that greed-based education or communication. So we talk a lot about investing start-ups is risky. You look in the money up, don’t invest more than you can afford to lose. Our CEO had a phrase, a socially good lottery ticket.

Eve: [00:37:49] Yes.

Jonny: [00:37:50] Which I say we talk about that in our FAQs. I really, I really like that. But we really do try to flag that this is risks. And a tagline is: invest in start-ups you love. So that’s the brand that we’re going for. Invest in start-ups because you love what they’re doing. You believe in the founder. You know, you think it’s really cool. You want to be a part of it as opposed to invest in start-ups to earn a 25 percent IRR.

Eve: [00:38:19] Yes. Yeah. So then I have to ask a big question. What does impact investing mean to you then?

Jonny: [00:38:28] Mm hmm. Yeah, that’s, that’s a good question. And same thing on the other side, I would say, what is what a social enterprise mean? I thought about this a lot, both at Kiva, which was a non-profit, and then Wefunder, which is a public benefit corporation and a B corp. So I guess kind of technically a social enterprise and quite and this is kind of go back to the democracy part, right? Like, I think a lot of investors on Wefunder, individual investors on Wefunder that would call themselves or most people would say are impact investors, right? When I made $125 investment in Chattanooga F.C., that was, I don’t know if it’s impact…

Eve: [00:39:06] It impacts, yeah.

Jonny: [00:39:06] Community or kind of feel good. Right. As opposed to kind of financially based. But then there’s a bunch of other investors that you would say are not impact investors. And tell us in our email inbox right. I didn’t care about the impact. I just like, where’s my money? So, again, democracy kind of has to accommodate all different motivations. And sometimes people have hybrid motivations. But I don’t know both the Kiva and Wefunder. I see it as a spectrum, honestly. And, you know, it kind of having some line for like what is an impact investment and what is not an impact investment, I think gets pretty messy.

Eve: [00:39:49] It is messy. I totally agree.

Jonny: [00:39:51] And so, you know, I, I tend not to use those words, actually. And, you know, kind of I like it when people are thinking about, you know, holistic impacts and, you know, societal community like impacts on people as well as like what is my financial IRR. But I think there’s like a bunch of ways that you can do that. And so, I don’t really like to kind of get tied down to definitions. I would say, like when we’re at Kiva, you know, the kind of outcomes assessment was always quite bizarre to me. So we were like a tiny team, super resource strapped, trying desperately to grow this program that was making zero percent interest loans to low income small business owners. Right. And so and by the way, the last month I was there, the net promoter score from our borrowers was a hundred. Everyone that filled in the survey gave us a 9 or 10.

Eve: [00:40:50] Oh, wow.

Jonny: [00:40:50] In terms of what they recommend to a friend. Everyone. And so, did I believe that this was having a positive impact in the world? 100 percent like, you know. Was I able to kind of, you know, figure out through some survey or some other methodology that a randomized control trial meant that, you know, the Kiva loans led to a 12 percent increase in borrower household income or jobs created or business profits? No, but, you know, it’s kind of it’s tough to kind of pin it down, but I was just very confident we were kind of moving in that direction and had trust in our team. So I guess kind of same thing with like outcomes assessment and and analysis at Kiva. And that kind of definition of impact investing. I’m a little bit kind of more vague in hand, wavy versus kind of civic definition.

Eve: [00:41:45] Well, you know, we created our own index because we had our own ideas about it. And I looked at a lot of different ways to score impact. And I just felt like they were first of all, they weren’t easy for the everyday person to understand. And if you’re going to get everyday investors, you you’ve got to make it easy for those everyday investors. And secondly, I didn’t understand most of them.

Jonny: [00:42:08] Well it’s also it’s also very hard to collect the data. And then like at Kiva, if we were doing surveys to small business owners on jobs created, it kind of imposed an additional burden on them after the fact. So, yeah, it’s complicated.

Eve: [00:42:23] It’s complicated. OK, just a couple more questions. I want to know what your big, hairy, audacious goal is?

Jonny: [00:42:32] Yeah. I honestly, I don’t think we really have a kind of…

Eve: [00:42:38] Well, let me ask a different question.

Jonny: [00:42:40] Yeah.

Eve: [00:42:42] You know what are the sort of projects that would exemplify how you’d like to leave your mark on the world?

Jonny: [00:42:50] Yeah, so I think a few things. You know, firstly, again, getting much more capital flowing to underrepresented founders to level the playing field a little. I think I’ve always been pretty passionate about the kind of economic justice, why I went to work for Kiva in the first place. Why I went to Zambia for eight months on a gap year before going to the university. And so, yeah, trying to level the playing field as in terms of solid founders raising capital as one tool to try to address this worsening economic inequality in America that we’ve seen now for many, many decades. Right where the top one percent control more and more of the wealth. And so that’s kind of at base a big part of it for me, you know, enabling kind of investors throughout the country and throughout the economic spectrum to benefit from the wealth that start-ups are creating rather than just rich people getting to play. So obviously, there you, kind of, you need some returns. Right. And some companies like going big. And then probably another thing which we haven’t really touched on as much as kind of you’re getting this a little with the impact investing question. But, you know, I love it when I see things like the curing cancer in dogs company LEAH Labs, raising on Wefunder or companies that are tackling climate change. And that’s another thing, another lens where I hope a more democratic approach that funding companies can lead to better outcomes for society. I don’t have any data on this one. But if you look at sectors that are being funded by VCs, for example, I think you probably over index to, you know, consumer tech start-ups like Uber or Doordash.

Eve: [00:44:54] Um hmm.

Jonny: [00:44:54] Right. Versus I mean, you know, health care or climate change or education. Like inflation of, you know, consumer products. Look at Amazon. Right. It’s a massive deflation. Right. Everything’s kind of cheaper for consumers. Right. But health care and education are the inflation there is just massively higher. Right. And probably a part of the reason for that is our allocation of capital to those industries, to start-ups. Disrupting and improving those industries has been too low as a society. And so, again, with democracy, maybe we can kind of get more capital flow into those sectors. And again, to the point earlier that we were talking about, like probably the returns where there’s like a kind of a bias against doing something because, you know, all the investors went to Harvard and so they invest in the Harvard founders. And this that’s like a slightly worse economic decision, like hopefully also kind of investing in sectors that have been under invested in might also be good for financial returns as well as like benefits of society. And that’s like a really, really important one for me, is like if we can get, you know, more and more of Wefunder capital flowing to businesses that are very obviously good for society. I’ve actually been thinking about that this year. Is like with my time, like, how can I spend more of my time trying to find what you would conventionally term, you know, social entrepreneurs or entrepreneurs tackling the biggest challenges that would improve our society and to get a higher and higher share of founders on Wefunder kind of in that sector.

Eve: [00:46:47] Well, on that fantastic note, I think you and I agree, and it’s just been delightful talking to you, and I hope we can continue the conversation.

Jonny: [00:46:56] Likewise, Eve. This was a really fun conversation, it’s great to chat about these issues with someone that really knows this stuff inside out. And I think thinks along very similar lines to how I do. So, yeah, great talking as always and we’ll speak soon.

Eve: [00:47:15] That was Jonny Price. Jonny is squarely in the small business corner. First at Kiva and now with Wefunder. He’s spending his life building alternative finance systems for businesses seeking to launch or grow. Businesses that simply don’t meet the rigid criteria of our traditional financial institutions. Some of these businesses are tiny and some are big. But they have one thing in common, they hold little interest for banks or venture capitalists, but they certainly can add a lot of value to our economy by innovating and creating jobs. You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.