Tapping into The Power of Crowdfunding with Woodie Neiss of GUARDD

11/09/21 • 36 min

In 2012, Woodie Neiss was a CFO and entrepreneur who was seeking to change the rules of the investment game. When President Obama signed his crowdfunding bill later that year, it opened a whole new world for individuals to participate in the private capital markets. Today, the crowdfunding industry has surpassed $1 billion in funding and takes place almost entirely online.

Woodie continues to empower entrepreneurs through his latest venture, GUARDD, where he automates the process of ensuring audited financials with the goal of creating a more liquid environment for private company founders and shareholders. He is a vanguard of empowering founders throughout the lifecycle of their businesses from fundraising to exit.

On this episode of The Modern CFO, Woodie shares how he architected the roadmap of Regulation Crowdfunding (Reg CF), what is so powerful about crowdfunding, and why one-size regulation does not fit all.

Show Links

Check out GUARDD
Connect with Sherwood (Woodie) Neiss on LinkedIn or Twitter
Check out Nth Round
Connect with Andrew Seski on LinkedIn

Key Takeaways

2:30 - Tackle outdated investing laws

In his early days as an entrepreneur, Woodie was frustrated by the inability to tap into individuals as investors, like his large customer base.

“I had started a company with my brother-in-law called Flavor RX. We flavored medicine for children so they’re more compliant. The coolest thing about our company was a mother got her kid to take her medicine by going into the pharmacy and asking pharmacists to flavor it. The kid took the medicine and she's like, ‘Oh my God, you just saved me countless hours of struggling.’ I would get a phone call the next day: ‘How do I invest in your business?’ I thought, well, you can't because we can only raise money from accredited investors. When my lawyers told me this, I knew this was a complete missed opportunity. I have hundreds of mothers calling me saying, ‘How can I become an investor in your business?’ They can be a marketing agent for my company. Why can't I take money from them? These laws were written 80 years ago to protect retail investors, and you have to live by them. I thought was stupid.”

3:53 - How the crowdfunding bill was signed

Woodie and two friends from business school ultimately drafted a new framework for Reg CF. President Obama signed it into the Jumpstart Our Business Startups (JOBS) Act in 2012.

“We wrote this eight bullet-point framework for investment crowdfunding. We went to the SEC, they said it was cute. Then they said, You should head over to that building with the white dome on it.’ I kid you not. Naively enough, we just walked over there, because we had a few days in Washington. We started knocking on the doors of both Republicans and Democrats. People were shocked that entrepreneurs were there, so they listened.”

6:04 - Connecting retail investors to the private capital markets

Today, crowdfunding doesn’t just live on websites—it’s been used on social media as well. Woodie never anticipated the breadth and reach of his bill, which he sees as bringing positive transparency to the investment space.

“The industry launched in May 2016. Just this past month it surpassed $1 billion in funding. When we put this together, I was thinking, ‘Wouldn't it be great to use a website to be able to allow people that have a customer list, or their own friends and family, to invest in their business the same way that a campaign on Kickstarter or Indiegogo can?’ To see people using Twitter, Instagram, YouTube Live as the outreach, the public solicitation, I think is awesome. It really connects the people to the entrepreneur in a way that a website just doesn't do by itself. I think the advances in technology are really benefiting the industry because it ties you closer to the people that are raising capital. I think that's all good, too, because I think it brings this level of transparency that you otherwise don't have in the private capital markets.”

8:43 - Deciding which constraints would minimize retail investor risk

One major fear was that crowdfunding would end up like gambling, leading some investors to lose everything. That’s why Woodie and his team wrote in limits based on annual income.

“Any accredited investor can risk everything that they have in one company. Do they? No. They're smart enough to diversify their assets. Now, when we built this framework we we...

Show Links

Check out GUARDD
Connect with Sherwood (Woodie) Neiss on LinkedIn or Twitter
Check out Nth Round
Connect with Andrew Seski on LinkedIn

Key Takeaways

2:30 - Tackle outdated investing laws

In his early days as an entrepreneur, Woodie was frustrated by the inability to tap into individuals as investors, like his large customer base.

3:53 - How the crowdfunding bill was signed

Woodie and two friends from business school ultimately drafted a new framework for Reg CF. President Obama signed it into the Jumpstart Our Business Startups (JOBS) Act in 2012.

6:04 - Connecting retail investors to the private capital markets

8:43 - Deciding which constraints would minimize retail investor risk

One major fear was that crowdfunding would end up like gambling, leading some investors to lose everything. That’s why Woodie and his team wrote in limits based on annual income.

“Any accredited investor can risk everything that they have in one company. Do they? No. They're smart enough to diversify their assets. Now, when we built this framework we we...

Previous Episode

Exploring Secondary Direct Investments with Andrea Walne of Manhattan Venture Partners

With an abundance of capital chasing a limited number of opportunities, one unique entry point for investors is in secondary direct investments. Secondary opportunities consist of buying shares in private, pre-IPO companies directly from employees and investors versus the traditional route of participating in the next round of fundraising.

Andrea Walne is at the center of this world at Manhattan Venture Partners (MVP), where 80% of their investments are in late-stage companies by buying secondary investments. Andrea and her team are focused on tapping into the value that already exists. Formerly a founder of Forge Global, Andrea has worked with over 100 late-stage private companies and has facilitated over $10 billion worth of transactions. On this episode of The Modern CFO, Andrea shares insights on this growing market segment in VC, its evolving landscape, and the opportunity for liquidity it presents.

Show Links

Check out Manhattan Venture Partners
Connect with Andrea Walne on LinkedIn or Twitter
Check out Nth Round
Connect with Andrew Seski on LinkedIn

Key Takeaways

3:20 - Build a secondary position

Instead of fighting to issue a term sheet and compete with late-stage investors, MVP uses its network of relationships to enter a business at the ground level.

“We're on our fourth fund right now. With our strategy, it allows us, strategically, to pinpoint how we want to enter a business that we're interested in. When I say enter a business, we're not fighting to issue a term sheet and compete against other late-stage investors to lead a round of funding. What we are doing is generally considered “friendly” to many of our counterparts in the late-stage venture community, because we are figuring out a price point and identifying, by way of our network, (who all knows the partners of our firm really well by way of our experience); We find our way in with a certain price point and we're able to dollar cost average and choose that building of a position by way of the secondary. So, it's pretty awesome. It allows us to choose what valuations make the most sense for us.”

6:33 - The changing environment of common stock

Common stock used to be considered a risky business. Today, it’s easier to assess if a company—and therefore its common stock—is valuable early on.

“I've never seen a world where a company can raise a round of funding and be a mid-stage or late-stage company. I do say mid-stage, because I think it's important. A company will raise a round. It's typically oversubscribed—most companies are raising oversubscribed rounds. There's a ton of capital flowing in and immediately after the round is raised, we're working with issuers and their shareholders who believe that their stock is immediately worth a premium to that round, immediately after the round is closed. Precedent will tell you that, historically, you could see that common stock, which is issued to the employees of a private company, versus the preferred stock, which is issued to the investors when they invest, the common stock is usually priced at a discount, because there's inherent risk associated with common stock. God forbid there's ever a bankruptcy in a private company, the common stock gets paid back last after all the preferred stock and any debt. So, there's inherent risk associated with common stock. If you go back three to five years, 20-25% discounts for common stock were normal relative to the latest round of preferred financing. For the environment to change so rapidly is absolutely fascinating for us.”

10:03 - The danger of taxing unrealized gains

Congress has floated different options for taxing wealthy figures, like Jeff Bezos. The problem is the potential for harmful trickle-down effects that could negatively impact budding entrepreneurs and their early employees.

“Something that seems like it comes up in Congress quite often is just taxing unrealized gains. That alone is constantly brought up and constantly talked about at both the gains-perspective and then deeper on a carried-interest perspective, which is obviously gains earned by way of the profits to venture capitalists and those that are investment managers. Overall, what I will tell you is that the resounding theme across all of these proposed changes and contemplations is that clearly Congress is looking at the folks like Jeff Bezos, Elon Musk, Mark Zuckerberg, and the upper echelon of the tech community as being the only population that really matters. The more that Congress can better target them and tax them for their wealt...

Next Episode

How Gemini's Jared Shaw is Solving the Cryptocurrency Distribution Problem

Jared Shaw didn’t take the traditional path to the financial world. When his classmates were starting prestigious internships, he joined the military and gained valuable leadership skills. Today, Jared is focused on solving problems: specifically, solving the distribution problem in the world of cryptocurrency.

As the Head Of Finance at Gemini, Jared is deeply embedded in the frontier of crypto and digital assets. Gemini’s goal is simple yet ambitious: create a platform so secure and accessible that everyone will feel comfortable adopting it, no matter their age or background.

On this episode of The Modern CFO, Jared explains how he fell down the crypto rabbit hole, what’s so different about Gemini’s approach, and why every company needs a digital asset strategy.

Show Links

Check out Gemini
Connect with Jared Shaw on LinkedIn
Check out Nth Round
Connect with Andrew Seski on LinkedIn

Key Takeaways

2:57 - Jared’s path to crypto

When Jared joined Ernst and Young’s San Francisco Bay Area consulting division, he began to encounter startups who were disrupting the traditional financial services industry.

“I was helping financial services firms stay out of trouble. Banks, broker-dealers, insurance asset managers were all coming out of the financial crisis. Everyone was dealing with regulatory pressure, and so there was a lot of work helping them stay out of trouble. I started doing that in the San Francisco Bay Area, and shortly thereafter in the 2014-2015 timeframe FinTech really started to emerge. And being in the Bay Area, I was geographically fortunate to be able to focus on that sector and help EY build out its FinTech practice and approach. That was tremendous. Being able to just run around Silicon Valley and meet with all these great emerging startups that were really trying to disrupt the traditional financial services industry. And that's what got me first thinking about how can I work in a financial career, but maybe a little bit differently than the traditional path? And then that largely turned into cryptocurrency emerging in 2017. And in 2018, I did a large consulting engagement for a couple of crypto firms. And then, as everyone who gets involved in crypto, I fell down the rabbit hole and knew this is what I wanted to do with my career.”

8:00 - Learn to navigate ups and downs

Whether you work in a new environment like the crypto space, a startup, or a large company, you need to be prepared to ride the wave of disruptive technology.

“We've grown 2x in our headcount over the last year. And with that, we're still all wearing many hats. And so the day-to-day is just all over the place. What I think that means is an ability to be able to handle a volatile changing environment. Certainly working in cryptocurrency, all of the things happening in digital assets somewhat dulls one’s senses to massive amounts of change, or things being really great one quarter and not so good the next quarter. I think an ability to be able to navigate through those ups and downs is something that we learned really, really well at Gemini and in the crypto industry more broadly. And so having that mindset of focusing on being consistent, of looking towards the future in a measured way. Being able to stomach the ups and downs in the short term is something that's critical for anyone within a startup environment. And probably I would suspect important for someone who is the CFO of a large company or operating a large company, because innovative, disruptive technologies are only going to impact those industries more and more.”

10:10 - Taming the wild west of crypto

Gemini’s founders, the Winklevoss twins, are focused on a path that will make crypto accessible to and trusted by a mass audience.

“The genesis of the company was very focused on Cameron and Tyler Winklevoss, our co-founders’, early experience investing in Bitcoin. Which was as they would put it the wild west, very uncertain, unsecure. Large hacks like Mt. Gox historically made the experience really difficult for the average person. Their vision was trying to make this experience much more approachable for the average consumer. That first started out with the institutions, obviously building weapons-grade security and safety of an environment for buying, selling, storing cryptocurrency. That is the core. And Cameron and Tyler had the vision that ultimately there needs to be regulation, there needs to be rules around this. Because that will bring broader mass adoption. It really focuses on security and trust, and that's something that Gemini ha...