Macro

Episode 18: Successful Crowdfund and raising over $200M in Capital for Startups with Patrick Henry

Ben Lakoff, CFA
November 23, 2020
59
 MIN
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Patrick is a serial entrepreneur with multiple exits, including Entropic, which he took from pre-revenue all the way through a successful IPO and a $1B valuation.

His latest company, GroGuru has raised $3.8M in seed funding prior to just wrapping up a massive $2M raise on Wefunder in a month.

Patrick was previously an equity crowdfunding skeptic and shares his tips for companies looking to raise capital and secrets for running a successful equity crowdfunding campaigns.

Enjoy this episode with Patrick Henry.

Listen on your Platform of choice:

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Show Notes

0:00:00   Welcome and context

0:01:50   Who is Patrick Henry?

0:05:16   Lessons learned from different channels of funding

0:11:01   What is the best source to look for fundings?

0:14:50   When to shut down to raise money?

0:19:11   What changed your mind about crowdfunding?

0:24:34   What are the 7 Secret Ingredients to Successful Crowdfunding?

0:30:30   Transfer of knowledge and experience from previous Kickstarter campaigns

0:33:33   What makes Agriculture Technology exciting for investors?

0:35:41   Importance of simplicity in messaging

0:36:59   How did you use Wefunder most effectively?

0:41:31   How did you use valuations for GroGuru?

0:45:26   What to do when you’ve raised more than expected?

0:46:58   What’s next on GroGuru’s roadmap?

0:49:39   Are IPOs the focus of attention for GroGuru?

0:55:59   Where can people find out more about you?

Show Links

GroGuru

Plan Commit Win: 90 Days to Creating a Fundable Startup

Why Timing Is the Most Important Factor in Ensuring Your Startup’s Success (and What to Do About It)

The 7 Secret Ingredients to a Successful Equity Crowdfunding

Wefunder

Indiegogo

Patrick on Twitter

Episode Transcript

Ben: [00:00:00] Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor. Here’s your host Ben Lakoff.

Hello and welcome to the alt asset allocation podcast. Today’s interview is all about raising capital for your company with Patrick Henry. This is not the give me Liberty or give me death, Patrick Henry, this is a different one.

This Patrick is a serial entrepreneur with multiple exits, including entropic, which you took from pre-revenue all the way through a successful IPO and a $1 billion valuation. His latest company GroGuru has raised over $3.8 million in seed funding prior to just wrapping up a massive $2 million raise on Wefunder in a month.

This is very impressive. Patrick was previously an equity crowdfunding skeptic, and shares his tips for companies looking to raise capital and secrets for running a successful equity crowdfunding campaign.

Before you listen, please don’t forget to like, or subscribe to the podcast or even better leave a review. This really helps more people find this podcast and keeps this thing going. It really, really helps. Please enjoy this episode with Patrick Henry, about all things, equity cracks funding.

Patrick. Welcome to the all to asset allocation podcast. Excited to have you on today.

Patrick: [00:01:21] Well, thanks for having me on really appreciate it.

Ben: [00:01:24] I’m excited about this conversation and I’ll link all of these things in there. Show notes, but you wrote a fantastic piece about the seven secret ingredients to a successful equity crowdfunding campaign. You just finished up on, wefunder. You raised $2 million. I was introduced to you as previously a crowdfunding skeptic, and now I believe her. So I was really excited to have this conversation. And have you share a little bit about what you’ve learned thus far? Start off today, just with a little bit of your background, who you are, some of your experience with raising funds, and start with that.

Patrick: [00:01:59] Sure. Yeah. So I’m, a serial entrepreneur. This is my grow gurus, my current company, G R O G U R U. And we’re really all about strategic irrigation management. We all commercial farmers make more money by increasing their crop yield and more efficiently using water and other scarce resources in a more sustainable way.

but this is my fourth tech company running, over the last, I guess, 20 years now, 11 of those were with the company that. I joined in 2003, we took it public in 2007 and then I ran it as a public company for seven years. So kind of took it from pre-product pre-revenue to an IPO and then eventually a $1 billion valuation.

And we sold that company, in 2014 and I had a car, a couple of other prior exits, but after selling that company, I needed to kind of detox from being a public company CEO for seven years. So I started, you know, saying that’s important. The director is doing strategic advisory. I was doing a lot of blogging.

And then eventually I wrote a book called plan commit within 90 days to create an, a fundable startup. And that was really based on my experience, raising a lot of, private and public money ever raised over $200 million for my companies, in both the public markets, as well as through venture capital and.

When I got into grow guru, not only has the market environment changed relative to venture capital, and we can talk about how that’s changed, but they’ve kind of moved downstream. They’re doing more bigger deals later stage deals, but also, it’s just the whole, the whole landscape in terms of angel investing.

That was something that I wasn’t as familiar with. I was typically brought in. You know, as the adult supervision, you know, hired gun management person in these companies and this company, I came in way earlier. I was a found pretty early in the life of the company. So we weren’t really sure place where we were ready to raise a metric capital.

So we raised a lot of angel money, which is a totally different experience than, than raising venture capital. And then, you know, we got an opportunity to look at we funder and. Turned out to be a huge success for us, you know, as a, I guess, like you said, you know, I was a skeptic going in and, and if I’m an advocate, but I’m definitely a very pro equity crowdfunding person at this stage.

And, it’s been a great experience.

Ben: [00:04:26] Yeah, there’s a ton of things I want to dive into there, but just for my listeners, I mean, typical crowdfunding campaign in 2019 raised an average of $260,000, on we, funder is 300 to 350 K. Typically that takes 60 to 90 days. You with GroGuru blew this out of the water with $2 million in 35 days.

firstly congrats, fantastic job. These are, these are amazing, amazing numbers. So before we get into that, I think it might be helpful to talk because you’re so experienced with raising funds from angels or venture and all, public markets.  These are very, very different things.

So could you talk about the difference a little bit and, some of the things you’ve learned from raising capital through these different avenues?

Patrick: [00:05:17] Yeah. So a lot of it really, I mean, even before that, you know, what kind of company do you have? Do you have a company that you even want to raise outside money?

You know, if you’ve got more of a small to mid-sized business, sole proprietorship, You know, you may never want to raise outside capital, or if you do, maybe you. You alone with somebody or have one partner that comes in as kind of the financial partner, but you typically don’t want to raise venture capital because the goal of those companies is to basically get to cash flow positive as quickly as possible.

And then, you know, basically pay yourself through the money that you’re making with the business. I’ve always been involved in more of these potential hypergrowth businesses where you’re looking at big markets and yeah, it takes more money. And so you basically go negative before you go positive. in fact, a lot of these companies are still negative even when they go public, which is shocking.

But, basically in order to raise millions of dollars, you know, most of us don’t have that kind of money cash on hand. So you have to go to the outside markets to get capital and in kind of the very early stages of a company like that, you typically bootstrap, but it’s yourself, your co-founders, maybe some friends and family, and then do high net worth individuals that basically think you’re cool and like you and think your idea’s cool and they’re like that.

And they’re willing to make those early investments, you know, kind of the. One of the most notable angel investors is like a guy like Peter teal, who, you know, he’s made a bunch of different investments have been super successful, but he was an entrepreneur that then became an ambassador. and. Yeah.

And then eventually, you know, you raise venture capital when you want to kind of the, the millions of dollar check sizes. So typically, on the bootstrapping mode, depends on how much money you have. Maybe that’s the first a hundred thousand dollars, $150,000. And then, with high net worth individuals, there’s the us securities and exchange commission.

They’ve got a method for raising money from what’s called a credited investors called a regulation D. Financing. And there’s like all sorts of subsets of that, but, basically you have to be an accredited, you have a big salary with, between you and your spouse and typical check sizes in those types of situations are, you know, twenty-five $50,000, you know, every once in a while, you know, maybe you take a $10,000 check, you know, maybe you got, somebody writes a big check, like a hundred thousand, $250,000 check, but that’s the kind of money that you’re raising, in, in angel investing.

And that requires you to have a network of high net worth individuals that you can tap into. And either you have that on your own or through friends that may know people, you kind of connect people that way. You know, because of my experience, I’ve got a pretty broad network and I’ve also been involved with, with some accelerator programs where I’ve gotten, you know, warm introductions to angels, you know, to, to raise that money.

So prior to, prior to we funder with grow guru, We raised a total of $3.8 million in what I call angel money. So this was between individuals, family, offices, angel groups, and accelerator programs. So that’s kind of how much money we were raised prior to the we funder. Then the, we funder, I was thinking we wanted to do a venture round and then when COVID hit and you know, things really tightened up with venture capital, like, Oh, guess we got to figure out another solution here.

Ben: [00:08:44] Yeah. the venture money wasn’t exactly plentiful in the March timeframe, right?

Patrick: [00:08:50] Yeah. Well, what really happened was, and this happens in any kind of recessionary environment and I’ve been through, I guess, three or four of them at this stage of my career. I was with venture capital. When that happens, they kind of Batten down the hatches and say, okay, How much money do my existing companies need.

first off I got to triage my existing portfolio, which one do we like? And then the ones we continue to finance, how much capital do they need, to weather the storm, you know, and typically they’re thinking, okay, this is going to last. 12 to 24, maybe even longer than that, 12 to 24 months, maybe longer than that.

So that process may take a few months and we were in conversations with venture capitalists back in the January, February timeframe. And we, we had, you know, half a dozen that were pretty interested in us. and then boom, we just hit the wall and our business was doing great. You know, the business was continuing to grow and even with, with COVID, we continued to, grow revenue, at, at a slower pace, you know, so we’re, we’re, we’re not recession proof.

but we’re recession resilient. So, you know, farmers continue to farm. We sell into the agriculture industry and farming is always hard. So it just, this is another hard year

Ben: [00:10:08] Having experience raising from all these different methods, managing the different investors based on where they come in. I liked the initial slake seed round is FFF friends, family, and fools, right?

It’s like those initial checks. If you raise 3.8 million, a lot of these like $25,000 checks, I think in your article, you mentioned like it was a dialing for dollars. It’s just like a very inefficient process. Where were you going for these? You mentioned angel networks, accelerators, like family offices, what was kind of the best source.

And obviously this depends on the type of business that you have, but for you, what, what seemed to work the best here?

Patrick: [00:10:52] Yeah. I mean, I’m, I’m fortunate because I’m not a first time entrepreneur, first time founder, you know, I have a track record of success of building businesses and building companies. So through that process, you mean, you, you get to know other CEOs, you get to know other angel investors and other, other successful people.

And you know, you kinda mind that network. And I think, you know, it used to be. You had to kind of scrape the reg D filings, they call it, you know, go to a Mattermark or, Crunchbase and do all that kind of stuff, and it’s still a good way to do it, but then you’re kind of looking for a way to it, a warm introduction to those people.

And one of our, the guy that who’s the CEO of one of the accelerator programs ran called EvoNexus. his name is Rory Mora, and he’s also on our board of directors now, but Rory was really they’re well connected. and the angel community in San Diego. And even kind of more broadly in Southern California and things like that, that once you find an angel that is interested, sometimes it was just like mining for gold.

You hit a vein of gold. You’re like, okay, who do you know, might also be interested in putting money into RDL? So there are probably, we kind of look at the lineage of how money came in. There’s probably half a dozen, you know, maybe eight investors that we also have additional investors through those people.

So like, Oh yeah. You know, Call my buddy in New York that, you know, does this kind of stuff. And I think he’ll be excited about your deal. So those kinds of things, but, but eventually like, like a vein of gold or vein of silver, you’re tapped out. So for this stage, you know, in early this year where maybe we got a couple, okay, we’ll put a little bit more money in to kind of prime the pump for this year, but you know, you need to find some new money and.

Yeah, it’s just one of those things where when your network is exhausted, then you got to find something new.

Ben: [00:12:46] Yeah. And I would imagine it’s a bit of social proof, right? Like getting that first check of those first couple of checks, really gets that snowball, that momentum, as soon as other investors see that other people have invested it suddenly  becomes a little less risky because you know, somebody else did due diligence. Like you being a multiple time founder definitely helps right with that track record. but I think that that is very important.

Patrick: [00:13:10] Well, especially if these people are considered smart money, you know, if they’re smart money investors, either they have a lot of technical expertise or domain expertise.

Like we’ve got guys that, you know, are, are. Former CEO is a big real estate development companies that also have a farming background, guys that have run big tech companies, some pretty big, early stage investor groups like mentors fund right-side capital, longly capital. Basically people have more confidence around them than like if it’s my brother.

Ben: [00:13:42] Right! Yeah, exactly. It gives that stamp of approval of somebody that knows what they’re talking about with this business. I do a fair bit of startup advising and a lot of these people are really struggling early on limited resources. They’re bootstrapping, but. They’re hearing of, you know, a lot of these success stories, obviously it’s survivorship by all, all of these companies, all of this cheap money out here, it’s so easy to raise capital.

Why don’t we scale back on launching this bootstraps business and getting traction and just focus a hundred percent on raising funds. What advice would you give people in this situation or how to think through it? Because obviously as soon as you raise funding, it completely changes the dynamics of the company.

You’re you no longer can call all the shots without anybody asking any questions. Right?

Patrick: [00:14:37] I mean, I, I kind of think of it, the reverse of that and was you’re in a little bit of a delay there. So, but basically. Shut down the business to raise money. that may work if you have. A significant track record of innovation, like, in my last company and traffic and make it communications.

The lead founder had a prior deal that he was involved with with a major venture capitalist up in Silicon Valley. And when it’s SOC is his name is Zachary and he decided he was going to start a new company. John we’ll let you go from red point. Just wrote him a check for a million dollars. You know, and I said, okay, I’ll just roll this into my series a, when we do that, but use that to kind of figure out what you’re doing.

Most of us don’t have that luxury. You know, the investors want to see some kind of proof points and that’s where you’re going to things like lean startup, where it’s like, okay, get to a minimum viable product. And especially if it’s something where you can test it without building a whole product or test it on the internet and do those kinds of things and get some real customer feedback.

That’s validating around the idea. that will allow you to raise both more money, but also more money under better terms. So, you know, like I said, most of us aren’t the Itzhak grants, you know, type of people. So we have to do it by trying to build a business and establish some sort of traction, even if it’s just early traction and early feedback around things, because that’s more validating or around your idea versus just kind of.

Do people want a garage, you know, with an idea and a dog, you know, it’s kind of, those are, those are hard businesses to fund, but a lot of them start that way, like Hewlett Packard and you know, Apple computer, but they, those guys that got something working and then, then they got people interested because they had something that was relatively interesting.

Ben: [00:16:27] Yeah, the, ideas are cheap. Right? And I think the important thing here always is the traction is very subjective. Traction can just be, you know, number of signups, you put a splash page and like drive some traffic to it and people are, are signing up. So that is considered traction by some investors. And it’s so much better than just a pitch deck and a wild idea.

Patrick: [00:16:50] Yeah. And, you know, people, but people also invest in, in teams, they invest in people. So, I remember, I think it was, the guy that started a Dropbox, you know, he was flying at Y Combinator and he didn’t have his technical co-leads and they said, come back when you have your technical colleague. So we went out and explored and, you know, found a guy at MIT that he ended up working with.

Cause they, you know, you, one of them, I wrote an article on this. I think an entrepreneur magazine is, I think it’s. I mean, what makes startups successful and why do most startups fail? And a big part of it is having the right mix of people on the team that the founding team that can really kind of make the business go forward.

And there’s a business component and a technical component. And sometimes that exists in the same person, but typically it’s two. Kind of co-founders that bring both of those pieces to the table. So it’s a combination of, of that. If you don’t have a track record, not the end of the world, but at least have something where you have some credentials that you bring to the table.

And then, like you said, traction means different things to different people. You know, some people it’s like, if you don’t have. You know, a million dollars or $10 million of recurring revenue. That’s an attraction, but other people might be like, I got 10 sign-ups. Yeah, exactly.

Ben: [00:18:09] They’re all forms of traction. Right?

Differing levels of risk appetite, I guess, from the investors perspective. The other important thing with startups that blows me away is timing, right? Like all these crazy 1999, internet ideas. Probably are great businesses now. Like I haven’t checked like pets.com, things like that, but you know, these, these all work right, they were just a little early in, over a hyped at the time.

The plan and for groguru or was to raise, continue, do a venture round, continue to raise from private funding, not go crowdfunding. Your decision changed. this was partially a by-product of COVID induced recession, I guess. How was we funder pitch to you in the beginning?

Patrick: [00:18:57] Yeah, so I’m, I’m fortunate.

I’m went away. When I wrote my book, I did a Kickstarter, so there’s pre-sales crowd funding, which is like Indiegogo and Kickstarter. So I was kind of familiar with it. I was familiar with, equity crowdfunding, and the jobs act came out in 2012. You know, part of what I did in my consulting business advisory business was talk about that, you know, regulation, a plus regulation, CF regulation, crowd funding, being two additional ways that startups could raise money.

So I had a little bit of a framework around it and done a little bit of research on it. So, but the good news is you have the internet, so you don’t have to go to the public library to go on the internet and figure out what stuff is and read different articles and things like that. But the, The thing that I learned in our Kickstarter, both from my research and then so much of it is about early momentum.

You know, getting to the top of page while I’m getting that visibility. So first off being on a platform, there’s going to be a lot of eyeballs on and the most relevant eyeballs. But then secondarily being at the top. So those eyeballs can just turn on the page and they see you. So, in the early days of equity, crowdfunding, you know, it was more about call it business to consumer businesses.

You know, where you’re trying to build a tribe and an advocacy group. And I think there’s still a lot of that today where, you know, your customers are also able to become investors and we’re not really a traditional B to C type of company. We’re not a traditional B2B company either. Cause we’re we saw the farmers.

So they’re their consumers, you know, that we use all the end users, but they’re kind of buried in the supply chain, in the food chain. So. I didn’t really think that in the beginning, this would be relevant. And the retail investor really be able to wrap their mind around this if they’re not a customer of our product.

So that was kind of my initial first level of, of skepticism around equity crowdfunding. And then the other piece was, you know, you can’t really raise much money. You, In the, in the world of venture investing, they really want to, to, to focus on keeping what they call a clean cap table. So this is basically for the people that know what a cap table, this your capitalization table, you don’t want, like thousands of individual people on there.

You want, you know, Peter teal and the guy that used to run this company. I used to run this company and, you know, basically. you know, I don’t know, 30 to 50 ambassadors at the most and in an equity crowdfunding with the check sizes are so small. It’s like, you’re going to have hundreds, if not thousands of ambassadors.

And that just doesn’t work. If you eventually want to raise subsequent rounds of financing from venture capital. So my contact that we found a week, I met him through the San Diego angel conference. He’s an angel ambassador. He also is on the we funder team. he was involved in our due diligence committee.

We won the people’s choice award at the angel conference. So there was some level of understanding with the general community on our messaging, on what we do. So we’re able to get it dialed in enough that, our value proposition, the market was digestible by the typical investor. Somebody that didn’t have to be like a crop scientist or an engineer.

So then I think that was, that was one positive. so B to C wasn’t necessarily necessary in there had been other companies over the last couple of years that were more B2B companies that were having some success on these crowdfunding platforms. Now, the second thing is people raising more money, you know, like you said, the averages are a 300 to three 50, but there were companies that were raising a million, $2 million.

So that was kind of interesting. And then they recently implemented a new model where they have a lead investor. So there’s a. regulation D Platform called Angel’s list and on Angel’s list, the best way to raise money as identifying a syndicate lead. So somebody that basically as the lead in Bicester, they do the due diligence, they put the investment group together and then make, make the investment.

So it’s a single line item on the cap table instead of, you know, all the individual investors and that single investor has the voting rights and those kinds of things. So they’ve kind of, we found, or they’ve adopted that model, where you have a leading investor or you can, and that’s something that was of a lot of interest us, and that was kind of an essential component for us to be able to move forward with them.

And we end up having a great lead investor in that that’s part of reason why we had such a successful campaign.

Ben: [00:23:37] Yeah, that makes a lot of sense. Those are very common objections I would think. And the fact that you just blew them all out of the waters, pretty, pretty amazing. let’s just jump right into it.

I mean, you, you have this, great blog post that I’ll link to, but I mean the seven secret ingredients, it’s very, Very good title. I don’t know, tested, tested those, but it certainly it’s certainly interested me. if you were talking to, somebody that’s interested in crowdfunding for the first time, like obviously you’ve about some of your objections and how those didn’t end up being that big of objections, or you blew right through them, but you know, what are these seven secret ingredients?

Walk me through what you learned and what people need to do to have successful raises on crowdfunding platforms.

Patrick: [00:24:21] Yeah. I mean it’s and a lot of it, these things are common, but equity crowd funding is a little bit different because you’re, you’re pitching to retail ambassadors. So the first thing, if you’re, and this is something I talk a little bit about and playing commit win, is that a fundable startup?

They’ve got, you know, a big market opportunity that has potentially explosive growth, a really differentiated product that solves a major problem in the market. So they’ve got a great solution for a real problem, and there’s tons of problems, but not all problems are problems that customers want to solve because it’s not painful enough.

So it’s gotta be really painful for, for your target customers. And then you can sustain a competitive advantage over time. And then you’ve got a great team. So those, I think those elements, regardless of if you’re you’re bootstrapping or you’re, you know, you’re raising angel money or you’re raising equity, crowd funding, or even if you’re raising money in the public markets, that’s, those are essential components of having a fundable welcome.

Company, unless you’re kinda like in a real mature business, then there’s a whole set of different metrics. You look at there, but growth, growth companies, primarily startups that’s really important.

Ben: [00:25:30] Those four was, to be a fundable company, lots of potential. You’re solving a major problem, bleeding neck, super painful problem for the customer team and competitive sustain that competitive advantage over time.

Patrick: [00:25:41] Yeah. A big market growing fast, but like you said, there’s a time element of it in a startup. You don’t want to be late. But you also don’t want to be too early, so you want to be early, but just early enough, you don’t want to be at the party three hours, early, 15 minutes early. You don’t want to be there half an hour after like there’s a big crowd there.

So that’s kind of that timing element is important because you’ve got to intersect the market and. Yeah, that’s a whole other topic we talked about at some point, but timing the market at the right time. And a lot of that deals with the ecosystem is the ecosystem mature enough that the thing can ignite the thing can accelerate at a very rapid rate.

So like if you’re doing a streaming video service to the home, if you don’t have broadband internet and significant capacity on broadband internet, It’s not going to be a successful product, even though people might actually like the service, you know, it just, it doesn’t matter. So there’s, there’s things that have to be in place for a market to ignite and, you know, your market, all markets are different, but those, those kinds of key ingredients have to be there.

So that, I don’t know if I talked about that in the blog post, but that that’s kind of the fundamental of like, do I want to have a fundable company? And then within equity crowdfunding, I think that. You know, I don’t remember the seven ingredients, but I can probably look it up, but you can also look it up.

I think the big things in my mind, we talked about momentum. I mean, I think that was number seven, but it’s really probably the most important is you gotta have that momentum. but how do you create that momentum? And in our case, we had a lot of early interest. we did our marketing correctly. We put a killer video together.

so having the feature video on an equity crowdfunding, you know, that. Three minute video, where you give your elevator pitch. You give social proof around your concept. That’s critically important, real clean, easy to navigate homepage. Again, with a lot of social proof, we add investor videos on there. We had some customer videos on there.

then basically having that commitment to stay with it the entire time. Yeah. Like, what I like to say is there’s like four main jobs you have as, as a CEO of a startup, how did human resources, so got to hire the team and keep them motivated? You’re the head of operations. So all the, all the. Building the product, all those kinds of things out of finance, you know, making sure that the cash is managed properly.

And then you’re the chief salesperson, you know, so even because you’re not only selling to customers, you’re selling to your players, you’re selling to your other stakeholders, your investors, your ecosystem partners, all of those people. But in that finance piece of it, the, the fuel that makes a startup go is cash.

So if you don’t keep enough gas in the gas tank, You’re failing as a startup CEO. So with that in mind, you know, this fundraising component, it’s a big part of your job. So if you’re going to be doing a we funder campaign or, you know, raising a financing round, you’ve got to dedicate a certain percentage of your time every day to doing that activity.

And regardless of all the interruptions and everything else, so. We’re very active in terms of posting updates, answering questions, you know, doing these kinds of podcasts and interviews with people, interested stakeholders. So there’s a lot of that stuff that, that needs to happen as one that keeps the visibility up.

So getting that early momentum, a great team around you, all the marketing opponents, and then kind of keeping the momentum up once you, once you get out. Yeah.

Ben: [00:29:25] I think that early momentum, that search engine optimization on wefunder and, figuring out what it is they’re valuing and really hammering that.

So like you said, every time everybody opens that website, they see you right away. And then you talked a lot about the video. the short three minutes. Talked a lot about social proof. Was this something you had done with the previous, the Kickstarter campaign, having something like this, or is this all new concepts that you’ve been thinking through with GroGuru?

Patrick: [00:29:57] Yeah. I mean, the feature video is important in any kind of crowd funding because it’s, you’ve got the, you know, short attention span theater, you know, that exists out there and, and that exists with venture capitalist as well. If you, if you don’t have. If you’re in a venture capital meeting and you don’t have their interest in the first five minutes, the meeting’s over.

I mean, that may continue, but the meeting is over. So you’ve got to grab that interest in that, because it’s not, when you’re doing equity, crowdfunding, it’s online. It’s not face to face the way that you pull people in. Is first off, you know, you have other investors that are credible, you know, so leading investors very helpful and important, you’re getting early momentum.

So there’s a lot of money coming into the deal. So it’s like, there’s a, a herd mentality, you know, I wanna, I want to invest in the hot deals and then there’s that being able to describe and get people excited in a very short period of time. Ideally. The minute, you know, the elevator pitch, but you know, sometimes to kind of get the whole story out and get some customer testimonials in there, it takes a little bit longer, but if you’re kind of over three and a half minutes, if you’ve got like a five or six minute video, forget about it, you know, unless it’s something that’s super technical and you’re in a very technical audience or that kind of thing, you really gotta, you gotta make it pop.

And one thing we didn’t talk about is probably one of the other seven secret ingredients, but. Is that even if you do all that, and you’re not on the right platform, You’re going to have a problem. So in the case of we funder, they’re, they’re not a vertical platform. They’re not just in the farming agriculture industry, but they’re a big horizontal platform.

They’ve got a lot of investors that come to their site so that there’s leverage in, in doing that. So if you look at, Even Kickstarter and Indiegogo. I mean, Kickstarter, I think is better for books and better for consumer products where Indiegogo, if you’re doing an independent film, you probably have more people investing in independent films on Indiegogo than you do on Kickstarter.

So doing your research and saying, okay, I’m going to be on the right platform at the right relevant audience because that’s. Getting the video out there. If it’s something that, you know, somebody likes comedies and you’re doing a, you know, a romance it’s not necessarily going to match up.

Ben: [00:32:15] Yeah. But I mean, like you said, you like, mostly these things, you look at them and you’re like a, B to C, B to C. I get it. Like these people, they can see themselves using it. So they want to, they want to vest in it. Ag tech. I guess as an end consumer, right. I, I love, I love to eat anyways. So I guess, you know, at a derivative, I am a consumer ultimately, but I think I’m one of the few people that gets really excited about ag tech.

I’ve had a couple, farmland investing, crowdfunding platforms on the podcast and, it’s a really, really interesting space.

Patrick: [00:32:49] But that’s good. That gets to the point of like making, making the message relevant for the audience. Exactly. Now, if we say, you know, we saw soil moisture sensors, you know, and they measure in some moisture and temperature and they’ll help, you know, with growing corn and those kinds of things that’s really gonna play.

But if you say. Hey, we help farmers. I mean, everybody knows, you know, hopefully, especially after COVID and they go and see empty shelves at the store, are there there’s nothing more strategically important than the security of our food supply chain. And fresh water. Yeah. So those are two big things. I mean, there’s a lot of issues around climate, so there’s nothing really more important than sustainability.

So, I mean, we’re doing all three of those things. We’re helping save water. So those are, those are kind of touchpoints that a broader set of investors can resonate with. That if you kind of pigeonhole yourself too narrow, you might not bring all those other potential investors in because there there’s more and more people doing impact investing, investing in things that are around sustainability and around improving the planet and, you know, leaving the planet a better place than it was.

What were we founded? So those, if you, if you, it, it’s gotta be honest, you know, you can’t just. BS your way through this stuff. But if you really have things that you do that are valuable to an audience, you should highlight those things. And it’s more about the, the, what you do and the big picture vision, and then you can get into the how a little bit, but it’s, it’s, it’s more about those things.

So that’s in the messaging that becomes really, really important.

Ben: [00:34:29] Right. And how important is simplicity in this messaging? I mean, you talk about it a lot about. The why, and being transparent and all of these things, but how important is just communicating that in very simple, easy to understand terms?

Patrick: [00:34:43] It’s knowing your audience.

You know, if I’m going to be speaking to a 30 year old hedge fund guy on wall street, that’s a generalist. Even that’s different than the same demographic. That’s a specialist that they really understand. TV and communications or ag tech or whatever. if I’m talking to a more of a general audience that isn’t technical, then.

Making it communicating in a language that is understandable is really important. You don’t use three letter acronyms, don’t use a lot of technical language. Don’t, don’t do a lot of those kinds of things and then making it Chris, you know, it’s gotta, people got to get it. They’re not, they just don’t have the patience.

To listen to this long diatribe and why it’s important and why it’s going to be successful in a relatively short period of time. And I’m talking a few minutes.

Ben: [00:35:37] Yeah. Yeah. Very, very short and getting shorter, right. To two other points that you had mentioned on here. I think engaging your network, which I found interesting that you said.

you personally use in priority order, LinkedIn Twitter, then Facebook, very little Instagram. I think obviously this varies based on your business, but I found that very interesting. My LinkedIn is kind of a disaster at this moment. I think that the prevalence of these automated outreach tools have just filled up my, my inbox with spam and it’s, it’s good to know that LinkedIn is still providing a lot of value.

I mean, it should, right. That’s a professional network, but, did you have most success with, Generating interest in investing on wefunder, or just on what you guys are doing. Like what how’d you how’d you use this platform most effectively?

Patrick: [00:36:28] Yeah. So the I’m not doing a ton of, direct mail outreach.

And because of the issues, you know, that you mentioned. I don’t think it’s incredibly effective unless it’s kind of law of large numbers. And you’re just kind of get going to get a small percentage, which isn’t, you know, I don’t have the time or the wherewithal to do that. So leveraging and engaging your network.

I mean, I’ve got a group of people that follow me, follow me on LinkedIn. You know, typical posts that I put up. Mike, get. I don’t know, two, 3000 views, a good post might get five or 6,000 views. And then a tremendous post. I’ve got one up right now. That’s about, an investment group that put money into us early on, and that’s got like 9,000 views.

So part of it is keeping people updated on what you’re doing and then igniting that network. It’s like, Hey, if you’ve got, you might have friends that are angel investors that didn’t want to put $25,000 into this company. Now’s your chance. You know, you can put in as low as a hundred dollars. In fact, they don’t have to be accredited investors.

So if you, and these are people that have either invested in us, or maybe they haven’t, you know, I’ve got some people that hadn’t invested in them, they might’ve written a $10,000 check or a $5,000 check and just, Hey, this is an opportunity. I’m not trying to like twist your arm. I’m saying. Hey, we’re going to be successful regardless, but you know, I’m invested in this.

I’ve got my money in it. I’ve got three years of sweat equity in this thing it’s really taking off. This is an opportunity for you to come in. So it’s really about using social media as kind of an amplifier on the messages that you’re already sending. Now, our marketing firm also ran Facebook ads. And I’m not a Facebook ad person.

I think that’s a specialty to do that, but they created the ads. They ran the ads. I think they drove a lot of traffic to, we funder that way, but that wasn’t my network. My network is mainly my professional network and I’ve got a large following on Twitter because I had my own kind of consulting business and wrote a book and blog and all that kind of thing.

So that’s more like short attention span theater. I mean, I think the half-life on a tweets probably like. 20 minutes. So, you know, I wasn’t posting frequently enough that I was really leveraging Twitter. Cause you gotta be posting like all the time on Twitter to kind of get, get things going, but at least, you know, Hey, it’s out there, I’ll post something on there, but the real focus was on.

Okay, I’m LinkedIn. Here’s what’s going on. Then the other thing was doing some outreach within my network and saying. Okay. Okay. I’ve got, I’ve got 75 investors in my company today. This was pre pre we funder. You know, here’s a post that I did on LinkedIn because every time you do one of those activities, it gives that post more juice.

So that’s something that’s really important. every time somebody comments on a post on LinkedIn, it goes back to the top of the feed. So, you know, Commenting is about 10 times more powerful than just liking it. So if somebody takes time to write a comment, you know, that gives it a lot more juice than that.

They share it, you know, it amplifies it because it’s going out to a much bigger audience. So I would send out a note to my investors and say, Hey, here’s a post, you know, do this. Here’s some stuff we’re doing, you know, do this. And, you know, I would get a decent number of people that would, would do that. which I think.

You know, again, it gets the message out there. I don’t know how much traffic we drove in. I haven’t looked at the analytics from that standpoint, but it getting your, getting your network engaged and excited about what you’re doing, I think is really important. Yeah. Sometimes they write a check.

Sometimes their friends write a check. Right.

Ben: [00:40:07] The reach on these things is just extraordinary. Definitely tapping into it makes a lot of sense. I wanted to shift a little bit. Number six on your, your list was listened to the market and talk briefly about valuation. I didn’t see at what valuation you raised, but in this, it, you, you adjusted the valuation cap and early bird program based on feedback. So talk to me a little bit about valuations you used for groguru, how you thought through this and where you ended up settling.

Patrick: [00:40:36] Yeah, so we still haven’t raised a price round. So we still haven’t raised money and stock, you know, preferred stock. All the money that we’ve raised is in what’s called safe agreements, which are kind of like a convertible note without an interest rate and then do convertible notes.

So on we funder. Which is another great thing about we found her. You don’t just have to, you can’t just raise preferred stock. You could raise money on a safe or a convertible note, but what you do have in the convertible note is a valuation cap. It’s not sending a price on the company, but it’s basically letting those people make more money.

You know, if you go through that valuation cap, so there’s a discount to whatever the price round is, but you get a little sweetener by setting an evaluation cap. Some people get way too wrapped around the axle on it, but that’s, that’s another story. So I think what we did is we had raised money before and we’ve continued to raise our valuation cap as we’ve moved through success of financing rounds.

But we, my thought was, Hey, I’d like to do this. I’m at a nine to $10 million valuation cap. And we still get a 20% discount. So even if you raise money at 8 million, they’re going to get a 20% discount off of that. But know some people like that’s important and it’s like, how do you get the audience engaged?

So I had a conversation with our perspective lead investor, startup camp, and they ended up being our lead investor. And he was a lot more comfortable with eight and a half million dollars and giving an early bird discount on the sixth for $600,000 of the res where a lot of his investors come in of seven and a half.

So I’m like, you know, I can do that. You know, our PRI our pre, our previous was a $6 million cap. So it was still a step up. I think both founders, you know, CEOs, startup, CEOs, and investors sometimes get their mind wrapped too much around valuation. And these are all just intermediate price points.

They’re not the only time that it really matters around valuation is the accent, you know, and you know, you do want to be concerned about your percentage ownership. And investors should be thinking about that as well. Especially if they’re a big lead investor, a big venture capitalist is, you know, how much of the company do I own?

Cause I’m putting a big amount of my time into it. And like, you know, me and my co-founders, we’re putting a lot of time in this too. So we want to make sure that we have enough of the piece of the action. Cause we’re not making money on salary. I mean, it’s a joke. So it’s, we’re making money on, if this thing is successful, we want there to be a big payout associated with that.

And that’s about how much do you own of the company when you get out here to the exit? So, yeah, it was a pretty easy decision. You know, we had a, we had a discussion around it, you know, I could have just dug my heels in and said, no, this is what it’s going to be. And it might’ve been the same outcome, met an authentic same outcome.

I think part of it’s also the psychology of what’s going on there. They want, you know, you, you want to work with people that are willing to work with you. and showing that little bit of flexibility, won’t make, you know, a Hill of beans difference in the overall outcome of our company. But it made the lead investor feel really good.

And I think they got more excited about it. Put more money in.

Ben: [00:43:50] Yeah, definitely. I’m curious, your goal for wefunder was much lower than $2 million. Like this was oversubscribed or like a very spectacular finish. So raising more than you had initially planned, like what does this change in terms of roadmap?

What does it change for or groguru or going forward now that you have a little bit of extra capital?

Patrick: [00:44:14] Yeah, I mean, we were thinking about it as kind of a bridge round to get to the next round of venture capital, which is still is, but it’s a much longer bridge now. And that allows us to be a lot more strategic and set the milestones we can accomplish at a much higher level.

When we do this next financing round. So I think we took a little bit more dilution, you know, by raising some money at kind of this lower valuation cap, but it just gives us a lot more flexibility to lean forward a little bit more, even in an environment where, you know, you gotta really be careful. I mean, we’re still in a recession, but we can be a little bit more strategic.

We can, you know, accelerate a little bit stuff from a product development standpoint and accelerate a little bit of stuff from some hiring of some key sales people that we probably wouldn’t hire it otherwise, because we had been really. Protective on our cash. So the reason why you do that is because you think you can accelerate revenue.

You know, if I hire a salesperson, they don’t generate five times the amount of pain. I mean, it, wasn’t a very good hire. So it’s really about achieving more and giving ourselves a little bit more breathing room and a little bit more time before we go out for the next financing.

Ben: [00:45:27] Yeah. And ultimately building up at a higher valuation for this next round.

Great. What’s what’s next for groguru? Your roadmap, what excites you most about the, the near term and longer term?

Patrick: [00:45:39] Yeah, I mean, I, I think those earmarks of what makes, a fundable company is really the same thing as makes a successful company. I think we’re in we’re timing, the market correctly, you know, the ecosystem pieces are in place.

We have a potentially massive market opportunity. we’re early enough, you know, we’re in the early innings of, you know, the first or second inning of, of, of a ball game baseball game. So we’re, we’re early big opportunity in front of us in terms of market growth. we’re gaining market share where the technology leader and we’re going to continue to accelerate our technology lead, which I think ultimately leads to market share leadership, and farmers love what we’re doing and we’re now.

We’ve we basically have established what I, you know, what venture capitalists and you know, all of us kind of in this startup jargon world product market fit. So we’ve established product market Curtis’s is something that I’m buying and I’m going to buy a lot more of it. So that that’s a big deal. So now it’s a matter of how do we put more gas on the engine, around the customer facing side of it?

Well, obviously we’re still doing some product development because we don’t want to be a fixed target where, you know, somebody comes in and just hammers us. We’re continuing to do even more cool things. And then we’re doing right now that helps farmers even more. But having that initial product market fit and getting that we’re, we’re, we’re starting to see kind of the big deals come in.

So we’re, you know, you, you starting to get the tens of, of, of deals. Then you get like the hundreds of deals now, or like getting big chunks. You mean we have four or five opportunities that are in kind of the thousand plus, you know, range, which. That’s super exciting, you know, that’s, that’s like, okay, this is, you know, this is becoming a real business.

And, that, you know, and I, I’m very fortunate. I work with an amazing team. So it’s, there’s no, you know, a lot of company is when you’re dealing with a group of founders. You know, what I like to say is if you want to start a revolution, sometimes you need some anarchism and anarchist by their nature are like, They hate authority.

They hate pretty much hate everything. They hate themselves. They hate their lives. So I’m dealing with this other people that still have that innovation, but they’re good citizens, you know? So we’re trying to build something together. The competition isn’t each other, the competition is out there. We felt like, Hey, we can crush the competition because we have something that not only we believe it’s awesome, but our customers feel like it’s awesome.

Ben: [00:48:09] Awesome. Awesome. No, I love it. the end goal with groguru, like you’ve taken other companies public. So is IPO, is this the end game as of right now, obviously that changes maybe.

Patrick: [00:48:21] Yeah. I think that if you look at startups in general with the VAT, the vast majority of them fail. So I think we’re going to be on the positive side of that and have a successful company.

I think we’re building a real business and there’s a lot of market validation around it. But most companies are the ones that are successful, you know, 80% of them get sold and into a strategic acquire. So basically that’s, that’s the most likely outcome, for, for the company. But then there’s that 20% where.

Maybe we end up being an industry consolidator. We raised some money from private equity and start rolling up this part of the business, or maybe, you know, it does grow so fast that you do think the company public, the thing with taking a company public is. That’s not an accent for the founding team or for management.

That’s an accent for your outside investors. And I remember an entropic, you know, I’d been there 10 years. I eventually, you know, it’s like, Hey, once no money. And I take 20, I said, it’s not like it’s like 80% off the table. It’s like, I take 20% up. They don’t do them freaked out. So when you solve it, the company, it’s a, it’s a, it’s a, it’s more of an accent for the founders now.

As a good steward of the investors, you have to say, okay, I want to do what’s best for the entire shareholder base. So in the case of entropic, you know, the primary potential acquire or the company, a company called Broadcom always wanted last year’s price. So we can never get a deal done with them because they always wanted to hunt significantly undervalued, not a little bit significantly undervalued.

So we’re like, Hey, we can make. Five X this by taking the company public. Now, you know, we had to go through the great recession and, you know, we took the company public at the end of 2007 and it was a good accent, but like, you know, the next,

Ben: [00:50:14] some tough years in there,

Patrick: [00:50:15] all the customers converted, you know, we took it to a billion dollar valuation.

It was, yeah. It worked out for everybody, some more than others, but it worked out for everybody. So it’s, That’s one of those things where you’ve got to decide how much additional risks are you willing to take on. And every time you go out for a new funding event, You have to kind of look at it and say, okay, I’m going to raise another $5 million or another $10 million.

What can I accomplish with that money and how much risk is associated with that? And am I better off selling now or doubling down and taking it to the next level? And these are things that as, as a board of directors, as, you know, a CEO, you need to be thinking about and saying, okay, and then. Influencing people all along the right direction and not in a selfish standpoint, but what’s best for.

The entire investment group. Does that make sense?

Ben: [00:51:13] Yeah, it does. And I mean, each, each time you’re raising additional capital, you’re bringing on additional investors that have different priorities and all of these, right. So

Patrick: [00:51:22] indifferent, different return expectations,

Ben: [00:51:24] exactly. And time timeline for this. I applaud you after, you know, going through what you did.

Multi-billion dollar valuation and exit, and then. Starting over at the ground, zero and two into it again.

Patrick: [00:51:37] So it’s kinda like, remember I was watching, I guess it’s the Grammy is the music, the music awards. And what’s his number of years ago. And Coldplay got the best new artist or, and our best new group or something like that.

It’s like, yeah, it only took us 10 years to become best a group. Cause everybody just, yeah, they don’t see all the ridiculous stuff that you have to go through. Primarily entrepreneurs just realize, even for somebody that’s had a degree of success, you know, like me, this stuff is hard. I mean, it’s really, really hard.

I mean, it’s hard to raise money. I’ve never been one of those guys that’s and able to just show up and get a check. You know, I’ve heard those stories. I’ve never, I’ve never personally experienced that this is a grind and you have to grind it out every single day and work for every dollar. And yeah, you’re going to have times when you’re depressed sometimes when people don’t believe in you and think you’re completely full of it.

And it’s just, it’s, you’ve got to have that. That vision and belief to kind of make it through that. And if you surround yourself with a good team and you’re on the right track and you know that eventually people will come around. Then stick with it. You know, I’ve got this real pet peeve around, you know, failing fast, a number of things wrong with it.

From my perspective, the first one, it starts with failing. So it’s like, you know, don’t plan to fail fast don’t plan to fail at all. You got to plan for success. If you’re going to go into the big game and you think you’re going to lose, you have no chance of winning. I’m not saying if you’re super confident you’re going to win, but your chances of winning are way improved.

And I think far more startups fail by giving up than they do by anything else, because it gets too hard. I mean, this stuff is just, it’s ridiculously hard to kind of continue to go forward. And, you know, you’re slugging it through the mud, you know, everyone has to do like open field running and it’s like, it’s like that most of the time.

I mean, you’re just slugging it out.

Ben: [00:53:43] Oh yeah. Well, it’s over glamorized, right? I mean, everybody’s an entrepreneur, I’m sure all of these things, it was a, and the stats don’t lie, right? Like 90% of startups fail, 75% of venture backed startups fail. So these have been filtered and these are the good ones, right?

75% of them. Fail. I think it was, Elon Musk. The, entrepreneurship is like sitting alone, staring in the dark, staring off into the abyss eating glass. And like, that’s the reality. it’s sucks that time coming from somebody that started a business and failed before, like it happens and, you know, I, I believed in myself, I had three sources in time and all of the confidence in the world, but it happens, it happens to the best of that.

yeah, we’re bumping up against the time and I want to be aware of that, but, where can people find out more about you, your book, your company, where do you want to send the listeners?

Patrick: [00:54:37] sure. I can go to groguru.com. that’s that’s our company GroG U R U. That’s my main focus right now.

I’m on, like you said, I’m on LinkedIn. My name is Patrick Henry. I’m not the guy that you know was involved in the early revolutionary stuff of the country, but the other Patrick Henry. so you can find me there. I’m on Twitter at quest fusion. Which was my, consulting and strategic advisory business.

that’s kinda, my personal blog is on medium, but it’s also on quest fusion. Medium is more up-to-date because I just throw everything up there now. Cause there’s a lot more eyeballs, on, on that, on that platform. And that’s probably the best ways to, to get ahold of me in a drop me a direct message.

And my, my LinkedIn. or, you know, if you’re interested in strategic irrigation management and you’re a farmer, then, you know, contact us through Kroger. My book is on Amazon. So that’s like the easiest thing to do. So it’s just like for plan commit, when is called plan commit when, and I think it’s still very relevant.

The environment, like I said, venture capital is kinda moved downstream, so it’s still relevant, but you know, most venture capitalists are doing later stage deals. So you get in the startup environment, you need to be more creative. And there’s this funding gap, which is Ben fell by angel investors and super angels.

And I think that. Why I’m really optimistic about equity, crowd funding, and even, you know, regulation a plus is that it’s helping to potentially fill that funding gap. It’s kind of coming of age. It’s still in that adolescent phase, but it’s starting to come of age where it can be a real good source. Of capital, for companies, but you’ve got to, you got to do it the right way.

if you, if you do it the wrong way, it can really kill you in your next financing round. So it’s like, you know, have some, some intelligence about it, which is, you know, read, learn, but also have good mentors and awesome.

Ben: [00:56:35] Yeah. Well, I’ll link all of those things in the show notes and it certainly crowdfunding is growing and it’s, it’s significant funding at times, right?

So it’s becoming a real good alternative.

Patrick: [00:56:46] Yeah. And like Rexy African of the cap is 1,000,070 thousand, but we were able to raise additional money in a reg D on we funder. So our accredited investors we’ve pushed them into the right D that’s how we were able to raise 2 million and all ours is, we had kind of the reg CF and the reg D going on simultaneously.

So it’s, Yeah, it was really, it was a great experience, you know, on a, really as a game danger for grow guru. And, you know, like you said, you know, maybe more optimistic about this. This has being something that can be really important and relevant, going forward from the startup community standpoint.

Ben: [00:57:22] Well coming from you, that means a lot with all of your experience crowdfunding. Patrick really appreciate you spending all the time today. make sure and link up all of these things in the show notes and, really, really appreciate you taking the time.

Patrick: [00:57:36] Yeah. Really appreciate the exposure and great, great conversation.

And. Good luck with your deal as well. you know, these things aren’t easy. They aren’t indeed stay at stake. Tough fight. The good fight.

Ben: [00:57:48] Beat that glass sounds great, Patrick. Thank you.

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Happy investing.


Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.