Expert: Crowdfunding and Venture Capital Markets Will Merge
KingsCrowd CEO Chris Lustrino Foresees Funds Investing Alongside Individuals on Portals
Devin: What is your superpower?
Chris: We collectively as a group here, the marketplaces, ourselves, folks like yourselves, associations, marketing agencies—all of us are working collectively to build an industry out of thin air. This did not exist six years ago. There were no online marketplaces to go and invest in alternatives like startups. We are building something from nothing. And when people hear startups, they think, “move fast and break things.” Move fast, move fast, move fast. It’s true because if you think about how long it takes a big corporation to do something simple, like change the prices on their product or whatever it may be, it could take years. Within a startup, you go from zero to an entire business in a matter of weeks, months, years, so on and so forth. But things still don’t move nearly as quickly as people ever think. And I think my superpower, above all else to date that’s allowed me to build this business, is patience and the practice of patience.
Frankly, I don’t remember when a guest and I covered so much important ground in so little time. Don’t miss my conversation with Christopher Lustrino, the founder and CEO of KingsCrowd.
Chris will be speaking at SuperCrowd22, our two-day virtual conference on impact crowdfunding and community capital. This event is for you!
“One of the cool things about building our business is that we get to watch how the entire world of equity crowdfunding is forming, what investor sentiment is like, what their behavior is like, what startup founder behavior is like,” Chris says.
“This is an incredible place to be in the world at this moment in time,” Chris continues. “So, it’ll be fun to dive in and tell folks more about what it is that’s happening all around us as this industry develops.”
KingsCrowd is tracking every deal in the sector, so he has a great perspective on the industry. Don’t miss it!
Readers can register now for half price! Paid subscribers can attend for free. (An annual subscription is just $55.)
Convergence of Crowdfunding and Venture Capital
“Venture capital is the only industry today that still lives offline,” Chris says. “The idea that the industry that innovated every industry will continue to live offline and act like a dinosaur is completely absurd to me.”
Venture capitalists still largely source and execute deals outside of the platforms that increasingly, even angel investors use for making investments.
“Nearly every financial service has moved online,” Chris says. “Health care—everything about health care is moved online. I mean, everything is moved online. I mentioned those two industries because they’re the oldest school industries and the ones that have the most risk in moving online. And yet they still have.”
“What we’re going to continually see over the next decade is this continuous convergence of both of those industries coming together and venture capitalists becoming more tech-centric and being able to utilize marketplaces like Republic, Wefunder, so on and so forth, both for sourcing and executing deals,” he says.
Chris sees the evidence of his prediction in two observations:
VCs are finding deals by browsing crowdfunding portals
VCs are encouraging their portfolio companies to raise money there
Chris has raised $7 million, primarily via crowdfunding, using NetCapital, Republic and StartEngine. KingsCrowd has over 4,000 investors, including some institutions. “We’re 25 full-time folks; we have over 10,000 paying customers.”
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KingsCrowd’s Portfolio Tool
One of the fundamental problems of investing in crowdfunding is that your investments don’t all live in one place. “In the traditional public equity world, you most likely have a brokerage account with someone like Charles Schwab or Fidelity or Robinhood, whoever it may be. So, you see all of your individual stocks in one place,” Chris says.
Not so in crowdfunding. To buy shares in a company, you need to open an account with the FINRA-registered portal offering the securities. If you invest regularly, you’ll end up with shares in a dozen companies on half-a-dozen portals. Tracking gets tricky.
“Did I invest in this? I don’t remember if I invested in this,” Chris says is a common refrain. It inspired KingsCrowd to create a portfolio tracking tool that not only allows you to create a list of your holdings but also provides some updates on valuation.
“We allow you to put all your investments into one place from a visual basis. Think of it as mint.com,” Chris says. “The investments don’t live there, but visually they do.”
The basic portfolio tool is available with a free KingsCrowd subscription.
KingsCrowd’s Search Tool
KingsCrowd is more widely known for its searchable live database that allows customers to access every company raising money via Regulation Crowdfunding plus regulation A, rules similar to crowdfunding but for larger deals, plus some deals available only to accredited investors.
Chris offers a hypothetical example:
If you come to our site and you're an investor who likes health care, you like to invest in pre-seed companies and you like founders with a lot of experience—being able to go and find those things on 40-plus marketplaces is very challenging and very time-consuming.
So, you can come to KingsCrowd and say, “Show me all the health care companies, show me the ones with the $10 Million valuation or less. Show me the pre-seed companies that fall in that bucket and show me the ones with X amount of experience within the founding team.”
The search tool includes tags for impact in a variety of ways. “We have ESG [environment, social responsibility and corporate governance] tags, female founder tags, underrepresented founder tags, LGBTQ tags,” Chris says, adding that they regularly add new tags as customers request them.
There are about 700 companies raising money via crowdfunding at the moment. With the KingsCrowd tool, you can find the ones that interest you in just a few minutes—not hours. You can learn to do a new search in seconds with a bit of practice.
The basic search function is free, even before you create an account.
Chris is proud of the analysis his company provides on crowdfunding offerings. Even tiny offerings where issuers are raising less than $100,000 are covered by some data-driven analyses.
We collect over 500 data points on each and every company that's raising capital in these markets. Financials, valuation, amount raised, how many investors are partaking, what their traction looks like, so on and so forth.
We put all of this information into our database and then we compare and contrast all of the companies against one another and those key fundamentals. So if there are 500 pre-seed companies all raising capital actively, we'll look at things like their valuation versus all the other valuations out there.
We're going to help you see the strengths and weaknesses in each and every business and let you do a deep dive so that you can make an informed investment decision that isn't based on hype, but is based on real facts and content.
This analysis is the information KingsCrowd customers pay to access. If making better investment decisions can increase your financial return, it could, in effect, pay for itself.
Chris leverages an unusual superpower to accomplish all this: patience.
How to Develop Patience As a Superpower
To demonstrate how important patience is to the success KingsCrowd is having, Chris shared the story of its founding:
When I started KingsCrowd, no one cared. I mean, no one cared. Even the players who are in this space, the marketplace and not for any negative reasons or anything like that, but even the marketplace players were like we don't care. We're trying to figure out our own thing. We don't care about the data provider. Investors didn't care, no one cared.
It was like every day going out on a rowboat. If I didn't row, we weren't going anywhere. You're just rowing along, rowing along, rowing along and you're fighting the currents. You're not getting responses from anyone.
I mean, it is the greatest uphill battle you will ever experience trying to build something from nothing, especially when you're not only building a new company, but you're building a new company in a new sector that's coming from nothing.
It has been four and a half years. What we've accomplished, I could have never imagined over four and a half years. But what happens on a day, a month, even a six-month period? It could feel like you're moving through eggshells. It's just so challenging, and it moves so much slower in so many ways than you hope or wish.
But that's the reality of it. Everything takes ten times longer than you expect and is ten times more expensive than you expect to get where you want to be.
Chris’s patience is deliberate. “Recognizing what we could do as a group in a decade, that’s where I keep my eye every day,” he says. “Where are we going to be in ten years? I don’t give up on that. I just keep going and say, no matter how hard today is, tomorrow, three months, six months, a year, even two years from now. That’s not what I’m building for. I’m building for the next decade.”
He’s nearly halfway through that ten-year time horizon. He’s already had some wins to brag about. He reflected on a note he’d come across recently that he’d written launching KingsCrowd. In the note, he expressed the desire to create a fund allowing investors to buy shares in many crowdfund offerings at once. KingsCrowd is doing that now.
Chris routinely reminds people of the saying, “You always overestimate how much you can accomplish in a year, but underestimate what you could accomplish in many years.”
He reminds his team that when KingsCrowd started, Chris was the only full-time employee. Today, four-and-a-half years later, he’s got a team of 25.
He says that empathy and kindness are part of the formula for patience. Not sounding at all like a typical CEO but precisely like the CEO people love to work for, he says:
We move deadlines all the time internally. There are a lot of companies that don't want to do that, that will get on your back about “How we can miss this deadline by a day or two.”
I joke with them, but I say, “Listen, this product feature doesn't exist in the world. So if it doesn't exist for another week or another three weeks because someone's sick, because someone needs a vacation, because someone has something with their family, it doesn't matter in the grand scheme of things, it does not matter.”
Being flexible and open to those things from the top and saying it's okay to miss a deadline, it's okay to push things if it's not going to work, and to remove that pressure and make people realize, we're not just working for the little win, we're working for the big long term wins. That's what matters.
By following Chris’s example and his advice, you can develop patience as a superpower that will enable you to accomplish great things over the next decade.