Audrey Jacobs is Vice President, Americas, for OurCrowd, an equity crowdfunding platform for accredited investors that is based in Jerusalem. OurCrowd combines venture capital with investment crowdfunding. That means it vets and selects deals and invests its own capital alongside that of its investors. It also provides post-investment support to its portfolio companies through a mentor network and by taking board seats. OurCrowd has raised $130 million to date for 70 portfolio companies, ranging from Abe’s Market, a natural products etailer, to ReWalk, a high-tech exoskeleton that helps people with limb and spinal cord injuries to stand and walk. (In 2014, ReWalk became the first equity-crowdfunded company to go on to a successful IPO).
We talked to Audrey ahead of her presentation at the FinTech Global Expo in San Diego on Thursday about evaluating crowdfunding platforms and investment opportunities.
Amy Cortese: Your presentation at FG Expo is about judging online investing opportunities. Tell us about what you’ll be talking about.
Audrey Jacobs: I want to help investors evaluate equity crowdfunding platforms and opportunities and empower the investor to make their own decisions. And what I’m going to focus on is the people—behind both the platforms and the startups they are raising money for.
These days, investors want to do their own research and decide what they want to invest in, especially with Millennials and investors that skew younger. They’re not so interested in just investing in a mutual fund or what an investment advisor tells them. But doing it in the virtual world and online, you lose the human connection. And people are essential in investing, whether you meet them or not.
What that means is, when you’re looking at a platform, you have to look at who started the company and who is running it. Are they experienced venture investors? Do they have experience taking companies public or being acquired? Do they have a deep diligence team? Do they support the company after the investment? Is it a professionally run company, or is it a bunch of engineers who put up a matchmaking site to make some money? It always comes down to who are you working with.
AC: You mentioned supporting the company after an investment. Can you elaborate on that?
AJ: In most of the deals, about 70% of them, we take a board seat, which means we are actively involved as an advisor in the future of the company. In addition, we have a Chief Exit Officer as part of the team whose job it is to sit down with each of these companies and say, okay, who are the 10 companies that would acquire you, what are you doing to engage them, let’s make those introductions. Or, if a company that planning on IPOing, from Day 1 you’d better be having talks with the right investment bankers.
Another aspect is mentoring. We have experts in medical technology, cyber security, e-commerce—every sector of tech—to guide these companies as they grow and hit challenges or want to develop a strategic partnership.
Beyond that, we “crowdbuild” with our network. We have 8,000 investors from 110 countries that are part of the OurCrowd investor network. And we tap into those investors to help grow and support our companies. Many angels want to get their hands dirty—in a good way. And part of what OurCrowd does is leverage the relationship with our investors to help crowdbuild this company. Do you want to develop a strategic partnership in Brazil? We have a huge network of investors in Brazil who can get them an introduction—boom, within moments we’ll get a response. So we help companies grow on multiple levels.
AC: Is there sufficient information out there for potential investors to assess the different platforms and who’s behind them?
AJ: Any company that doesn’t have About Us and The Team on their web site should be an immediate cause for concern. A lot of this is about trust and about experience. This is really a new world, sort of the Wild West, and platforms are popping up left and right to help startups raise capital. But this is very complicated. You need to know not only who is the team, but who is your accountant? Who is your lawyer? If you’re not comfortable with the professionalism of the [platform] team you should be concerned.
AC: So, knowing the people behind the platform is important. What abut the people behind the startup?
AJ: So much can go wrong in the life of an early stage company that we, and even the entrepreneur, cannot anticipate. I always ask them: tell me why you are a honey badger? If you can’t explain to me how, when you are in the face of death and you came back to life, then you are not cut out for this.
So, on a whimsical level, are they a honey badger. But ideally what OurCrowd looks for are serial entrepreneurs. The ideal is you want someone who has already sold companies or taken them public, or have been an early part of a team that has done that.
Second thing is, if they haven’t sold a company, you want to see an entrepreneur that has failed and learned the hard lessons.
The third level entrepreneur you want to look at is the first-time entrepreneur, someone who’s never built a company before. And there you want to see the level of expertise—are they an expert in the field? You can get more comfortable by looking at the board: who is on the advisory board and how engaged are they?
AC: Any things investors should watch out for? Red flags?
AJ: In terms of the platform, it’s the quality of the diligence that matters. The red flags and risk factors [in a deal] should be highlighted. You shouldn’t invest just because Mark Cuban is in the deal. Mark Cuban has a heck of a lot more money to lose than you do. So you need to make sure you do your homework. Otherwise go invest in a fund.
“The most important thing is that the investor needs to create their own personal investment criteria and set of values.”
That research should cover everything from the size of the market, recent acquisitions and IPOs in the space, the level of intellectual property, if it’s medical technology any clinical trials, etc. Has the CEO or founder invested their own money? Do they have skin in the game? That goes for the platform, too. Find a platform that has done the research and also is investing with you.
At OurCrowd, we look at 2,000 deals a year, but only invest in1% to 2% of what we see. We don’t invest in something until we’ve had months of interaction with them and many, many in-person meetings. But we put money in every deal. We’re the first one in and invest in at least 10% of the deal, and we invest every time there is a follow-on round. So, another thing to look at is, is the platform committed?
These are just things to think about. The most important thing is that the investor needs to create their own personal investment criteria and set of values.
AC: We assume that accredited investors are sophisticated, but do you find that education is needed?
AJ: One hundred percent! If you are not an active angel investor, do not write a check until you have done some study and research. I highly recommend to anyone if they are going to invest in early stage companies to join the Angel Capital Association, which is a global nonprofit that educates investors. And the platforms should have education as part of their program. Our Crowd has ongoing webinars on everything from understanding the term sheet to building a portfolio.
Eighty-five percent of our investors have never invested in a private company or startup before. They’re using OurCrowd to diversify their portfolio and get access [to investments] they’ve been locked out of. The equity crowdfunding movement is democratizing the ability for investors to capitalize on this great return that they are definitely not getting in the public markets. What is the valuation of Uber today?
I also recommend Crowdability, they’re the Morningstar of the crowdfunding industry. They do a lot of investor education.
AC: If accredited investors need to be educated about crowdfunding, can this filter down to unaccredited investors on a more mainstream scale?
AJ: Just look at online trading that emerged in the 90s. The big brokerage houses were very concerned that the retail investor is not going to know what they’re doing, it’s dangerous, we should never give them access to this world. Well, it’s been proven over time that the individuals out there—the crowd—have outperformed the predictions of the big brokerage houses. The crowd will go out there and find the data they need to be able to invest successfully and intelligently.
AC: Will OurCrowd expand to include unaccredited investors if and when Title III of the JOBS Act is implemented in the U.S.?
AJ: Right now, the proposed legislation does not fit into our current platform. For example, it does not allow co-investment. We’ll have to see what happens if the law is passed and what it looks like. Right now, there are 10 million accredited investors in the U.S. alone, and we have investors from 110 countries.