On December 2, 2021, 500 Global is convening the global venture capital community in Miami to our PreMoney 2021 conference for an interactive experience at the nexus of culture, technology, investment and global finance.
Kendrick Nguyen, co-founder and CEO of Republic is joining us to discuss how platforms are changing the VC game. The company allows investments as low as $10 and is free to investors.
Since its inception in 2016, more than 700,000 people have invested $200 million in 250+ deals through Republic. Companies that have raised funds on its platform include Backstage Capital and Gumroad.
ZM: What are the key factors driving the “retail revolution?”
KN: Evolving technology, evolving regulation, and evolving consciousness amongst investors.
Technology is the obvious one—you used to have to call your broker or go through an investment manager to buy securities. Now you tap a device that’s always in your pocket and executes your orders instantly.
Regulation is what’s been critical for our space—the JOBS Act created Regulation Crowdfunding, overhauled Regulation A, and updated Regulation D, opening the doors to massive retail investor participation in private offerings. The fact that regular people can now invest directly in startups, local business, real estate, etc, is the very reason that our industry exists, that we can act as a facilitator for these direct investments.
Evolving consciousness — and I don’t mean to sound like I just came from Burning Man, it’s just the simplest way to express that—is a factor for which it’s hard to identify specific causes, but we can see its general contours play out.
- It’s investors coordinating on Reddit to drive rallies.
- It’s a growing reliance on personal research rather than a wealth manager’s recommendations, it’s the transfer of assets from active management to passive investment vehicles.
- It’s the growth of DeFi — an alternative financial ecosystem running on extremely complex principles that are nonetheless accessible to millions of investors.
- It’s the growth in crypto, wine, art, and other alternative asset classes as people look for ways to maximize their gain, without giving up anything to rent-seeking institutions or gatekeepers.
ZM: What are some of the consequences of the move toward democratization–both positive and negative?
KN: The positives are that founders who would not have been warmly received by venture capital firms can now find support from the crowd. They can then either rely on that, or use their crowd raises as social proof to win over VCs.
Democratization lets early-stage startups market themselves, recruit evangelists and value-add investors from among their supporters, and pitch to a much larger and more representative audience than the insular VC world. It’s been a huge boon not just to minority founders, but to founders who don’t live near startup hubs, to startups in low cost-of-living areas where a little runway goes a long way.
Democratization has given hope to investors who’ve traditionally been cut out of the pre-IPO stages, which, while obviously the riskiest, are also the most lucrative.
The negative consequences are that not all platforms that facilitate investments have strict compliance departments and thorough due diligence, so while we believe in the potential of the Reg CF space, we’d like to see more of our industry making an effort towards quality control. Thankfully, there are investment limits in place, so we shouldn’t see people outright gambling on private investments, at least on Reg CF.
ZM: What surprised you the most about investor behavior on your platform?
KN: How sophisticated our investors are, how willing to dive into complex fintech, real estate tech, and infrastructure deals. How—despite the high risk tolerance they’ve shown in surveys—they tend to look for deals that have all the markers of success, instead of taking wild chances. At the same time, that preference for risk leads a lot of investors to overlook solid deals that aren’t in the most exciting industries. Food & beverage companies and CPG startups with sound venture capital backing, good traction and distribution have definitely not felt the love that we’d expect.
ZM: Is there an investor profile that you would like to see more of on Republic?
KN: We’d like to see more investors who understand that the public markets are a rigged game, and are looking for a way to invest in something meaningful. Whether that’s a first-time investor or someone with a solid retirement fund—doesn’t really matter. We just want people to have that same sense that we do—that we’re helping build the next generation of Fortune 500 companies, of companies that will create and own and run the tech and products that will define the world 20 years from now. That is far more exciting and satisfying than trading securities in a secondary market.
ZM: What advice do you give new investors?
KN: Do. Your. Research. Invest in founders who are making moves in industries they know, and intend to stay in and scale for the long term. If you’re investing early-stage, always know that you’re investing in a person, not an idea or a business model. If you’re investing later-stage—read their actual filings, scour the financials. You’ll see a lot of things that aren’t in the pitch deck.
Check out our PreMoney agenda here.