For decades now, investors have gotten used to companies raising money through the traditional IPO. As an opportunity to access the public markets, they would hire underwriters to purchase their shares at a specific price, who would then release and distribute them to the public markets.

Yet critics of the traditional IPO have pointed to the all-too-frequent “IPO Pop” phenomenon. Shares would typically get sold to the underwriters at a price below their true market value. And on the first day of trading, the company’s market cap would expand to better fit that actual investor potential. It wouldn’t be uncommon to see a company’s share price double on its first day of trading.

We’re living in a more efficient world now, where there are new options available for companies to raise money. Direct Listings and Special Purpose Acquisition Companies (SPACs) are alternatives where companies can raise funds without giving away a massive cut to the underwriters. By using digital marketing, they can further appeal directly to their most loyal fans — and then convert them into part-owners of the business.

This is exactly the future that Toronto-based DealMaker envisions. Its cloud-based platform is allowing for companies to raise money as efficiently and transparently as possible.

Imagine doing a campaign where you want to raise $1 million for your business. But rather than using Kickstarter or Indiegogo, you can connect directly with your audience and not have to pay them the platform fees. Additionally, you can continually see who’s interested — and get access to more information that could inform the valuation of your future capital raises as well.

An example of this was last year’s capital raise by the Green Bay Packers. The NFL football team used DealMaker to self-raise $30 million in 48 hours. The Packers are a publicly-owned team and have been for the past 80 years. This was a much more efficient option for them to raise money.

In this exclusive interview with 7investing founder Simon Erickson, DealMaker’s co-founders Rebecca Kacaba and Mat Goldstein share the pain-points they saw in the financial services industry that led them to create their company. They describe why “self-hosted funding” is becoming an intriguing opportunity, and why establishing a direct connection with investors is important.

The two also offer their thoughts about IPOs, Direct Listings, SPACs, blockchains, and NFTs.

Publicly-traded companies and teams mentioned in this podcast include The Green Bay Packers. 7investing’s advisors or its guests may have positions in the companies mentioned.

Transcript

Simon Erickson  0:00

Hello, everyone, and welcome to today’s edition of the 7investing podcast where it’s our mission to empower you to invest in your future. I’m 7investing founder and CEO Simon Erickson. And we’re seeing a change in the way that companies are raising capital these days. We’ve gotten used to for decades the traditional IPO where you have underwriters that buy shares and distribute those to the public markets. But we’re seeing quite a few changes, whether there is direct listings, whether it’s SPAC’s, whether it’s crowdfunding, or whether it’s privately held companies using cloud based platforms to raise capital in the most efficient way as possible.

I’m really excited to be welcoming my guest today, Rebecca Kacaba and Mat Goldstein, who are both the co-founders of DealMaker. They’re joining me from Austin, Texas, even though the company is based in Toronto, Canada. Rebecca and Mat, thanks for joining me on the 7investing podcast today.

Rebecca Kacaba  0:52

Thanks for having us, Simon, happy to be here.

Simon Erickson  0:55

We’ve got some fun stuff to talk about here. I’d love to get your opinions in a minute about the future of capital raising. You’ve got a really fun story about the Green Bay Packers that we want to tell in a minute. But let’s start at the 10,000 foot level. I know that both of you have a legal background. What was it that you saw that was going on in the market and what led you to want to start DealMaker as a company?

Rebecca Kacaba  1:16

We saw a problem in the way that our clients were trying to raise capital. Matt was on Wall Street and I was on base trade. And we saw on, every side of the border, there was a challenge in that it was really the Wild West. When an issuer does an IPO there’s a very streamlined process. But when they’re trying to raise money, particularly retail money, the process was really broken.

It was costing too much, the investors weren’t having a good experience, and our clients weren’t having a good experience. So we saw the jobs that come now, we saw what the administration was trying to do with that act,  and we decided, you know what, this is a space that’s right for technology. There’s got to be a better way for companies to raise capital and investors to have a better experience.

Mat Goldstein  2:05

Yeah. And I’d add Simon we started this company at a time where the world was really moving in a certain direction, and the Internet powered that direction. And that meant that companies were making sales online. They were opening up transparency and collaboration so that people could see and count in real time. What was happening across their communities.

In every major city in the world, if you stand waiting for a subway on the platform, you’ll see the train is coming in three minutes, two minutes, one minute, but in the capital markets, no one could really tell what was happening on a deal. Was the book filled? Had the company raised? Had they met the minimums? There was this black box. And when everybody can collaborate in real time using Google Docs, it just seemed like it made sense for there to be a better way.

Simon Erickson  2:56

Makes a lot of sense for the transparency. It certainly improves the experience. Are there other limitations that you’ve seen from those traditional methods? We know that the IPO, there’s a lot of money that’s kind of left on the table on the IPO pop the first day of trading that’s captured by the underwriters, rather than the companies themselves. What were some of the other problems that you were seeing? I think you mentioned efficiency is one of them too there, Rebecca.

Rebecca Kacaba  3:19

Yeah, definitely, there’s an efficiency problem. But what we’ve seen emerge in the last couple of years, is retail capital raising by really good companies, Green Bay just being one example. A lot of interesting technology companies, carbon technology companies, where they can approach Main Street investors or everyday investors in a different way with that transparency. They don’t just need to raise money from VCs, or from Wall Street bankers. And that’s given a really unique opportunity for the average investor to get in on some of these deals, pre IPO.

We can talk about SPAC’s being a different kind of structure that allows the average investor to do that. But these kinds of reggae reg CF type raises are allowing people to get into companies at an earlier stage, which means different valuations. And it’s great for the companies because they can take their offering out to people who are really passionate about the company, they can set their own terms, they can have a lot more control, rather than giving up a board seat on day one.

Mat Goldstein  4:25

And I think we’re also at a moment in history where people really want to have a direct connection to something they own. We see that with NFT’s, we see that with art, we see that with fractionalization, you saw that with Reddit on Wall Street Bets with Gamestop, with Robinhood. People today, the retail public, the mainstream US, you know, non professional public, want to buy into companies or want to own a piece of something that they have a connection to.

So with our platform and with some of the changes in the regulations, we’ve been part of that shift in the capital markets to open up the opportunity to companies, to speak directly to their stakeholders. And now, every company today has a mailing list, or it has an Instagram following, or it has a circle of influence, and with what we’re doing in the market, we’re starting to empower those companies to reach their stakeholders directly.

I think the Green Bay Packers is a great example. They’ve, for 80 years, been the masters of turning their fans into shareholders. Our message, and when we have these conversations, what’s really resounding is that opportunity is available to anyone. People can turn their fans into a source of capital. They can turn their customers into investors, and that relationship between the company and the people who care about it can really strengthen and deepen.

Simon Erickson  5:49

That’s a perfect example. Let’s double click on that one in terms of connecting with your audience. We’ve mentioned the Green Bay Packers a couple times already, just to give some details on what we’re talking about. Back in November, the Green Bay Packers worked with your company, DealMaker, to raise more than $30 million online within just the first 48 hours. That’s really interesting. I think most people are talking about whether or not Aaron Rodgers is going to retire this month.

But you guys are looking at the Packers in a different light. Can you talk about how that experience goes? I mean, do you reach out to a company, they want to work with your cloud based platform to do a capital raise. They want to say whatever they want to say to connect with their fans or their investors, and then you take it from there? How does this experience look for a company?

Mat Goldstein  6:36

Well, I think tie it back to the conversation we’re having so far. When the Green Bay Packers first launched their stock sale, the first time they ever did, it was 1920s. Over the course of history, they would have been having people mail them checks, and they’d be mailing out a share certificate. And over time with technology, and really technology that we’ve been a big part of pioneering, they can now host a stock sale the same way that a shoe company would run an e-commerce campaign.

We give them the tools to process payment by credit card,  to settle in real time, to be able to track and close on interest from their community. And for us, that’s really the story because this becomes a way for more companies to connect with their fan base and more companies to turn the people that care about them into a source of capital.

Simon Erickson  7:34

Absolutely, Mat you let me know when you guys work with the New Orleans Saints, that’s my beloved team in the NFL. If you have a capital raise for them, I’m certainly in on buying some shares of that one. There’s other options that companies have out there, especially for publicly traded companies or companies that want to be publicly traded.

We’ve seen the direct listing kind of rise in popularity the last couple of years. That’s where insiders or founders can offer their shares directly to the public markets without an underwriter. We’ve seen these Special Purpose Acquisition Companies, these SPAC’s, become extremely popular in 2021, especially. Do you guys have thoughts on either of these other capital raising techniques? Maybe some of the limitations or some of the other considerations that investors should think about before they pursue one of those?

Rebecca Kacaba  8:18

No, I see the direct listing as a complement to any kind of retail capital raising. I think that’s the same signal we’re seeing from the SEC, saying we want to give average people access to these opportunities. We don’t just want them to be held behind the gilded gates of the investment bankers. And that’s a great way to jumpstart the economy. That was the original innovation there.

SPAC’s, you know, we’ve been working in the capital markets for over a decade and have seen them come in and out of favor over the years. I think what led to a lot of them being created was a lot of capital being in the ecosystem and that capital needing to find a home somewhere in order to make returns for people. So that led to a big growth in the SPAC situation. And I think it remains to be seen now they need to do their qualifying transaction. How many businesses are there out there that they can find and complete those transactions with?

Simon Erickson  9:26

Absolutely, if we just touch really quickly on valuation. There’s some different approaches that companies can take to figuring out what the valuation is, right? Whether it’s an underwriter going out and doing a roadshow, SPAC’s have definitely got a different process. How do you approach the valuation that the public or investors would be comfortable with for the companies that you would work with for your software?

Rebecca Kacaba  9:47

Yeah, so I think that’s a nice thing for a retail raise. A company has their own flexibility to do that. As the technology, we’re not involved in helping them set a valuation, but they can offer the kind of shares they want in a VC model. They’re going to be locked into a press share. Whereas in a retail raise, we’ve seen a lot of comments or comments plus warrants, which is a structure that can be very beneficial to the buyer, if they then want to see the if the value of the company goes up, and they then want to exercise the warrants and take a bigger ownership position at the original price they purchased at. So a lot of different structures we’re seeing that we can accommodate on our technology platform.

Mat Goldstein  10:32

I also think this is another part of the story where technology changes what people can do and changes what people didn’t think was possible previously. It used to be the case that when you priced an offering, that was the price, and it would be open for six or eight months. And regardless of what was happening with the company, you set a price.

But today, with online capital raising, you can use techniques like testing the waters. You can record expressions of interest and you can be reactive to what the market is telling you about pricing. And to me, that’s another way that raising capital in the future more resembles e-commerce and less resembles sort of a stagnant process where you set a price and then you’re stuck with it.

Simon Erickson  11:22

Great point. More feedback, more data points, makes a lot of sense, Matt. My final question is, is this a U.S. or North America target market that you’re approaching? Are you looking internationally? And if you are, are things very different in Europe or in Southeast Asia than they are in the North American market for you?

Rebecca Kacaba  11:39

Yeah, great question. We view part of the impact we’re having on the market as the globalization of the capital markets. We see investors coming in from all continents, all around the world into these offerings. The U.S., of course, is very much the leader in this. But there’s very robust ecosystems developing in South America, in Europe, in Australia. And it’s exciting to see all of that converging through our technology, and where you can see different key points on a map as offerings take on a different life in a different jurisdiction.

Simon Erickson  12:15

Great. Well, thanks very much. Once again, Rebecca Kacaba and Mat Goldstein of DealMaker, the co-founders joining me from Austin, Texas. The company is based up in Toronto. Thanks very much, Rebecca and Mat, I appreciate you being on 7investing podcast.

Rebecca Kacaba  12:27

Thanks for having us, Simon.

Simon Erickson  12:29

Thanks everybody for tuning in. We are here to empower you to invest in your future. We are 7investing