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Title III Crowdfunding For Real, Part II

Northeast Ohio
Title III Crowdfunding For Real, Part II

Title III of the JOBS Act went into effect last year, and many entrepreneurs and small businesses are curious about if it works and how. I had the pleasure of interviewing several companies that have gone through “equity crowdfunding.” In the first installment of a three-part series showcasing those interviews, three companies detailed their successes with Title III.

Here, in part two, I talk with Chad Newell of Snapwire, one of the first campaigns to close last year after the rules were released, as well as David Gluck of The Speakeasy and Tom Lix from Cleveland Whiskey.

Mary Juetten (contributor): Tell me about your company.

Newell: Snapwire is a visionary platform that connects a new generation of photographers with businesses and brands around the world. We give photo buyers the ability to post a photo brief at a price they can afford, and more than 300K proven photographers in 180 countries respond with their best shots. Buyers get unique photos that match their vision, and the winning photographers earn 70% of the posted price as well as points and a “level up.” All submitted photos also have a chance to earn a spot in our growing stock photo library. Now, any aspiring photographer has a chance to feel like a pro.

Lix: At Cleveland Whiskey, we’re proud innovators and heretics in the whiskey space, using disruptive technology to reduce maturation times to less than 24 hours. With no sugar, syrup, or artificial color, we’re producing exceptional gold medal-winning bourbons with transformative woods, including black cherry, apple, sugar maple, and hickory. This is about innovation, new ideas, and taste—not the status quo.

Gluck: The Speakeasy is an immersive theatrical experience. In 2014, all 85 shows of our proof-of-concept production sold out, providing 56% return on investment for investors.

Mary: Did you raise capital outside of crowdfunding?

Snapwire: Since inception, we’ve raised $2M. The company launched out of private beta in July 2014 and was just honored as one of Entrepreneur Magazine’s Entrepreneur 360.

Cleveland Whiskey: Combination of equity and debt over the past thre years, approximately $2M prior to this crowdfunding raise.

The Speakeasy: Private placement from May 2015 to May 2016 raised $1M plus a $1M bank loan in March 2016.

Mary: Tell us about your Title III raise.

Snapwire: Title III affords companies to raise up to $1M in a calendar year. We can say we are going for the fully allotted amount and have reached more than 300% of our initial goal. However, due to SEC regulations, we are prohibited to talk about any material terms of their offer. Therefore, we must rely exclusively on the communication channels provided in our tombstone ad on our profile on StartEngine.

Cleveland Whiskey: We didn’t know how this would turn out. Initial target was $100,000. We then raised it to $250,000 and later to $500,000. Most importantly, we wanted to give our customers a chance to own shares in the company. We closed with 980 new investors and just about $700,000 in funding. Probably could have kept it going to $1,000,000, but it’s time to activate our new investors and put what we’ve raised to work.

The Speakeasy: We've done two rounds of crowdfunding. In the first round (May-August 2016), we offered limited liability company interests and raised $460,000 from 80 investors (the minimum investment was $2,000). Our second round opened in November 2016, we are offering revenue share promissory notes with a goal to raise $540,000. The minimum investment this time is $100.

Mary: What was your biggest challenge with Title III?

Snapwire: There’s a story here about the challenges associated with how difficult it is to get the word out about your Title III offering. This brings me to the advertising rules related to Title III. Regulators force Title III issuers to be very careful as to how they advertise the opportunity to invest, what they can say about the terms of the offer, and what communication channels are used to drive investors to the opportunity to invest. The spirit of Title III is that the crowd collectively decides if the company is worth an investment so the issuer must reply to all inquiries on the portal hosting the offering. Because the portal effectively acts as a tombstone ad for the issuer, the issuer (and they alone) must drive all traffic to this ad. There’s an inherent challenge in doing this if the issuer is resource strapped. The very nature of the success of a Title III offering requires significant marketing dollars to gain internal and external awareness. Because issuers are restricted to what can be disclosed outside of the portal, it makes sense that all advertising is treated with the same restrictions, but therein lies the problem. Because issuers are restricted to its own channels for communicating that an offer exists, those issuers that have a large audience via an email list (or other social channels with large followings) are best suited for success in converting the audience to investors. With every $1 spent on paid advertising on platforms like FB, we gain $2 of investment, and for this conversion, we feel lucky. However, considering that the platform takes fees as well as escrow services, we get close to breakeven. Ideally, we would be able to have outside publications share the opportunity, but even influencers are restricted from sharing the opportunity if they are directly paid.

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