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Interview with Crowdfunding Professional Association

Samson Williams, President of CfPA

“I had a chat with David Duccini, CEO of Silicon Prairie Online a FINRA approved investment crowdfunding platform.

In our chat David walks us through automating K1s for funding portals and investors. A truly revolutionary improvement for platforms and investors. Follow David for more information as he and Silicon Prairie establish new industry standards.”

Transcript of the conversation

Samson David is the mastermind, the CEO, the brains behind Jade’s awesomeness over at Silicon Valley. And David’s going to give us some insights into K1’s. And why that’s so important is because I made a post on LinkedIn. I encourage everyone to follow David Duccini on LinkedInbecause he’s dropping million dollar nuggets every day. And I just don’t think people are picking them up, because I’m often and I talked to George and I was like, George, did they know that he just dropped like a $2 million nugget? And so with that said, David, let you live up to this hype because I’m excited to learn about your thoughts on K1’s?

David Okay, great. Let me just let me just lay this out at a real high level. So when you raise money or you take money from other people, depending on the type of security that you’re selling, you might owe them a tax document. So if you sell equity, you’re going to owe them probably a K-1 of some kind. The IRS form 1065 Schedule K-1 is the form that most issuers are required to send out annually to their investors to let them know what share of the profit or loss is accrued to their individual investments. If you have like a debt based deal, you might have a 1099.

This is just something that a lot of people in the space don’t seem to understand, which always kind of drives me nuts. When I see some of the portals encouraging people to take $100 investors, the problem with that is the average CPA charge fully loaded/price baked in is about twenty five bucks a piece for these stupid things, right? Cheaper in volume, potentially. That $100 investor is likely to be costing you money after just a couple of years. So it’s one of the things that we launched when we launched our portal, we thought, Well, let’s go do a survey first. Make sure that we’re intentional about, you know, really serving our customers.

Our customers are the issuers and then also talking to investors about some of the investor pain points. One of the things that kept coming up in these conversations we had was a lot of times angel investors, especially if they’ve made investments in many companies, are typically waiting for their portfolio companies to send them the tax documents. They can’t do their taxes until they get their K1’s. And so I thought, that’s easy, low hanging fruit for us. So what we did is we basically built into our platform the ability to spit these things out automatically.

We have a smart document automation system we call Geppetto within the portal. It’s what we use to collect our signed subscription agreements. The K1’s is simply an add on. The issuer company literally just sends us some basic data to get it done. Last weekend, the client I was bragging about was Viral Films Media. We raised money for them about two years ago, almost a million dollars from three hundred investors. Well, this year they sent me their model whole company K1’s.

You can see this thing. Basically, it’s got 100 percent ownership here. It’s like five numbers on this thing that I have to load into our system, and then we send an email says, “Hey, you’re K1 is ready, so you just come back to your investor dashboard, scroll down and notice “here’s my new investment in Viral Films Media.” I can go view my signed agreement if I want to and say, “Oh, look, here’s some tax documents.” So I can click on any one of these available years to pull up my tax document. I’ll just click on this one, and this thing actually generates them on the fly every single time. If, for instance, you moved right, you can come into the platform, update your address information and regenerate your K1’s. We basically did this at scale as soon as we load those four or five numbers in there, K1’s are instantly available to every single investor. So we literally landed 300 K1’s at the same time. Here’s an example where you can see we literally laid in and striped in the information. Here’s Viral Films. Here’s Jay Test user. Here’s their percentage of ownership based on what we track inside of the platform, and then their pro-rata percentage of beginning capital account and any capital account, and we just roll over from year to year. So awesome.

The last thing is what we’re planning on actually doing for next year. We want to do it this year, but we didn’t get time to do it is we’re going to give investors the ability to download like a TurboTax file, like a zip file, so they could just literally click a button and download that and then slurp it into their tax software. A text file is a is a common tax file format that’s used by all sorts of tax software.

Samson David, I absolutely love this, and so I forgot to wear my Crowdfunding professional hat today and why that’s important is because when I ever see this kind of this level of automation is Geppetto, as you call it, it’s it means it’s going to become an industry standard because the expectation is if. I’m an investor, I should have access to all my information automatically. It should be a self-service dashboard. And so I look forward to seeing other Crowdfunding platforms right now. And if you Google Crowdfunding platforms, we regulate FINRA or sixty four platforms, you have a federal license, there’s another two dozen who are in the process. I’m always I’m always like to see automation because it makes the user experience the investor experience easier and better. And when we cater to the investor, we obsess over our customers. It just built the industry as a whole, right?

David We are more than happy to license and a white label our technology. A lot of people don’t understand that we’ve built our whole stack ourselves. It’s not beautiful on the outside and, it looks a little dated, but we have a war machine under the hood. So we are absolutely white labeling our system right now for angel groups. We’re in the process of refactoring our fourth generation platform that’ll be all API centric so that issuers in the future can just host their own offerings on their own website while still using a compliant back end that the regulators can watch.

My sentiment is that we do escrow better than anybody else. We don’t even charge for escrow accounts. We don’t charge for disbursements. I’m more than willing to sell that service off to other funding portals. I’m willing to license Geppetto off to other funding portals. If somebody wants to add on or enhance their portal. I’m here for it. I don’t literally consider any other platform to be our competition because that’s just not how these deals get done for us. They come by referral from securities attorneys, for example. We’ve done zero advertising today, and it’s not the last train leaving the station. If they raised money on one platform this year, they can go raise money on another platform next year.

We just think that our actual business model is investor relations as a service. And so the K1 is really a first kind of high level demonstration of that. We want our issuers to be sticky to us, ideally. And we also want to provide essentially investor relations services. And we just think that the K1’s is such a low hanging fruit and it’s disruptive. We can literally scale because all it takes is the amount of time to load those numbers, and we could do 10, 100, one hundred thousand of these things simultaneously because they get generated on the fly.

Samson You know, David, I love this investor relations as a service. And so for the folks listening on the podcast version of this and talking to David Duccini from Silicon Prairie, Where Good Ideas Grow. This is a Samson Williams from the Crowdfunding Professional Association. And you said something, David, that I wanted you to expound upon if you had a moment. You said you don’t charge for escrow. How is that humanly possible?

David Yeah. I’s really interesting. So the when we first launched and we looked at the the rules around escrow services, which typically has to be a bank. We realized that there was a huge gap that had not been identified. It’s this: the bank only sees how much money is in the account, right? They have no visibility in terms of whether or not a investor is actually signed a subscription agreement. When we pointed that out to a bank we were working with, they went ghostly white. So in a way, they actually outsource the management back to us.

We have read only access. We can watch the account looking in for wire transfers. We can do electronic check deposits, et cetera, into the account. Then of course, the portal keeps track of that, because the bank doesn’t know the transaction ID. And because the rules around Regulation Crowdfunding allow an investor the right to rescind their investment commitment within 48 hours of that campaign ending, their money could be sitting in that escrow account for up for a full year. The bank has no right to release those, those funds.

And so once they realized that basically, we save their biscuits, and therefore they don’t charge us anything for escrow accounts. Because our fees are so low, we just factor that into the cost of our initial onboarding fee. Then we actually give all of our issuers unlimited disbursements. I literally can disperse money four times a day, and it doesn’t really cost me much of anything. So I don’t even charge for disbursements.

Samson Wow, David, I love it, so you’re listening to the mastermind himself. David Duccini from Silicon Prairie. I just want to clarify one thing. David, you can correct me if you want to. I want to clarify one thing. David said that Silicon Prairie has not paid any money for marketing and that they paid zero in marketing. I’m going to say that’s just a boldface lie, because every Friday at 9:30 to 12:00pm CT, David and Jade on this earned marketing point, they generate a lot of earned marketing. And I’m a big fan of earned marketing. But you have to put in that sweat to and engage your community. So I just want to be clear that it’s not that he’s not paying for marketing it, he’s generating his own marketing value, and it’s super important.

David That’s an absolutely fair point. So we are absolutely trading in our social capital for a financial capital, which is the exact same thing we tell all of our issuers. Whether you’re raising, you know, whether you’re selling Girl Scout cookies are raising capital on Crowdfunding platform. It is a slow conversion of your social capital into financial capital. And so, you’re absolutely right. Time isn’t free for sure. It’s opportunity cost. But that’s absolutely true that we are putting in the work every week with our own marketing, our own marketing dollars, if you will, by trading our time for people’s attention.

Samson Excellent. David, as we wrap up, I want to say one thing, then give you the last comment. If you would like to white label Geppetto, and I love this because he says this is their war machine under the hood, reach out to David Duccini of Silicon Prairie. On that note, David, I’m going to give you the last 60 seconds of say, whatever is on your mind.

David I really appreciate it. Thanks so much for the opportunity to chat today. So I’ll put a plug in for CfPA, especially if you’re running another portal. It’s a good place to concentrate our efforts. The only way we’re going to get equal enforcement is if we all get together and kind of swap horror stories. Again, if you’re looking for velocity, we’ll be more than happy to help you get going and share our knowledge. I don’t consider you guys, my competitors. When the tide comes in, all boats rise. With that I’ll turn it back to you. Thanks again, so much for your time and attention.

Samson Awesome. Thanks, David and everyone else. I encourage you to follow the Crowdfunding Professional Association at CFPA.org. And until then, stay awesome!