In working with enterprises and businesses, an area increasingly getting attention is crowdfunding. It can be a viable way to fund projects. It started in the consumer space and now is entering the SMB domain. There is precedent, much like email, mobile, internet, social media started elsewhere and then businesses were forced to use it. In addition, the topic is being introduced at enterprise conferences and the whole disruption in financial markets led by crowdfunding will be a topic at the second world CIO forum where I am a vice-chair. It’s on the radar screen so you have to pay attention. There are several types of crowdfunding, reward or donation, debt financing and now equity crowdfunding. Equity will take on traditional funding for businesses and over banks, angel and VC investment. Paul is considered the pioneer in the field and the only expert introduced in the 2013 World Bank Report on crowdfunding.
Paul Niederer is one of world's leading authorities on equity based crowdfunding investment. He has personally been involved in over $60 million of transactions with 80 different companies seeking capital.
Paul Niederer is passionate about providing matchmaking opportunities for entrepreneurs and investors in the early stage space.
As CEO of ASSOB he supports high growth companies and investors in obtaining funding through Peer to Peer investing. Established in 2005, The Australian Small Scale Offerings Board (ASSOB) is a unique capital raising and listing platform for unlisted companies that preceded "crowdfunding". As CEO, Paul leads a team that shepherds businesses through an ordinarily complex and frustrating capital raising process with efficiency and effectiveness.
Recently Paul was named in the Top Ten of the World's Most Influential in Equity Crowdfunding by the Ven Report. This year Paul has speaking engagements already locked in Australia, Singapore, Italy and the U.S.A.
To listen to the interview, click on this MP3 file link
Interview Time Index (MM:SS) and Topic
From your early career, can you profile your prior top roles and useful lessons from those roles?
"….I started off with an accountant's qualification (always a good grounding for commerce), but I didn't work as an accountant; I moved over to marketing and did international marketing. I was based in London for a while, then in Singapore, Sweden and different places so I got to learn various systems and processes from those different countries. As an accountant I noticed how things worked from a commercial point of view and that was very valuable…."
Paul, as a world leading authority on equity based crowdfunding investment can you share some top lessons of value to the audience?
"….I think for the people pledging money and the people actually wanting the money, passion is very important from both sides….Each opportunity for which you are looking to raise money, I believe, should have 3 important things: story, team, and followers. The first is a compelling, credible story that people can follow and that story you tell should be delivered with passion, be compelling and should make the people want to be part of it. The second thing is you've got to have a balanced team (the technical side and the managerial side). The third thing is followers. You have to have a naturally aligned group of people who are willing to follow what you are doing and like what you're doing…..Another thing is that you've got to deliver what you promise…."
In general, do you have an idea of what the success rate is of people when they do this kind of crowdfunding versus the traditional means of fundraising?
"….I would say that most platforms are in that area of 40 to 60 percent success….Often people decide to raise money like this because they've been to the VCs, angels and the banks so there really isn't a result relative to other forms of finance because this is often a last resort. As time changes this will become a more common form of funding then there will be a great deal of relativity…."
Tell us more about the history and then value provided by the Australian Small Scale Offerings Board (ASSOB)?
"….We started back in 2005 and we’ve raised around 138 million for about 300 different small businesses. Some of those companies have gone on to list on stock exchanges, other ones have been sold to bigger companies, some of them just carry on working and of course, in this area where it's early stage investment which is always fairly high risk, some don't succeed and they just close up business. So you get a mix of different companies…."
What is your business and revenue model and how do you differentiate from others?
"….We've got a fairly high bar for what you call due diligence (looking at the people to see that they're good people, looking at the product to see that it's got its IP protected, looking at the actual offering to see that it's been communicated fairly and in good terms and not been misrepresented). We charge 5000 dollars upfront for our legal people to check all that out and make sure that when things are published that they do look good. Then there is 8 percent from the money raised…."
Can you share some lessons from valuable blogs that you have in Capital Underdogs?
"….There's always the assumption that if you build something that is amazing and wonderful that people will turn up. I don't think that's the case with crowdfunding. I think that if you are raising money you have to roll up your sleeves and you have to work hard to attract people to your profile page on whatever crowdfunding site you've got. You attract them there and once they are there you communicate with them regularly, give them updates and tell them what's going on and after a while more and more of those people will decide this is something to invest in or pledge some funds to. It's about building relationships with people that are interested in what you've got…."
It sounds like having a lot of experience and ability with social media and working all of those channels is a big benefit when doing crowdfunding.
"….Most definitely, it's the modern way to communicate, especially when what they talk about (this gets a bit technical) is third level survivorship. What that means is, first level is your friends and mostly that's where your first amounts of money will come from. Then it goes to friends of friends and that's what is called the second level. But when it gets to that third level, friends of friends of friends — if you jump over to that with your raise then you have a very successful campaign….That doesn't happen very often, but I think everybody should think about how to get that third level of people to invest in their offering…."
How did your past experiences lead to your work with funding and crowd funding?
"….I think it was starting off as an accountant and then early on becoming interested in the internet and internet marketing and the systems around it. I've had my own website, blogs and things like that for many, many years…."
What are some of the factors essential for your resounding success?
"….Writing blogs, supporting other people in this space, trying to become an expert in the crowdfunding area focusing on that equity crowdfunding area….It's the sharing and communicating in what I believe is a very, very important place…."
How will your work evolve in 5 years?
"….It's early days equity crowdfunding. I believe that there will be other forms based on a very old model of where you have shares in a company and you get a share certificate which becomes a holding certificate in many jurisdictions. When you see things like Bitcoin and electronic currencies and things, maybe in the future it's not going to be shares….I'm not sure what that form will be but I think as the years go by if the regulations in most countries still remain very tough and difficult to work around then other forms of funding will come up, maybe based on royalty strings from the business or based on things that aren't actually shares on equities. So it'll be interesting to see where that evolves…."
From your perspective, what is your global strategy?
"….Really just taking our platform and going into other countries and letting them use our platform to do crowdfunding there. We are starting off in New Zealand probably in the next couple of months. We've already got a platform in America that will shortly go live….and then it will just go on to other countries. Of course China would be wonderful to get a platform in there. I know those regulations have become more and more open and embracing different models…."
There's a lot of interest in this kind of work. Let's say that somebody in countries in different parts of the world want to get involved with your platform, do they enter into some kind of a partnership and is it revenue sharing?
"….Depending on the country, sometimes it might be that they have some money to license the platform and use it. Or if it's going to be difficult for them (but if they are really good people with good contacts and people who can make a really good go of it), then we might joint venture it. They would have expertise in their country and we would have expertise in the platform. We don't have a price list or a fixed idea or a fixed way to do it we just have to get a deal for each of the countries and what they are doing…."
What are your added views for crowdfunding?
"….I believe that as time moves on it will get freer and freer and further away from government regulation. I think the sad thing in this world today is that people can go into a casino and lose all of their money and the government doesn't care and yet if they want to invest in early stage company or an entrepreneur there are a whole lot of rules and regulations to stop them from doing that…."
We already talked about this, but do you believe crowdfunding will supplement traditional funding approaches or be totally disruptive and significantly replace traditional funding approaches?
"….It's all really a question of scale. I don't think it will ever replace it because some transactions are very complex and if somebody wanted to raise a million dollars on our platform it isn't an easy process to comply with the securities law and have all your documents right and make sure you promote them legally and things like that….Pledge crowdfunding and rewards crowdfunding (like Kickstarter and Indiegogo), are a bit like instant gratification in that you put your hundred dollars in there and you know you're going to get a watch in 6 to 8 weeks or whatever and that's a fairly simple transaction. When you invest in equities you are investing in a company on the basis of hope and it's a long journey often over years. To make sure that people do look after your investors and also to make sure the investors understand what they are actually investing in I think there is going to have to be some form of intermediary in the system to do it…."
Are there some sources that you can point to that people should look to for your content?
"….What I have is a Google alert for the words 'equity crowdfunding' and 'investor crowdfunding' and every day Google alert sends me a list of 12, 15 or 20 articles. I just scan down them and I pick the ones that are interesting and I find that's the best way for me each day to keep up with what's going on in the world….[See Paul's website at paulniederer.com for his blogs where you will find important information on crowdfunding]…."
How do you believe your prior skills contribute to your success as an entrepreneur and leader?
"….These days some people think it may not be as important, but getting a degree (especially a commerce degree) gave me a good understanding of business. You can't do much with a degree usually but it can change the way you think about things, and therefore become interested in things relative to what you learned in your degree and I think your career will follow those directions and interests that you have…."
Since August 2013, the Chinese central government launched a program for financial market openness. Can you provide your forecasts of where you see increasing openness will lead and its implications?
"….I believe that openness will bring better opportunities for people to start businesses and that will grow the Chinese economy, and instead of being dependent on always making things for other countries then there will be things that will be designed and grown in China and funded by crowdfunding in China. That would grow businesses in their own country because it will be Chinese investing in crowdfunding projects that are going to beneficial for China and the Chinese people. I think that openness will bring that type of success…."
What are the investment (government) policy changes you want to see implemented in your country and perhaps worldwide?
"….I think it goes back to what's called 'personal responsibility'. Unfortunately you can't regulate or write laws for every single situation. I believe especially if the investment amounts are relatively low and as long as the person investing has clearly been shown that this is a very risky investment (that you may lose all of your money and not get your money back), and sign to the effect that they recognize that and are investing on that basis, then I think regulation should follow that path. We're fortunate in Australia that the regulations are written like that and provided that the people have had sufficient warning that (this is risky and I might lose all my money but I'm still going to invest), then you are allowed to carry on with the investment. But I think the way America is going is that they are more saying you can't invest more than 10% of your income and you can’t do this and you can't do that. They are trying to make regulations to protect the people investing, but they are not giving them the responsibility to invest…."
Can you share some stories from your extensive speaking, travels, and work (perhaps something amusing, surprising, unexpected, amazing)?
"….Sometimes when people come in to raise money and they want to be crowdfunding, they just score 10 out of 10. They've got a great story, a great team and they've got lots of followers and you get a really good feeling when they come….For any of the people listening if they think about it and say here's my story is it compelling and credible, have I got a team that people look at with respect and have I got a lot of people that naturally like this particular thing? If you have those 3 things then you could be pretty certain you're going to have a good crowdfunding campaign…."
If you were conducting this interview, what questions would you ask, and then what would be your answers?
"….'Can you tell us what it takes to truly succeed in crowdfunding?' I think that would be telling the great story, great team, great followers and having the passion, energy and drive so that it's not 'set and forget' and you are involved right up to the time you have to deliver value to the people. That's why it all comes back to energy….'Why should you do crowdfunding?' I think because it betters this world. It brings new products, new opportunities; it brings things to people that wouldn't normally be able to come forward and be developed. We have lots of listings on our platform where people have raised money where there was no chance that they would have got their money from anywhere else until they come onto the FR platform….'What sort of things should you crowdfund?' It's got to be something that people look at it and think 'that it is something that I would like' or 'I would like to be part of' and you've got to communicate it…."
Paul, with your demanding schedule, we are indeed fortunate to have you come in to do this interview. Thank you for sharing your deep experiences with our audience.