How I Built a Company With a $130M Valuation
By: Howard Marks
Tags: Business Development, Crowdfunding, Funding, Bitcoin, Startup

In April 2012, I found the glimmer of what that answer might be. I read an article on the new JOBS Act, or Jumpstart Our Business Act. It was signed by Obama and for the first time in 80 years allowed companies to raise capital online from anyone through the sale of securities (stock, debt, etc). Suddenly, the door created by Kickstarter looked like it could become an option for companies that did not have consumer-facing products. Crowdfunding on a new scale.

I thought to myself this could be humongous. It could transform finance as we know it, but I also knew it would be some time before the JOBS Act would be implemented. So I waited. I continued to do my research and grew the accelerator in the interim.

The decision to pivot

Ron Miller

Around this time, I met Ron Miller, a serial entrepreneur and master salesman, and we quickly hit it off as friends. He was interested in joining the accelerator, so I brought him on as a mentor. I also hired Johanna Cronin to manage the accelerator.

As the accelerator grew, I continued to do my homework and read about the JOBS Act and the concept of investors buying shares online with a credit card. Others entered the space and began crowdfunding businesses using Title II of the JOBS Act, which was the first part of the JOBS Act to be implemented. But Title II wasn’t interesting to me as it only allowed companies to raise capital from accredited investors. My gut told me that this wasn’t the answer.

Johanna Cronin

In many ways Title II is just a continuation of the way funding has been done, only updated to an online format. I saw the potential for the JOBS Act as something much greater, a potentially revolutionizing force if the cards played out right.

To focus on accredited investors felt like a mistake: the way deals are structured, the way the investment platform would be presented, would all be different than if they were designed for the consumer. By the time the consumer could participate, we would have no credibility. We would be a part of the same biased institution that we wanted to reshape.

So we waited and continued work at the accelerator. I had no intention of stopping before I reached my goal of 60, which eventually I did, over the course of two and a half years.

In November 2013, the SEC released a draft of Regulation Crowdfunding, which I found fascinating. I had a hunch that this was going to be a monster. Once I reached my goal of investing in 60 companies, the conversation between Ron and I became one of do we do another cohort of startups in the accelerator or should we pivot our business to equity crowdfunding? Can we do both?

An early version of the StartEngine website, circa summer 2014

In the spring of 2014, it became clear that equity crowdfunding was the bigger opportunity and that running both the accelerator and developing this crowdfunding simultaneously wasn’t feasible, so we pivoted our business. Ron, who initially became the CEO for the first two years and is now the Chairman of the Board, Johanna, who is now our Director of Product, Marketing, and Services, and myself, the CEO.

Landing our first client

The second rendition of the StartEngine logo

We needed a name, and we needed a logo. The name StartEngine had some notoriety in LA already, which would be useful in the new endeavor. Accelerator programs are focused on raising capital for businesses anyway, so I figured if the name worked for an accelerator, then it would work for an equity crowdfunding platform.

We built a prototype of the platform, keeping the name and logo of StartEngine, and then it became a waiting game until the JOBS Act was implemented. In the meantime, I continued mentoring the companies that had gone through the accelerator.

We needed money to run StartEngine, but it felt disingenuous to go to institutional investors. If we wanted to revolutionize finance, what kind of message does it send to our potential clients if we take money from the very institutions, the VCs, the banks, that we believe our platform lets entrepreneurs do without?

So instead, we put our own money into the company and raised from friends who shared the same belief that finance needed to be disrupted in a big way to help tens of thousands of frustrated entrepreneurs get the capital they need to succeed. Then everything changed on the morning of March 23, 2015. We got a phone call the night before that the SEC would be voting on Regulation A+ in the JOBS Act. We hadn’t seen a draft or anything of Regulation A+ yet, so this was a surprise. The commissioners voted that morning, and it passed unanimously. The date was set for Regulation A+ to go live: June 2015.

We had 60 days to find a client and build the software. We used Colab to build the software as we didn’t have an in-house development team yet, and we began the search for business. It was tough going. The market didn’t know what equity crowdfunding was.

Eventually, we got connected to a car company by the name of Elio Motors via Darren Marble, a local entrepreneur who shared an interest in the crowdfunding space and was building his own marketing platform in LA. Darren introduced us, knowing that it would be a good match.

Ron, Johanna, and I by an Elio car

We met with Paul Elio, the CEO of his namesake, on June 1st, signed him the next week, and the offering for Elio Motors, the highly efficient, light-weight car company, went into a public test the waters page on June 19, 2015. Within hours we had millions of dollars in reservations, most of which came from the Elio Motors community. These reservations were not commitments and just levels of interest in investing into the company before the offering is qualified by the SEC.

A screenshot of the Elio Motors page, a few days after launch

It was a smooth and painless process for our first time launching a company. When Elio finally went live that November, they raised $16.9M from over 6,600 investors. It was the first Regulation A+ offering ever, and it was a smashing success.

StartEngine, Accelerated

The current StartEngine logo

Elio didn’t quite spark the sales I thought it would, in large part because we had to educate the marketplace. I expected Elio’s success to trigger a catalyst. After the raise, I thought America would wake up and think, “I need to do this too.” But reality is slower than that.

To be clear, I never doubted that StartEngine would work. I believed in it because we took a scattershot approach: throw pasta on the wall and see what sticks. Our business model targeted small businesses and consumers, huge segments of the audience. The market was simply too big for StartEngine not to work. The need for equity crowdfunding was there; we just had to educate the market to let it know the option was there in the first place.

Eventually, things accelerated. The real turning point came when Regulation Crowdfunding was implemented in May 2016. Regulation Crowdfunding was inexpensive and cost-effective. Even better, it was easy. It opened StartEngine to a wider number of companies. Our platform began to make more sense as a viable funding option for companies.

By the end of 2016, we did 10 launches. By the end of 2017, over 100. Halfway through 2018, we’ve already launched more companies than we did all of last year and nearly tripled our team.