Republic CEO Ken Nguyen on making early-stage investing for everyone | E1199

Top Takeaways

• Ken’s worldview: crowd investing is a powerful way to give people around the world access to high-growth opportunities and give companies a way to raise money while creating a deeper connection to their community.
• Startups are staying private longer, so platforms like Republic are the only way for the average person to get access to private companies.
• Ken’s goal is to make it easy for people to begin investing for as little as $10. Republic achieves this by streamlining everything related to organization, legal, & compliance.
• Republic uses a Crowd SAFE, which essentially groups all investors together as one line item on the startup’s capitalization (cap) table. This makes it easy for the company raising money to manage.

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Intro

Ken Nguyen (also appeared on E856)

• Ken & his parents emigrated from Vietnam to California when he was in elementary school, which partially influences his mission to allow people from all over the globe to invest in great startups.
• Co-Founder & CEO of Republic (2016-Present) an Equity crowdfunding platform
• “Republic empowers everyone to invest in the future they believe in by providing access to startups, real estate, crypto, and video game investments.”

Previously:

• General Counsel at AngelList (2014–2016)
• COO at Kanbar Enterprises
• Other legal roles

Republic’s Funding (more than $70m to date)

1. $2.1M Seed AngelList, Upventures & others (Dec 2017)
2. $12M Early Stage VC led by Binance Labs & NGC Ventures (Jun 2018)
3. $36M Series A at $137M Post led by Galaxy interactive (March 2021)

Republic Stats

• 1 million investors on the platform
• Avg. raise is ~$600k

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Why is crowd investing a new thing?

After the Great Depression, Congress enacted legislation that only allowed “accredited investors” (read: millionaires) to invest in private companies

• All non-accredited investors were deemed unfit to invest in private companies and were banished to the public markets and index funds
• Investing and financial services continue to be highly regulated.

In 2012, Barack Obama signed into effect the JOBS Act (Jumpstart Our Business Startups Act), The JOBS act went into effect in 2016, allowing for some equity crowdfunding.

Republic focuses on Reg Crowd Funding (CF) and Reg A, these regulations were changed in March 15th, 2021 allowing for more investment:

• CF: $5M max raise (previously $1.07M, set in 2016 Jobs Act)
• A+: $75M max (previously $50M, set in 2016)

Republic is shaping laws — was referenced over 20 times in 2021 SEC ruling

The SEC is moving much faster than Ken though possible (still slower than private companies to protect investors).

Ken thinks President Biden’s SEC will move slower at loosening regulations than Trump’s because there is a different focus.

What it takes to raise on Republic

Diligence is required to list on Republic, but legal and accounting fees for new startups to raise is less than $15k (for most it is much less).

To use Republic to raise money, companies pay a fraction of the amount they are raising (on average):

• 6% in cash
• 2% in stake of the company (this gives Republic upside in the company and an incentive to make sure only good deals come on the platform)

Companies that have a large audience and bring investors to the Republic platform will pay a lower fee. You can think of them in two groups.

• Those looking to find investors from the community that invests on Republic (Low fee)
• Those with a large following that will use this infrastructure to make it easy to raise (High fee)

Recent big raises on Republic

Sahil Lavingia (E1188 ) & Arlan Hamilton (E1080, Angel S2 E5, E772) both raised $5M rounds

Gumroad — Sahil Lavingia

• Crowd SAFE: $5M raised at $100M valuation from 9346 investors
• Co-investors: Naval, Jason Fried put in $1M as anchor investors
• 8x price to earnings, over $10M ARR, growing 120% year over year, team of 10

Backstage Capital- Arlan Hamilton

• Crowd IPA: $5M raised — for 10% of future earnings of Backstage capital (~10% carried interest & 10% management fees) from 6958 investors

“My question for VCs criticizing this model is: If your assessing a b2c business that has such a relationship with his customers that these customers would part ways with 500 bucks, not getting anything back [except equity], just on the belief that one day this company is going to succeed. Is it a good signal or is it a bad signal if a company can convince 10,000 customers?”- Ken Nguyen

How power is shifting to the crowd

When people are invested in a business they become evangelists for a product. This is especially helpful when a product becomes commodified (like Skyy Vodka Ken used to work for).

In 5 years of data from Republic, there have not been instances of fraud (this doesn’t mean all investments worked out).

There are more reasons than purely financial why people invest on Republic.

“Our tagline is aligning profit and passion. The smaller dollar amount that you enable someone to invest the passion bucket is going to be more and more important in their decision making process.”- Ken Nguyen

Republic’s social component:

• People can write reviews on the platform, saying why they invested (it also shows the amount invested if they check that box).
• A co-investor is highlighted with their track record of investing.
• There is a space for discussion on republic (See Review Screenshot & Co-investors section)

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