Angel Investing 101 With Bill Clark, Founder of MicroVentures
I had the pleasure of interviewing Bill Clark who founded MicroVentures, an Angel Investing platform.
- MicroVentures was founded as a way to attract investors to start-ups and mature tech companies looking to raise money.
- MicroVentures makes it easy to invest small amounts in many start-ups, which can be critical for angel investing success.
- While most investments require accredited investors now, they do have the ability to accept non-accredited investors on a deal by deal basis.
- MicroVentures does a lot of due diligence on its own to protect its investors.
Check out the full interview below and leave a comment.
Kriss: Hi everybody, this is Kriss with The Franklin Society and I have Paul and Bill here from Micro Ventures. Micro Ventures is an angel investing and crowdfunding platform. Gentlemen, welcome. Thank you for joining me today.
Bill: Thanks for having us.
Kriss: If you would just tell us a little bit about MicroVentures, and what prompted you to start it, and what you guys do?
Bill: Sure. So, so, this is Bill Clark. I’m the founder of MicroVentures. I started the company in 2010 after seeing that there was, that start-ups were having an issue with access to capital. And at the same time there were investors who were sitting on the sidelines and didn’t have access to investing opportunities. In specifically, start-ups or any alternative investments. And so, I thought that the best way to provide access to start-ups and investors was to create a platform. So, I went through the process of becoming a broker dealer, and that took about a year. And then after that we started to give investors the ability to invest in companies that we’ve reviewed, that we’ve done due diligence on and feel like they passed our first round of checks, and then give the investors the ability to do their own due diligence to decide if it’s right for them.
Kriss: Outstanding. And so, you’ve got a very impressive list of companies on your website from your past offerings. I see Twitter, Facebook, Yelp. You’ve got some really heavy hitters here, Bill.
Bill: Thank you. So, those investments are in the secondary market. When I started Micro Ventures, the idea was to only allow start-ups that just have an idea, and maybe a prototype, and allow for investors to invest in those opportunities. That’s probably the riskiest type of start-up investment when it’s just an idea phase.
Bill: We went down that path and did several investments that way, and though conversation with investors they said that they were also interested in investing in a little bit later stage companies. And so, while we started moving down, you know, the path of going from very seed stage, to seed stage with a little bit of traction at the same time we started to see opportunities in Facebook, like you said. And Twitter and Yelp in the secondary market. So to balance out our investor’s portfolio, what we did was we pooled together money into an LLC and then we make investments in those opportunities.
Kriss: Outstanding. And if you would, could you just give our investors just a brief description of what the secondary market is?
Bill: Sure. So, the secondary market is a market that has companies that are private in it, and they…so there’s no access, you know, in the public market to these companies. But there are former investors, or there’s investors or formers employees who want to sell and get liquidity. So it’s a very liquid asset. And so, there’s typically brokers, or individuals who will sell these types of securities to individuals. And we have been participating in that over the last two and a half years.
Kriss: So, it could be a company like say, Facebook a few years ago maybe there was an early stage investor who didn’t want to wait for an IPO, but still wanted to get some cash out. And he can go on to the secondary market and sell some shares?
Bill: Yeah. Exactly. So, a good example of a company right now would be great if investors had access, would be something like Uber where there’s a lot…you now, they just did a round that was, I guess, reported at $40 billion. So, there’s a lot of investors that were early on, and current employers, or former employees who may want to cash out a little bit of their stock.
Bill: While I don’t know if there’s any shares available right now, that’s just an example of something where, you know, that would be something in the secondary market where you’d have an opportunity if those were available to purchase and then you could participate in any of them, potential successes of that company as they go through an IPO. The difference between investing in something in the secondary market is that one, it’s still liquid so it’s not very easy to sell it. And then second, is once they go IPO, you do have to hold on to that stock for 180 days during the lock-up period and then you can sell.
Kriss: Right. I think that’s a common misconception. A lot of people think that when you have stock in a company that goes through an IPO, that you can immediately unload all your stock as soon as it goes public. And that’s actually not the case. You have to hold on to it for 180 days as you said.
Bill: Yeah. And then, you know, as far as when we’re looking at different opportunities, we look at a late stage opportunity as something that wallet still isn’t…you know, it’s not safe, as safe as something that is a public company. It’s a little bit safer than an early seed stage company. These companies that have revenue, they’re growing. And so, while you may not get a 1020 x return, the likelihood that you’re going to lose all of your money is less than a company that has two founders and an idea.
Kriss: Right. Right. Great, this is great. Thank you guys so much for joining us. What makes Micro Ventures different from the other crowdfunding and angel investing platforms that are popping up left and right these days?
Bill: So, we are a broker dealer. That’s one difference. And while, because we’re a broker dealer, we’re held to somewhat of a higher standard than the traditional platform that would have to really report back to the SEC. And so, we’re required to do due diligence, and we have to do our own due diligence instead of relying just on the entrepreneurs to provide information. So, I think that that’s a real key difference here between us and some of the platforms out there.
Because we’ll take that information, we’ll put it together and analyze it, and then provide to our investors a summary of that so that they can review it themselves. We also, since we’re a broker dealer, we have brokers that are on staff, and each one of our investors is assigned to a broker. And anytime they have a question about anything, their previous investments or current investments on the site, they can come to our platform, or they can go to that broker and they can ask a question. So, it’s just a little bit, hopefully, you know, what we’re trying to do is provide better customer service, and answering questions.
An asset class is confusing some people. They just have more questions. Aside from that, the other differences are that on our platform, we highly value our deal flow. So, for every 100 investments or opportunities that come to our site, you’ll only see maybe five of those that get listed on our site. So, what we’ll do is. we do a quick review of companies to see if they’re a good fit. Then after that, then they go through a process of culinary due diligence and then final due diligence. So, we’re trying to cleanse the system so that you only see what we feel are the best of the best from the deal flow that we see.
Then because of that, you only will see somewhere between three and six opportunities on our site at any given time. So, if you go to some of these other platforms, you may see a lot of opportunities which could tend to become confusing when you’re looking at 20 to 50 opportunities to see what opportunities are out there. So, what we’ll do is, you know, just curate those and give you just a select few to review that we’ve done our due diligence on.
Kriss: Outstanding. That’s great info. So, for let say, let’s just pick a number here for an investor who has maybe $500,000 in investable asset. He’s accredited. And he really kind of wants to just dip his toe into angel investing, what are some best practices for a guy like that to do?
Bill: So, first to clarify, are you saying that this investors has 500,000 to invest in start-ups and alternative investments? Or, overall, that’s what they want?
Kriss: Let’s say that that’s sort of his liquid amount and that he would use some fraction of that to start off with angel investing.
Bill: OK. So, assuming that that investor just is accredited so, probably has a net worth over $1 million. I would say that, of that, you know, 500,000 in investable assets, I would probably say, carve out a small piece of that for investing in sites like MicroVentures or others. So, maybe $50,000 start out but I wouldn’t invest all that at once.
Bill: The reason why I set up MicroVentures with a low minimum of 5,000 was to allow investors to build their own portfolio. So, with that $50,000, that investor can invest in up to 10 different companies. And I wouldn’t suggest doing that all at one time. I would suggest to come to the platform, get comfortable at first, review some opportunities, and ask some questions, and then invest in industries that they understand. Or, companies that they see that, you know, they would use themselves. Or, the product, or that they could see that there’s the ability for growth. You know, based on the knowledge that they have. And then invest smaller amounts and learn from that. And then continue to invest. So, maybe put 50,000 to work over the course of the year or even longer than that.
Kriss: And you would suggest spreading out that 50,000 over several deals.
Bill: Yes. Yeah. Because I think that, you know, I thinks it widely known that, you know, early seed stage investing that, you know, 8 out of 10 companies are most likely going to fail at some point in the next 12 to 18 months. And so, you want to be able to spread that out and get some winners in there with the losers. And with the ones that are growing, you want to double-down on your investments or do a follow on investment at the minimum, so that you can benefit from the knowledge that you gain in the early access that you have to the company.
Kriss: Right. Right. You brought up a great point earlier that it’s important to understand the investments, and understand what the company does. But with technology companies, that’s often tricky. You know, I was looking at a company that produce a device that will tell you if there are food allergens in food. And that’s important to me because I have food allergies. While I don’t underhand how it works, I do understand what it actually does. And so what advice do you give to people who say, I want to understand what I’m investing in when they inherently investing in really complex companies?
Bill: Yeah. That’s a great question. I think that, you know, for, you know, and the hard part about it is, if you have an investor who wants to put in five or 10 thousand into a company like you described, that most of the time the research that they would have to do to determine if the technology is accurate, and it does what it says it’s going to do and that there’s, you know, competitors that, or, you know, that there’s no one else that’s doing something that’s already leading the industry. It’s going to be very burdensome on them.
And so, what we do is, and one of the benefits of using a platform like MicroVenture, is that we will do a lot of that work for investors and provide that information to them. So, for example, in the company that you just described, what we would want to do is understand exactly what technology they have for food allergies and detecting it. And then look at the reports on that and see how that’s validated. And then we would do a market study just internally with our due diligence team to see what the need is for that, who the competitors are, and do we feel like this company is in a good position to succeed. Then we would provide that to our investors so that they can review that and then make a better determination for themselves.
Kriss: Excellent. So, you guys are really doing a lot of due diligence it sounds like.
Bill: Yes. Yeah. That’s one of our, you know, key factors, I think, that differentiates ourselves with a lot of the other platforms. In fact, there are other platforms that do due diligence but we think that that’s are core function of the service that we can provide for investors.
Kriss: Outstanding. Just a couple more questions here. You talked about accredited investors and one of the things that the Jobs Act of 2012 is really trying to do, is trying to put this kind of investing in the hands of non-accredited investors, and the hands of the public. Do you see that as a future for Micro Ventures, or are just going to focus on kind of the accredited investor crowd?
Bill: I think that there’s a very big opportunity for allowing non-accredited investor to participate. We see at MicroVentures that every day that there’s what we call sophisticated investors who come to our website and are looking for different opportunities. And so, in the past while it was something that we could do, through some of the current laws, we didn’t really focus on that for the first several years while we were just kind of starting to build the business. But recently what we’ve done is, we’ve allowed for these sophisticated investors to invest in four of our opportunities. And we find that they are very eager to invest. They are very interested. They’re, you know, cautious and they ask a lot of questions which is great. Because it means that they’re doing their own due diligence. And they’re educated, and they understand what they’re doing. And so, I do see that this is an area that’s going to continue to grow. And I know that the Jobs Act is delayed for another year.
Bill: And during that time, we will continue to allow non-accredited investors to participate, but it will be on a deal-by-deal basis. And it’s not because we don’t want them to invest in every opportunity, it’s because sometimes were restricted based on SEC guidelines in allowing them. So there’s a little bit extra work that we have to do and sometimes it just doesn’t fit or makes sense for either the start-up or for the size of the investment that we’re potentially going make in the company.
Kriss: Understood. That’s great that you are allowing some non-accredited investors now and sort of phasing that in. I think that’s a big opportunity like you said. Last question, we talked a lot about, because this, all of these industries are so new, we talked a lot with The Franklin Society about deal risk. And then we talk about instructional risk. And deal risk is pretty obvious if you invest in Facebook, and Facebook folds, you’re going to lose all your money. But the institutional risk is, if you invest through Micro Ventures and Micro Ventures someday folds, now all of these platforms talk about protecting the investors. How does MicroVentures protect its investors from its own financial issues?
Bill: Well, what we do is, the way that we structure a deal, is that MicroVentures is a broker dealer. So, Micro Ventures brokers the transaction. And then we also have Micro angel partners which is our venture fund which is where we create all of the LLCs that are…that make the actual investment. So, for example, you know, for the food allergy start-up, what we would create an LLC. Let’s say, 50 investors would participate in that LLC, and I would be the fund manager of that. And so, at the very end, when it’s time to close the opportunity, I would broker the money to the company. And then the one name on the cap table would be the fund, and I would manage that fund. And so, if Micro Ventures fold for any reason, then the funds would still live on. Now, since I’m the CEO of Micro Ventures, and the manager of the fund.
Bill: If MicroVentures folds, you know, the investors may not want me to be the fund manager anymore. And so, we have the ability for a new manager to be appointed to the fund and who could take over and manage all of that. And there’s enough incentive for them, for a fund manager to come in and mange that because we get to participate in carried interest of the investment. So, if it’s successful, we’re going to take anywhere from five to 20 percent. Most of the time its 10 percent of any profits after the investors are paid back 100 percent. So, that manager would be able to get a piece of that if Micro Ventures is no longer in the picture. So, there’s enough incentive in there to make sure that there’s somebody that is still looking out for that investment for the investors.
Kriss: Outstanding. Great. Bill, I just want to ask you one last question. I read a lot about the angel investing space and listen to a lot of Podcast and there is some rumblings about a bubble in sort of tech investing, angel investing. What are your thoughts on it, any credence to that?
Bill: You know, I don’t know if there’s necessarily a bubble. I know that, you know, we’re starting to see some valuations creep up in the valley. But I think that that’s just because some of these companies are staying private longer. And they’re waiting similar to, you know, what Facebook did. The wanted to wait and make sure that they had everything in order. And Twitter did the same thing. And so, you’re seeing that, you know, companies like Uber who instead of raising money at a 40 billion valuation, maybe five years ago would have gone public. And so, I think that, you know, while the valuations are increasing in the valley, we’re still seeing very good opportunities at reasonable prices for companies elsewhere in these added space. And so, I think that, you know, obviously time will tell if there is a bubble. But I feel pretty confident with the prices were paying for the investments were making today.
Kriss: Outstanding. Well, gentlemen, I really appreciate your time. I know you both must be extremely business. If you’ll hang on one second after I stop the recording. Really appreciate your time. Thank you for joining The Franklin Society.