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You know, Eric, on the show time and time again, founders talk about the importance of hiring great employees.
Eric Hornung 0:07
And they always say, it’s so hard and so important early on to hire the right person.
Jay Clouse 0:13
It makes a lot of sense that it’s difficult because most founders don’t have experience doing high level searches or hiring top level talent.
Eric Hornung 0:20
And they’re also limited to their local talent pool a lot of the times.
Jay Clouse 0:24
That’s why a lot of founders choose to work with SPMB, the one of the fastest growing executive search firms in the country. For over 40 years, SPMB has specialized in recruiting upper management and board members to early stage VC funded startups and larger growth stage companies too.
Eric Hornung 0:39
They bring the knowledge of a large global firm and combine that with the personalized service and attention of a boutique.
Jay Clouse 0:46
They have a dedicated team focusing on the Mountain West and Midwest emerging tech markets so no matter where you are in the country, if you’re trying to hire top level talent, SPMB can help you out.
Eric Hornung 0:56
If that sounds like you, you can go to upside.fm/SPMB to learn how they are closing hundreds of C level searches annually.
Ken Nguyen 1:11
Nearly 50% of the capital that we deployed in the past 12 months through the retail side of our business came from repeat investor, which is incredible for us.
Jay Clouse 1:27
The startup investment landscape is changing and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to Upside.
Hello, hello, hello, and welcome to the Upside podcast, the first podcast on the Upside outside of Silicon Valley. I’m your host Jay Clouse and accompanied by your co-host, Mr. private markets himself, Eric Hornung.
Eric Hornung 2:07
I just hide in the shadows, Jay. Don’t put me out in public.
Jay Clouse 2:11
It’s just so much privacy.
Eric Hornung 2:12
I know. It, you know.
Jay Clouse 2:14
What I’m trying to get out with this nickname, Mr. private markets himself, is that you have a lot of opinions on the accessibility of private markets.
Eric Hornung 2:22
I do have a lot of opinions on private markets, I think that we’re we’re in a really interesting place where over the last 100 years, there’s been a lot of regulation to get rid of accessibility in private markets and a lot of that was for good reason. I think it was well intentioned, hey, let’s set everything up publicly. Let’s make it available for investors, so they don’t get screwed. There was rampant fraud and corruption through the 1800s and early 1900s, and mid 1900s and late 1900s. But, you know,
Jay Clouse 3:11
All the way to today,
Eric Hornung 2:57
I think things got better and whenever there’s one problem, there tends to be a solution and the solution has always been more regulation. And today, that regulation has pushed everybody into the public markets, so much so that all of the high investment return potential, not all of a lot of has moved into the private markets. So now we see a reversal of people saying, hey, there’s less public public companies to invest in, I want to go invest in some private companies, I want to go do venture capital or private equity, or whatever it looks like. And we’re seeing those buttons be pushed. That’s very exciting, because technology and media accessibility, or all these kind of macro trends that I think are gonna drive the next 100 years and blur the lines between what is a public and private market investment.
Jay Clouse 3:43
And I’m here for it. I am an aspiring accredited investor, but technically not an accredited investor. And so, as much as I think about and talk about this stuff, I can’t actually participate in the old school way of investing in private markets. It’s so frustrating.
Eric Hornung 3:58
But that’s one of the great things about this kind of snapback on regulation is the JOBS Act started the path of opening up private market investments to people like you, Jay.
Jay Clouse 4:11
People like me, and people like our guest today who is far beyond that actually not like me at all. His name is Ken Nguyen, he is the co-founder and CEO of Republic. Republic empowers everyone to invest in the future they believe in by providing access to startups, real estate, crypto, and video game investments. Focused on creating a diverse, sustainable connected world, Republic has facilitated over $600 million in investments from over $1 million global community members.
Eric Hornung 4:44
So today we’re going to be looking at equity crowdfunding, we’re going to be learning about the model talking about the history of Republic. It’s something we’ve talked about loosely on this podcast shava we’ve never talked to one of the kind of big name platforms. Republic’s up there, it’s one of the probably the top three or four, I would say, by both volume and reputation and I think they’re on the leading edge of the president when it comes to what private markets look, especially under a Reg CF construct.
Jay Clouse 5:12
I have personally invested in three companies on Republic, which you can see on my profile at republic.co/jay-clouse because they won’t let me get rid of the hyphen. Those companies are Gumroad, Backstage Capital and Maven. And I like to, Eric, it was a fun little experience and both Backstage Capital and Gumroad, hit that market place or made their fundraising available right as the SEC allowed the Reg CF funding to go from a maximum $1 million per year to a maximum $5 million per year. Great timing.
Eric Hornung 5:45
And I think that’s gonna change a lot about Reg CF, it’s going to open it up to larger and larger types of investments. So historically, you’ve seen very specific types of investments on equity crowdfunding sites, I’m guessing, and this is my future cast and the next three to five years, we’ll see a bevy of different types of investments on things like Republic.
Jay Clouse 6:09
Prior to starting Republic, Ken was the general counsel at AngelList from 2014 to 2016. A very interesting gig, Eric it seems like Ken has been living this one life, he has to live the best way that he can.
Eric Hornung 6:22
And if you, dear listener, want to live the one life you have the best way you can, you can go to upside.fm/ethos, and learn more from our friends at Ethos Wealth Management.
Jay Clouse 6:32
Well, I’m excited to see what Ken has to say about the future of private market investing. We’d love to hear your thoughts on this episode. As you listen, you can tweet at us @upsidefm or email us email@example.com. And we’ll get to that interview with Ken, right after this.
Eric Hornung 6:50
I hate that we’ve demonized scheduling links, Jay.
Jay Clouse 6:52
Scheduling links are actually one of my favorite things. I love the ease of someone saying here’s where you can book a time with me and then I can choose when it’s best for me too.
Eric Hornung 7:00
Whenever I get an outreach and someone says what time looks good for you. I asked them, hey, do you have a scheduling tool? And you know what scheduling tool I wish they had?
Jay Clouse 7:09
Which one is that?
Eric Hornung 7:10
It’s a new scheduling tool called SavvyCal. SavvyCal makes it easy for both parties to find the best time to meet.
Jay Clouse 7:16
SavvyCal makes the scheduling process even more savvy than any other scheduling tool that I’ve seen and I mean that. It makes it so easy to personalize your link, you can say, hey, this is a meeting time for Jay and Eric and it just looks so professional, so sophisticated.
Eric Hornung 7:33
So much so that we’re going to be using it for Upside going forward and maybe even rolling it out to the Upside network.
Jay Clouse 7:39
You can use SavvyCal as well. You can sign up for a free account at savvycal.com/upside. That’s savvycal.com/upside and when you’re ready to upgrade to a paid plan, you can use the promo code upside for a free month.
Ken grateful to have you with us here today. I’d like to start this conversation by going back to your time at AngelList. Can you talk a little bit about how you got involved with the team there and what your role look like?
Ken Nguyen 8:12
Jay, thank you so much for having me today. That’s a awesome question going back, you know, into down memory lane, Nevada team took a bet on me and brought me on as the first non-engineer hire at AngelList. The cultural fit, you know, the pace of the company, everything was an adjustment for me coming from law and finance before that. But without that I wouldn’t, I would have had to path down entrepreneurship and building Republic that I had today. It was an incredible two years and the the learning, the lessons have remained today.
Eric Hornung 8:52
What was the problem that they were trying to solve by bringing on a non-engineer hire?
Ken Nguyen 8:57
AngelList started out simply as a not messaging board but an educational tool for fundraising, great. Started out as venture hacks is a blog teaching entrepreneurs who was behind the curtain when you go out in pitch VCs. Then after a couple of years of tremendous interest and and a following for for that blog, they decided to launch an investment product called Syndication, that is pooling capital from individuals accredited that is millionaires and then find investment opportunities and deploy Dysport capital into companies. When you introduce an investment product to the market, naturally, you have to deal with regulatory compliance and all of a sudden the necessity for internal and external legal expertise arise.
Eric Hornung 10:00
So you were instrumental in building out what is now AngelList syndicates? Is that correct?
Ken Nguyen 10:06
I was very, very early on, in in shaping it and launching variations of that syndication product. I didn’t come up with the very first syndication, but almost from day two, what it then evolved to become, you know, backers fund, rolling fund, access fund, international fund, the V2 to V6 of it, I was either heavily involved or the person who, who ideated and shipped it. And now, you know, I left in 2016 but there has been, you know, countless iterations since, and it continues to be dominating a syndication landscape of Silicon Valley and beyond.
Jay Clouse 10:53
If I’m a lawyer around 2014, that sounds like an awesome job and I’d imagine you’d have a lot of competition for this role. So, how did you become aware that this role existed or how did it become Ken Nguyen as our guy versus somebody else?
Ken Nguyen 11:10
Jay, I have a rather unusual professional track for a lawyer. So I started out as a securities attorney at Goodwin Procter, now it’s just called Goodwin, and then went in house at a large asset management fund in New York at a hedge fund with, you know, over $40 billion under management, after a couple of years, went back to Palo Alto folio academia. So by a stroke of luck, the senior faculty member, who was my boss, effectively at Stanford Law, was an advisor to AngelList. And if you guys remember, at a time, this is a couple of years past, the Great Recession, the 28 global recession, the Obama administration was pushing through a series of new regulations, including a piece of law that made it possible for Republic to do what we do today, which is how to let non-accredited folks everyday people investing in private securities. But that that early phase of 2012 to 2015, there was a lot of lobbying, regulatory relations, and it was a changing landscape for everyone in the space. And again, so much about life is luck, and timing and timing. It’s lucky that I happen to be in Silicon Valley, knowing the people who knew Naval and AngelList and next thing, you know, I knew I ended up joining them, which I gotta say, I wasn’t out on a search to join AngelList. It was, you know, a walk into my door.
Jay Clouse 12:57
Just to clarify, we’re talking about the JOBS Act, right?
Ken Nguyen 12:59
Yes, the JOBS Act is a big framework of regulatory improvements. Part of the JOBS Act included provisions that were relevant to what insurance was doing and what Republic ended up doing but the JOBS Act itself is a big body of law.
Jay Clouse 13:18
And when that was happening, when these relevant regulations were happening, how much of that was AngelList, or people around AngelList lobbying for versus AngelList looking around and saying, oh, wow, this is great for us.
Ken Nguyen 13:32
Do lobbying effort behind the JOBS Act was an industry effort and AngelList played a key role. Naval was at the Rose Garden with President Obama signing that body of law into place, signifying the deep involvement that he in AngelList had. We weren’t the only one. There were at least a dozen industry partners playing a role in seeing that through but the new law is limited in words, in context, in implications. And so what to do with it, and the uncertainty of it now that’s up to different folks in the space to decide for themselves to take the requisite risk for themselves and to continue the conversation with regulators. And I think that’s what AngelList, has been doing so well. And we brought some of that heritage over to Republic and continued it down our path.
Eric Hornung 14:38
So how did you decide to launch Republic? And if I’m remembering the jobs that correctly focus on Reg CF.
Ken Nguyen 14:48
When I joined AngelList, the thing that stood out to me was that coming from the hedge fund, New York, Wall Street world how incredibly accessible it was because the dollar amount that I used to help move when I was in New York was you know, 6, 7, 8 zeros attached to them at once. And you know, then I am the last one to five in my family, my oldest siblings were professionals, doctors, etc, and clearly middle class with some disposable income living in Silicon Valley and could not access any of this. So, AngelList, the marketization model to access inclusion model really spoke out to me. Now, after two plus years of doing that, delimitation also became very clear because very few people accredited and the realities it just makes sense that why wouldn’t a student be able to go down to Vegas and spend $100 at a lottery buying a you know, playing the slot machine to buy a lottery ticket, but not put $10 in his roommate business idea. So, the potential of non-accredited access of not limiting the gateway to just millionaires really amplify the mission and the potential of what got me to AngelList to begin with. And that was basically the driving force and the conviction for the future potential of what Republic can be.
Jay Clouse 16:36
Yeah, I’m trying to think, you know, I’m thinking back to that timeframe. Was there an activating event around 2016? Because the JOBS Act was a little bit before and you you left and start Republic in 2016. Was there some other activating event legislatively that made Republic possible passed that JOBS Act framework?
Ken Nguyen 16:54
I’ll give a 32nd crash course on the regulatory process as so after lobbying and getting Congress and the President to sign a new piece of law into law. Often term, the law would require the regulatory agency, in this case, the SEC, but it could have been the IRS or a different division, Department of Homeland Security. In this case, the law required that the SEC would consider and implement appropriate regulations and framework to effectuate the intention of the law. So the law would say, hey, now you go and figure out the details but we want this to happen. And it took another two plus years in order to build that framework at large did. So, non-accredited, investing under the JOBS Act was not implemented until May 16, 2016.
Jay Clouse 18:01
So how did you plan your own timing here? Because obviously, you’re aware of this legislation is coming and you’re savvy enough to know that there’s probably a first mover’s advantage here, but who knows how long it’s going to take to effectuate this law? So how did you plan your own exit and launch this company when the timing dependency is on a bunch of people that you don’t directly have control over?
Ken Nguyen 18:25
We planned for it but we missed the window, Jay. Republic was in the first platform to launch immediately upon the effective day of the JOBS Act or Reg CF regulation crowdfunding, we fund your StartEngine, SeedInvest, NextSeed, at least 8 other platform’s prepped for it and timed it perfectly because I was also building Republic. I was because I was also an AngelList at the time and there were other priorities, you know, initiatives and projects. I had a conversation with AngelList about me leaving and doing my own thing, also grew his own legs, so to speak, and took a run around the block. So we didn’t launch until July 18, 2016, literally just celebrated our five year anniversary last week. But in hindsight, I wouldn’t change a thing. Obviously, it would have been first mover advantage but there were so many other platforms that knew about this. And so there were first movers per row, but there wasn’t a single first mover advantage. So at the end of the day, I’m not sure how much of that actually mattered.
Eric Hornung 19:45
So when you you have those kind of extra years, I think a couple of the names you mentioned there were founded in the 2012 ish timeframe. You had those couple of extra years, you got the chance to create Republic as something different I would assume than the competitors. How did you think about differentiation as you were entering a market where there was already people who were first movers?
Ken Nguyen 20:06
But Eric, we had a couple of months, we found NewSeed investor engine all day, wanted to do what AngelList was doing. It’s been around for nearly as long as AngelList. Now, they, I gotta admit, focused after the first couple years probably thinking that, alright it’s not possible, or that we don’t want to compete with AngelList. And our conviction is more on the non-accredited before democratization of venture investing, and they planned early. So when they all launched in May 2016 and we were still building our platform from scratch, the advantage we had, over that two months, almost exactly two months was defining on why we’re different. If we were just doing the same thing and believing in the same thing, I would just go and ask how more exposure or Orion a SeedInvest for a job, you know, if not a co-founder, and maybe as you see. Of course, we believe that we’re different and of course, we believe that we’re going to win the game, and how easy it so and being able to take a step back, look at what everyone was doing and telling the world and refined why we’re authentically different, ended up being a crucial advantage. Had we been out with everyone else and just in the rat race, I don’t know that we would have had that, you know, half a day to to really think about it and the value of these things are hard to quantify. That day or even that month, only in hindsight with a little bit of time to devalue of brand of messaging and if mission amplify enough for for you to see.
Eric Hornung 22:04
Let’s dive into that a bit. What what is the brand, the value and the mission of Republic? And how is that different than the rest of the industry?
Ken Nguyen 22:12
Well, first of all, let me define our brand first, and then let me dive in on why it’s different. The Republic brand in everything that we do even now today is very much around access and inclusion, not necessarily as a moral high ground but as a fairness concept and of core belief that if what you see is a function of where you sit, then a team, a group of investor, a company with team members to see more of the whole landscape necessarily would make better decisions. So out of the notion of believing in that, believing in access and inclusion that we shaped Republic and we came from a company that also believe in democratization, but to a certain limit, right? So we wanted to make sure that we focus on deals and business activities, and market positioning in a way that would be so strong and so clear that we here to push access and inclusion first and foremost, and everything else would sprout out of that. Return on investment, social capital, everything else, not the reverse, not picking the hottest company, and then saying that, all right, you know, we’re also about access and inclusion so we reverse the script. And at the beginning did not focus on the YC company on the AngelList tech companies but instead focus on stories that had a core mission statement, unmistakable stem for young girls, you know, clothing at at a time, I don’t know if you guys remember the Zika pandemic, the mosquitoes bite. Get a company that would make clothes for pregnant women in countries in infested with Zika. That type of story just to show that the startups to stories. The innovations feature on Republic are those that people can relate to beyond just return on investment. Again, this is just the very beginning of Republic. And then as we grew after we proved that once you get people’s heart, of course, you got to make sure that you have to account for their pocket down the road as well. It can’t just be feel good. You got to be do good and do well.
Jay Clouse 24:51
You guys are building a marketplace platform here. So in the early days when you’re building this marketplace, that to me, you know you’re talking about the type of person in terms of the type of investor you’re appealing to, you’re talking about the type of company that you bring on the platform. But how did you actually get people to come at the platform in the right proportion to build a marketplace here that still exists five years later?
Ken Nguyen 25:16
What makes Republic business model one of the more challenging, difficult business models to build, there is a two-sided marketplace, in a market that did not exist. So you have to try to build generate the market on both sides, hoping that it, there would be enough business traction, to keep the lights on. It’s a combination of partners like AngelList, she works women 2.0, evangelizing for us, you know, getting the word out. And a portion of everyone in the team and myself, every opportunity that we had, whether it’s at a conference, at a coffee shop, certainly podcast, that’s why I value our media partners so so much. And a lot of that is each company that we brought on was such a strong message and founders you know the early teams in of those companies are people who believe passionately in what they do, and also help amplify for their business, and why the model of community investing is the next thing. So it’s a if it takes a village to raise a child, and it indeed took the entire community to to get Republic through it’s first year. I very much believe that the only way for this to get through global adoption, media got to be a long term partner for us. It has been since day one, and it will always be a key partner.
Jay Clouse 27:00
I would imagine that a lot of your investors that come on the platform are brought in because of a specific deal they see that they’re interested in, that’s probably an entry point. Is that fair to say?
Ken Nguyen 27:13
Not necessarily, we actually have about five times the amount of registered users meaning those who come to us are interested enough to what we do, signed up to do KYC AML, but have yet to make any investments, only about 20% of our user base have actually deployed capital into the office. The narrative around it Jay is compelling enough that most people once they know about it, they want to check it out, which is if your dollar matters. Wouldn’t you want to have a role in deciding which company will become the next Amazon and Uber and influencers in the global economy? Or do you want to lead bangs, and Peter Thiel, and Elon Musk, as much as we love them, to make these decisions. So that choice, that empowerment definitely captures most people’s attention. Even high school students who cannot invest on Republic they reach out to us auditor but it is daunting. Once you get onto the platform and look at a deal page, most people, including accredited folks have never invested privately before. So you talking about having to understand the concept of equity versus debt was a crowd safe. You know, it’s a lot for people to focus their attention on. So we got to go through and deploy resources on what we call user activation and retention. How do you activate and turn someone’s interest into action? And how do you encourage people to act again, and again,
Eric Hornung 29:10
It feels like that’s related to the type of companies we see on equity crowdfunding sites. I know that this is kind of changing now. I think you guys just didn’t maybe but for the most part, it feels like it’s a lot of consumer tech, a lot of products, things that maybe you don’t see in a traditional venture capital portfolio. Have you noticed that there’s a different type of company that gets funded on an equity crowdfunding site versus maybe a traditional bread and butter VC?
Ken Nguyen 29:37
The percentage of consumer tech or consumer good and services company availing themselves of retail investing, probably, I would say 20% to 25%. I don’t have the exact percentage in front of me today. At the very beginning, it was 90% because, you know, if you’re trying to build a company or any market in a consumer space and your primary customer is a non-accredited person, of course, it got to be something that is relatable, understandable to your customer or your ideal customer. But over time now, we have an our investor base has grown larger, but also more sophisticated. And as such, they can assess deals and have an interest in a demand for deals that certainly would be a complete failure in year one.
Jay Clouse 30:42
You said about 20% of your user base has deployed capital.
Ken Nguyen 30:45
Even less, even the exact percentage ship.
Jay Clouse 30:48
Around there, how does that break down to people who have invested in more than one company?
Ken Nguyen 30:53
So yes, and the goal on our end, is that people would invest in one way into 50 companies, 100 companies or so. But to give you an example, don’t quote me on the exact math here but nearly 50% of the capital that we deployed in the past 12 months, through the retail side of our business, came from repeat investor, which is incredible for us, because that means that it’s not just new investor coming in, taking an interest in one deal, make an investment and never come back is that they come they stay and they re-engage. Products we rolling out that allow people to hopefully, repeat, or re-invest at ease products like autopilot, you can check the box, pick a few criteria that you find very compelling and whenever it is the deal that fits those criteria, you’re gonna get a notification, and a reminder to deploy one of many, many products to come. It’s still so early on but I have no doubt. And absolutely diversification is key for any private investment strategy. So of course, we have to encourage and one day, maybe even make sure that people fully understanding if not quite requiring that people invest in multiple videos, if you have $5 to invest, it should be in 20 years $25 apart and not in one $500 investment.
Eric Hornung 32:31
One of the things that I love about Republic and have loved since I found out about it, probably back in 2016, 2017 is just the dedication to like user interface and functionality, I find that the site’s very well designed compared to especially what else is out there. How do you think about focusing on product focusing on features like autopilot focusing on making it a better user experience versus underwriting new investments? Like how’s the team built out?
Ken Nguyen 33:00
Thanks so much, Eric, for the generous feedback and UX product infrastructure, the focus on technology, on engineering, on design that I inherited from AngelList, going back to Jay’s question, because I started out my career as an attorney and I was at a large law firm in at a dinner at a hedge fund, who are just notoriously bad user experience. And just looking at websites in general, I don’t have a product background but I’ve had incredible co-founders and early team, and even today work incredibly talented. I didn’t really think, even second guess anything in the first phase of product building in Republic in terms of logo branding UX, trusted for the one of my co-founders at the beginning was the Chief Product architect for AngelList itself. So there was a lot that we that we brought with us at the end of the day. Currently, some studies have said that people’s attention span is less than nine seconds before something else online would command your attention. That means that you’ve got to have an experience after you say equity crowdfunding, you know convertible note and already take up half of denied seconds. You got to simplify mainstream visually and procedurally, the experience is still a lot more to be done but that’s why it is so hard to do and build what we do when we have to date. The team that we have today is nearly 45 engineers and product designers are spread it out over the world to keep the cost down juggling that with an equal number of business development deal ops team. And these people tend to have very different personalities, different backgrounds, and mash them all together, have them duke it out and, you know, define and decide on the optimal products for consumer. It makes for a very rowdy and at tested heated family but I think that core mission to clarity around why we do what we do is what keeps everything together so well today.
Jay Clouse 35:35
Well, speaking of people’s attention spans, Republic’s been around for about five years at this point. Typically, a venture investment can take 10 years or more to return the fund in crowdfunding like this. How important are people’s expectations of when they may see a return on what they’re deploying here? And do you have any stories to point to of that full cycle happening yet?
Ken Nguyen 36:00
Education, education, education, that’s the key for anyone out there showing investment products to investors.The disclaimers about how this is high risk and illiquid, you can only do so much and people still would that fully not appreciate it. And so you absolutely have to think of ways to provide that liquidity. So we there’s no question that secondary trading is on our roadmap. I don’t think I’ve shared it anywhere else. This is probably the first public announcement that Republic will enable secondary trading, the 8 to 10 year life cycle and even though we’ve been out for five years, only in the past two years that the pace of business has picked up tremendously. Still very early on, but there yes have been incredible success stories. How about this, Robinhood went public last week, Republic accredited investor, a good number of them, were able to invest through Republic early on in 2020, I think maybe as early as 2019. And definitely, we’ll be seeing a significant upside in pay day compared to those who invest in the public market, either last week, or we’ll be investing. Second example, a platform in the UK called Seedrs that deployed over $3 million into revolute. Back in 2017, crowd investing campaign, UK Style, that company, I believe, closed around at $33 billion valuation two weeks ago and raise something like 800 million. I don’t want exact multiple of that mark up. What is a hefty mark-up? Now, you mentioned, Jay, that we’ve been out for five years, I think we just is the equivalent of five seconds into this whole new day, that is the potential of retail investing. And so these a incredibly encouraging signals for what to come. Republic on our side, we still haven’t seen full exit on a retail, on a crowdfunding campaign or company to crowdfunded and went public. But I have no doubt that will come down the road. Hopefully, though, people are going to be able to sell in tray and by secondarily before that.
Eric Hornung 38:28
So when we talk about this concept of going mainstream in the retail investing space, I think it’s fair to say that the type of investments that are on Republic would be generally categorized as alternative assets, which are a small piece of the overall pie of investable asset classes. When you’re thinking about building out these future platforms, the secondary trading platform, how are you thinking about creating an ecosystem that’s a republic only ecosystem versus plugging into the existing financial infrastructure, the wealth managers, the financial advisors, the SAS products that service all of those?
Ken Nguyen 39:34
The public market used to be much larger than the private market, that has changed. Right now when you look at private equity, venture capital, the real estate, and are the major private markets, they’re like five times the size of all of public company stock combined. The rise of alternative assets, again, this is just the beginning, but it is already larger. So, oddly enough, art is becoming mainstream, the script has been flipped, or is being flipped. But within this whole universe of alternative assets, there are new ones coming up every day and being grown and tested. NFT crypto is number one example, still very alternative, many, many people still look at it, either know nothing about it, or look at it without much credibility, not viewing it as a credible thing. But that narrative is changing as well. So with anything that’s new, including venture financing, democratize for retail investor, it will take a little bit of time for any subset of alternative assets to be large enough for it to get the interest of institutional Capital Partners, that is those who can deploy billions and trillions of money. If they have that money to deploy they need to put it in something that’s worth their time so in year one or year two, if the entirety of the equity crowdfunding, I hate those words, with is just the sound misleading and ugly, but but that’s what it is Reg CF, if the entirety of that was less than $15 million in total capital deployed, then how would the fidelity that everything they touch got to be in the billions would be seriously looking at it, but that’s changing, we would not be surprised if in 2022, was shortly after that, that will become the deal partner for the JPMorgan, to Goldman Sachs, to Fidelity, to Credit Suisse of the world. And not just about VC deals or private equity deals but real estate, indeed, game financing, and word of tokenized assets and securities.
Jay Clouse 42:07
I was listening to your interview with Jason on this weekend This Week in Startups. So I know your model for somebody raising on Republic is 6% cash return to Republic on a successful raise and a 2% upside in that return as well. Am I getting that correct?
Ken Nguyen 42:24
Correct. By large fee model, again, may change over time but that’s currently what we typically charge, a company that comes to Republic for crowd financing.
Jay Clouse 42:35
So if you’re thinking about the future of this company, where do you see the most upside if all things go really well? Are you looking at this giant portfolio of companies in the returns possible there?
Ken Nguyen 42:47
So the upside from our retail deals would come to back the republic note token, we have our own proprietary revenue sharing token that is linked to the success of the company’s raising through Republic. Of course, we very much believe in the value of our portfolio overall but we know that that is going to be a long term. And obviously, as a company, we also need capital to operate the company near term. That’s why there’s the carry and equity split. If we’re given a billion dollars by Jason, hi, Jason, um, and not have to worry about, you know, budget and expense and where to find it and how to finance ourselves, I would take 100% in upside across the board.
Jay Clouse 43:51
Eric Hornung 43:52
That’s a good clip for us, Jay. I take 100% on Upside.
Jay Clouse 43:58
I saw you know, recently you had two big raises under the new $5 million total fundraise provision and actually invested in both those companies both Gumroad and Backstage Capital. Talk about this change in the law, allowing companies to raise up to $5 million on that Reg CF and does that open the door to different types of companies? Or is it just making fundraising a little bit easier for the ones who already want to do equity crowdfunding?
Ken Nguyen 44:28
Oh, it has done and will do so so much. This arbitrary cap that no company could raise more than a million dollars a year from retail customers, investors, general public, basically prevented all mature or more mature startups to go through the complexity accounting, legal disclosure, regulatory filing to raise because a million dollars didn’t have the same impact proportionally to their business, compared to a company newly launched or post launch, but we’re still in incubator and accelerator at Y Combinator as an example. I never thought that my legal background, before building Republic would be so incredibly helpful. But the reality is that when you have a new law and regulation crowdfunding it’s bound to be a beta version and they got to be version 2.0, 3.0 and beyond. And so the regulatory willingness and experience to continue driving that conversation with the SEC with Congress doesn’t stop the day the law becomes implemented, it continues in east continuing. And so I would say over the years, a significant percentage of my time has been deployed, not to not just to pounding the pavement on Capitol Hill, but also to gather industry data, private market information, and send them in through informal and formal submissions to the folks that the SECs and the different committees on house in a setting. And so we saw that law changed in March of this year, just five months ago and it has already shown tremendous potential. It will take a little while a, Jay and Eric, for the more mature companies and their board and their general counsel. And the bigger you are the more those things become important for those players to become quickly comfortable with retail investing, and say, yeah, of course do it because right now, when we talk to whoever that may be, they will be alright. I love the idea, the founder would really be on it right away, would take a couple of months to convince the lawyers and the board members to inform them into to win them over. That sales cycle is here to get shorted though.
Eric Hornung 47:16
Well, you’ve definitely won us over here today, if people want to know more about Republic, or where they can go to find out more about how they can launch their company on there, they can invest, where should they go?
Ken Nguyen 47:27
republic.co, not .com, .co. And you know, just find me on Twitter, on LinkedIn, Kendrick Nguyen and I typically, you know, respond to everyone within a week. If it’s a really hectic week, it might take a little bit longer than that. But, Eric and Jay, I’m so grateful again for your support and the support of our media partners, because that’s the only one way to get people to know how easy, how credible and why this is important for the future of venture capital of technology in the US and beyond. The first 50 years of this industry, that is venture capital is clearly a better product given that humanity has been around for at least 5000 years, if not more, there’s no reason to assume what Sequoia or Peter Thiel did 10 years ago should be status quo, even now, nothing that we’re doing now will likely to be exactly the same five years from now. So, if there’s a moment for everyone to play a role in shaping the financing, the engine of innovation and future economy, why wouldn’t they, right, as an entrepreneur or as a potential investors, and I think I can talk about all day, but without you help spread the word we wouldn’t be at the industry would have been here so thank you so much for that.
Jay Clouse 48:58
Eric, do you know what my favorite part about podcast advertisements is?
Eric Hornung 49:02
That people actually listen to them?
Jay Clouse 49:03
Wow, you read my mind. It’s almost like we’ve done this twice now. Yes, that people actually listen to them. Look, you’re listening right now, dear listener.
Eric Hornung 49:11
And me I’m listening too. I’m listening to you, Jay. Here on the Upside podcast.
Jay Clouse 49:15
And if you have a message that you want to share with the Upside audience, people who care about startups, investing, the middle of the country, this is a really great place to put that message.
Eric Hornung 49:24
Because people will listen to it. And if you have an event, or you just want to get something out about your brand, you’re hiring. This is the perfect place for the upside.fm/classifieds. That’s our classified ad that can run on one to five podcast episodes.
Jay Clouse 49:40
That’s right. Typically we lock in sponsors for longer sponsorships, but we wanted to make this accessible to you and your message. If you have a message to share with our audience, go to upside.fm/classifieds and get your ad on the airwaves.
Eric Hornung 50:00
Alright, Jay, we just got the leak from Ken, again, just us at Upside. Man, I love that.
Jay Clouse 50:08
Yeah, we did. Secondary market trading on Republic, that seems like a big deal, Eric, that’s going to really increase the trading volume on that platform I imagine and make the whole marketplace, in my opinion, more attractive, because the biggest shadow I have about this type of investing is liquidity and actually accessing the gains that you see here and a secondary market would provide some of that.
Eric Hornung 50:29
It’s amazing how much retail investors that includes me and you care about liquidity, you can’t have something be locked up for 5, 10, 15 years in someone’s portfolio. It’s one of the reasons why historically, a lot of the investments that are like that are limited to people with excessive amounts of money, because they can afford to keep that locked up over the side. And there’s some really cool stuff, if you are a fan of Meb Faber, he runs the Meb Faber show go check out that podcast, he talks about the idea of liquidity alpha all the time. Keeping things illiquid for a longer period of time not touching them is actually one of the biggest potential generators of alpha. So Jay, one of the things I liked about Ken was his commitment to access and inclusion and how the model spoke to him, specifically, how it came out of the limitations on AngelList. I thought that when he was talking about there’s this potential for non-accredited access, and how it aligned with his mission and amplified it, that to me feels very on brand for what’s going to be happening in the next, for my version, of what’s gonna be happening in the next 10, 20, 30 years.
Jay Clouse 51:40
Yeah, I like that he had the courage and the willingness to take the leap too as opposed to trying to build it internally, you know, you could see it, you can certainly see a world in the future where AngelList said, oh, that’s a great idea, Ken, why don’t you build that here under AngelList might have been de-risked a little bit, but even not being perfectly first to market amongst these platforms, because of that relationship, because of his track, his track record, in his experience there, is allowed Republic to grow quite a bit and become one of the leading players in this space.
Eric Hornung 52:09
I think you and I are both peripherial fans of AngelList, what they built, what they’ve done and they tend to represent the very Silicon Valley way of entrepreneurship. So we don’t overlap with them much on this podcast. That being said, very, very cool of them to let Ken go out, do his own thing, spin off and take a lot of his experience, and really build something and also support him it sounded like when he did it.
Jay Clouse 52:35
I’m also a community guy and the idea that nearly 9500 people invested in Gumroad’s $5 million campaign, probably a lot of them Gumroad user users or customers. Similarly, almost 7000 investors in Backstage Capital, these are all people that not only are giving you money, but they are lending their voice, they’re lending their own platforms or probably advocating for the fundraise. Now they have invested interest in your success. I think it’s a really, really great marketing and distribution strategy for companies going on Republic similar the way that Kickstarter was in the early days. But the incentive here is even stronger, because you’re not just pre-ordering a product, you extensively can see a long term, actual return on the financial investment you’re making.
Eric Hornung 53:23
One of the biggest things that I think Republic has the ability to solve and this is when the switch will flip, I believe. How familiar you are with what’s happening with Tiger Global, Jay?
Jay Clouse 53:35
Eric Hornung 53:37
Okay, so Tiger Global is a large, multibillion dollar hedge fund that long that decided, hey, I’m gonna get into venture capital. That’s exactly how they did it, too. They just said, I’m feeling it and they came in and they decided they wanted to get into the hottest rounds, and they wanted to preempt everything, and they wanted to move faster than anybody else. So they shorten their due diligence windows, they move fast, they overpriced rounds and they’ve been doing that and disrupting the venture capital world. I don’t think that the valuation aspect of their strategy is more is the most important, I think speed is. I think founders want to spend less time fundraising. So if Republic can be the source of having enough investors to close their fundraising round faster, you mentioned Gumroad, I think they closed in like a couple of hours. I think Arlen and Backstage closed in less than 24 hours. If when you launch on Republic, you’re under written to close in a week without having to go through hundreds of VC presentations. That’s when I think this model flips on and it becomes more the norm in the venture capital space. I think right now, there’s just too many crowd equity crowdfunding campaigns that it’s set out there at 20% funded, that that risk is scary to founders.
Jay Clouse 54:52
Yeah and I know this is a coffee chat episode but looking at Republic as a company and investment opportunity itself, I love that they have an ownership stake in all the companies that are raising on the platform. What a incredible portfolio they’re building by existing and enabling this type of transaction, like, that’s incredible. And you heard Ken say he’s like, if, if it weren’t for like the expenses of the business, he would take all of their cut in ownership of the companies on the platform.
Eric Hornung 55:19
It hearken back to our question to Peter Livingston about how he funds his syndicate and he said, I’m very fortunate that I think he was in Bitcoin, like when it was several 1000. So he has the capital to run this thing for the next 5 to 10 years and can burn his own cash flow, while the equity value of the things he’s investing in, hopefully becomes cash in the future. And I think when you look at some of the great compounders of all time, you look at the Buffett’s, you look at the businesses, they kept their cash burn low, and they focused on getting as much equity as possible so I think it’s a really smart decision. And hopefully, they can figure out a way to take less cash and take more equity.
Jay Clouse 56:01
Well, dear listener, we’d love to hear if you have participated in Republic if you have invested in a company on the platform or what you think about the the platform itself. You can tweet at us @upsidefm or email us firstname.lastname@example.org. And we’ll talk to you again next week.
That’s all for this week. Thanks for listening. We’d love to hear what you think about this episode. So tweeted us @upsidefm or email us email@example.com and let us know. You can learn more about us and browse our entire back catalogue of episodes at upside.fm and if you love our show, please leave a review on Apple podcast that goes a long way in helping us bring high quality guests to the show.
Interview Begins 8:02
Kendrick (Ken) Nguyen is the co-founder and CEO of Republic.
Republic empowers everyone to invest in the future they believe in by providing access to startups, real estate, crypto, and video game investments. Focused on creating a diverse, sustainable, connected world, Republic has facilitated over $600 million in investments from over one million global community members.
Previously, Ken was the General Counsel for Angel List from 2014-2016.
- Ken on AngelList as Non-Engineer Role 8:52
- AngelList Syndicates 10:00
- JOBS Act 12:57
- Republic’s Launch Timing 18:01
- Republic’s Mission 22:04
- Republic’s Business Model 24:51
- Equity Crowdfunding 29:10
- Focusing on the Product Experience 32:31
- ROI in Crowdfunding 35:35
- Upside from Retail Deals 42:47
- Arbitrary Cap 43:58
Republic was founded in 2016 in New York City, New York.
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