GECA PODCAST – SHERWOOD “WOODIE” NEISS (CROWDFUND CAPITAL ADVISORS)

FORMATTED TRANSCRIPT

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Andy Field (Host): Hello, everybody. Welcome to Conversations on the Future of Crowdfunding, the podcast from GECA where we speak with the people shaping the future of crowdfunding and alternative finance across the world.

I’m delighted to be joined today by Sherwood, otherwise known as “Woodie” Neiss. Woodie is widely recognized as one of the pioneers of the modern crowdfunding industry and played a leading role in the development and passage of the US JOBS Act, which paved the way, as most of you will know, for equity crowdfunding in the United States.

Today, as principal at Crowdfund Capital Advisors, he continues to work with governments, regulators, policymakers, and industry leaders around the world, helping to shape the future of entrepreneurial finance. Most recently, Woodie and his team launched the CCA Crowdfinance Indices, the first daily benchmarks tracking activity in the US crowdfunding market. This really gives us new insights into capital formation and investor behavior in the States.

Woodie, it’s a real pleasure to have you with us. Welcome to the podcast.

Woodie Neiss (Guest): Andy, it is great to be here. Thanks for having me.

Andy Field (Host): No problem at all. Our listeners and viewers will probably recognize you—I know you’ve appeared on several of our events before, and we’re truly grateful for that.

So we talked about the fact that Crowdfund Capital Advisors (CCA) recently launched the Crowdfinance Indices. This is a family of daily benchmarks that measure the activity across the US Regulation Crowdfunding (Reg CF) market. It’s built on your CClear data platform, which essentially captures the entire Reg CF market. Why did you create the Crowdfinance Indices?

Woodie Neiss (Guest): It needed to be done. There was no S&P 500 for private capital formation, particularly when it comes to investment crowdfunding.

For the past eight or ten years, we’ve been tracking all this data—over 11,000 offerings, nearly $3 billion—and everyone’s been looking at the dollars, trying to figure out what the dollars mean. I’ve been constantly saying it’s not just the dollars that measure the outcomes of what’s happening in the marketplace. You’ve got investor sentiment, market health, success rates, valuations, sector rotation.

Until there was enough data, you can’t make an index in year one. You also have to have a baseline year, so you need the industry to develop for a bit. We needed to wait for that evolution to happen. Ten years in, you definitely have that timeframe to create an index. Now we can measure what’s happening in the market on a daily basis.

I think that’s good for so many reasons. First, it’s transparency into what’s happening in the marketplace. Cycles are happening. We’re going through a down cycle right now in the United States. But it creates an actual talking point—not just for us as industry watchers and insiders, but for conversations we want to have with regulators. It gives us a baseline: “Listen, this is what the indices are showing. This is what you need to be paying attention to. These are things we should do to improve things because of these indices.”

Andy Field (Host): So it’s a real tool to help educate the regulators and policymakers as well. My next question was going to be: what insights has this revealed to you now that you’ve perhaps never had before? I know you mentioned it’s cyclical and we’re in a bit of a downturn at the moment. Is that the key thing, or is there anything else?

Woodie Neiss (Guest): No, you know what the coolest thing to come out of it is? COVID led to this massive uptick in people sitting at home in front of their computers and, by default for the industry itself, investing in these online offerings.

We saw the most capital go into investment crowdfunding take place in 2020, 2021. Then there’s been a trailing off since then, partially because we saw the collapse of Silicon Valley Bank. VCs have contracted, they’ve moved upstream, and that’s had a trickle-down effect that’s affected investment crowdfunding, where fewer dollars have been coming into these offerings.

But what the indices have shown us—which you wouldn’t have known unless you’re paying attention to this—is even though there have been fewer dollars coming in, the number of investors stepping in has grown or stayed flat. So the indices show there’s more conviction by the people coming into the marketplace today than there was 10 years ago. They are placing bigger bets. They are writing larger checks.

The indices actually show that through investor sentiment: the number of people coming in, the number of people writing checks, the average size of their checks. That was one of the biggest surprises coming out of it, because what it tells me is—I created the lemonade, I drink the lemonade, I’m a firm believer in the lemonade—I get frustrated when people say, “Oh, investment crowdfunding’s not working.” I’m like, “No, you don’t know that.” If you look at the average check size of people coming in, they are more convinced than ever that these are companies they want to back. And because we have these indices, I can point to that now and say, “You’ve got a feeling. I’ve got data.”

Andy Field (Host): Yeah, absolutely. You say that surprises you. Is that probably the biggest surprise, or is it something you personally may have been expecting?

Woodie Neiss (Guest): I see it all the time, so I’ve been talking about this trend that’s been happening. But it’s been hard for me to explain it to people other than through what the data shows. The indices clearly allow me to point to it and let them track it over time.

Everything about the indices shows interesting things. When you drill down into that investor sentiment underlying these bigger checks, the data shows people are consolidating around quality. When the industry launched 10 years ago, more than 65% of the companies were pre-revenue startups. We look at a startup as a company that’s less than three years old. Now, fast-forward today, over 65% of the companies are post-revenue established—meaning they’re over three years old. Investors are gravitating towards these companies that are lower risk, which I can truly appreciate.

The other thing is how the sectors have changed. Leading up to 2020, you saw a lot of business service-related things. Then after 2021, it was software technology, which is still hot. AI has driven everything—we’re seeing a lot of AI, even within this early-stage space.

But one of the fascinating things I’ve seen over the past 12 months is how there’s been a migration of healthcare technology companies within investment crowdfunding. Here in the United States, you’ve probably seen what’s happened with our government pulling grants and everything out. That’s affected healthcare companies primarily. When you’ve got these startups that rely on grants that don’t qualify for them anymore, they’re coming online looking for capital.

What I love about this sector is that we have platforms launching that are healthcare-related investment crowdfunding platforms—not just platforms for issuers in the healthcare industry. Think of the entire community around those startups: doctors, researchers, academics. They understand the problems being addressed through these crowdfunding offerings, and now they’ve created a community where they can actually help fund these startups—not only with capital, but with the brainpower these companies need to get to the next level.

I can go on and on about what’s in the data and how it translates, but I think a lot of people just don’t see this.

Andy Field (Host): You mentioned communities there, and just thinking aloud: good news travels fast among communities. If it’s working well, that snowball effect in particular sectors is going to create its own momentum. Healthcare startups will see what’s happening, see how capital’s being raised via this method, and look to do it themselves. That probably explains some of the reason behind its growth in popularity.

Okay, that’s really interesting. You put out regular updates on the indices, don’t you? So people can have a look at those, and we’ll put a link to make sure people can access that information. Just to move from the data to the bigger picture: you played a really key role in the development and passage of the US JOBS Act. Looking back at the vision behind the JOBS Act—and I’ve asked a couple of people about this before who were also involved—how close do you think we are to achieving that original vision?

Woodie Neiss (Guest): If I’m being honest, I’d say halfway. I had a lot of promise and hope for what the industry would become. I thought it would become the de facto starting place for all startups to raise capital. I thought our government, our regulators, our platforms would have really leaned into investor and issuer education, so that everyone would know this opportunity exists. That hasn’t happened.

I thought the media would’ve been like, “This is gangbusters for startups. Look at the innovation happening here.” I would’ve thought there’d been television shows talking about these startups raising millions of dollars, creating jobs, creating innovation at a pace we’ve never seen before. That hasn’t happened yet.

But what has worked is access. The fact that this is happening in 2,300 cities across the United States is fundamentally amazing. You don’t need to be in San Francisco. You don’t need to be in New York City. You don’t need to be in these capital centers to raise capital. The data shows it’s happening all across the country.

The other thing the data shows is we’ve actually been able to fund people that VCs do not fund—non-VC-able founders. About 40% of the dataset are women and minorities. When you look at what happens in traditional Silicon Valley, about 2% of the companies funded there have women or minority founders. They talk about this, they do the big talk about how we need to get more capital to women and minority founders—and for good reason. Because we have all the data—we track every single offering and their financials and their annual reports—we can see how these companies run by women and minorities are operating year over year.

They run stronger companies. The revenues grow faster. They are more judicious in how they spend money, so they’re leaner in how they run. This has opened the door for them to access capital in a way they couldn’t before, partially because they’re raising money from people who look like them—other women, other minorities. It’s created an opportunity that didn’t really exist before, that nobody considered before, and I love that.

The other thing I would say in terms of the glass half full: we have created an on-ramp for people to access capital with speed and efficiency. We live in this attention deficit disorder society, so these offerings can’t stay up for an extended period of time because people are going to forget about it. You have to hit them quick. You have to get the marketing out there. You have to have the awareness. And you have to go in with a community of people that are ready to fund you.

When you have all those pieces together, what we’ve shown is it’s very fast to get your offering up and running. It’s a very standardized process in terms of the forms you have to complete. These offerings run for about 90 days on average. If you’re going out and raising money from VCs, you’re probably looking at a year or so to get capital, at least here in the United States. We can leapfrog that and get you capital at a much more rapid pace.

If we can do that as an industry—help startups get funded, show them how to raise capital responsibly, show them how to use that capital responsibly—then in fact, when they do qualify for VC funding… And by the way, if you look at the data, when the industry launched, there were no VCs in this industry. They thought this was adverse selection—this misguided thing that only the bad companies would raise money online. When in reality, most of these people just don’t know a VC to raise money from.

Now up to 20% of the offerings on a daily basis have some sort of VC participation. So VCs are not only getting into the deals now, but this is the graduating pool for all future funded companies. I think when we get to where I think we’re going to be, every single unicorn out there will start their fundraising journey through investment crowdfunding.

Andy Field (Host): So two big successes there: speed of access to capital for founders, and access to capital for women and minority groups. That’s been a real success. You mentioned that you thought originally crowdfunding would be the default funding route for startups. Why do you think that hasn’t happened? What’s holding it back?

Woodie Neiss (Guest): A few things. One, when the industry launched, we put this $1 million cap on it as the maximum you could raise. That was a strategy on our end. When we were working on the framework, we had a roundtable in Silicon Valley.

By my background, I had started a healthcare technology company. It was VC-funded. I sold it to a private equity group. So I went to all of my VC friends that I knew, and we had a roundtable on Sand Hill Road in Palo Alto. I asked them, “This is what we’re working on. At what point are we going to be stepping on your toes? I want you to get behind what we’re doing because I think we can create strong companies for you to actually look into investing.”

I was like, “$10 million?” They said, “No, there’s no way you can go out with $10 million.” “$5 million?” Some people said, “Yeah, five.” Other people said, “No, that’s still… we play in that area.” The one thing they all agreed on was, “Woodie, if you go to DC with a $1 million cap, we’re not going to push back on you.” That’s where we put that cap in.

What that cap did is it really cut out a bunch of companies because they were like, “I need to raise more than a million dollars. This doesn’t relate to me.” So we proved that everything was working, then we moved it up to $5 million. That’s where our current cap is.

I’ve really been working hard to increase that cap again because what we’re doing by having these caps is restricting the companies that can find value in going online to raise money from their customers/investors—or as I like to call them, “investomers”—and bring value not just in terms of capital, but in terms of marketing, awareness, branding, and all that.

I think it’s been constrained by the caps. I think it’s been constrained by people who think it’s confusing. I don’t think they’ve taken the time to understand the standardization that’s come in.

The regulators can bring more clarity to the industry. One of my frustrations has been that in the United States, if you raise money through investment crowdfunding and you’re successful, you have to file an annual report within 180 days from your fiscal year end. Compliance with that is historically low because people are like, “What do I need to file? How much detail do I need to go into?”

The SEC hasn’t come out with clear guidance on that. They’re like, “You need to update Form C.” Form C, if you look at it, can be 200 pages long. An entrepreneur that raised $100,000 through investment crowdfunding doesn’t want to go through a 200-page document making sure everything’s still the same.

My whole attitude is guidance should scale based on the size of the offering. It doesn’t do that at all—which is the whole reason we created investment crowdfunding, by the way. But we need clarity. If you’re doing an annual report, the key things investors need are: what material changes have been made? What material things have happened at revenue? What material things have happened at expenses? Have you issued more stock that would affect the cap table? And then here are the financials.

If we had that type of clarity from our regulators, more people would be filing their annual report—which is not only good for investors to see, but the companies that are compliant with their reporting requirements are the ones VCs are going to look at and say, “They raised the money. They’re transparent about what they’re doing. They’re communicative.”

Andy Field (Host): Yeah, that builds a good case. Okay, so that’s something holding it back—simplifying that process, giving more guidance. Is there any investor behavior you think has been holding things back? Maybe because of the awareness side of things. I’m talking about as an industry: there’s almost a PR exercise that needs to be done for the industry. We’ve heard even people talking about giving it a rebrand. I’m not saying we necessarily go that far, but that sort of whole awareness piece that every stakeholder in the industry can get involved with—platforms, media, marketing companies. Is that something you consider quite important?

Woodie Neiss (Guest): It is. Though if you think about it, we sit in front of our computers, and everyone’s focused on what they’re doing in front of them. If you’re investing in the stock market, you might have an E-Trade account here in the United States, or you might use Fidelity. There’s one location where you can go to get information about what’s happening and make your investments. That sort of doesn’t exist for us. We’ve got Wefunder, StartEngine, all these different platforms.

To have that sort of unified space—even if it did exist, I think investors don’t even know where to go for it. It’s not that we need to recreate that. It needs to be that Fidelity, these larger institutions that cover the capital markets, need to carve out marked portions for investment crowdfunding and early-stage finance.

The fact is you can invest in these startups through your retirement account. As long as that’s happening, these larger institutions should have education in there: “Don’t risk more than you can afford to lose. This is the highest-risk area of investing, so be smart about it. But if you want to do it, these are opportunities happening right now in front of you.”

That doesn’t exist. I think the broader institutions need to be brought into the conversation, rather than us trying to create a platform. Think about the marketing engine it takes—a Bloomberg to get the message out there. We integrated with Bloomberg way early on, which allowed us to have some awareness, but the market wasn’t there yet.

Now we’ve got this opportunity to have these conversations with financial institutions: “Hey guys, pay attention to us. We’re small by default, but we can be something that’s a sizable part of the early-stage finance industry.”

The reality is investing in early-stage money, rather than late-stage companies, creates like a 70% better yield. If we can guide not all the money, but a greater part of a smaller percentage, to these early-stage companies, it’s going to benefit them through access to capital, benefit these investors through diversification, and benefit these investors through a yield opportunity they might not have seen before.

There’s a great opportunity—or missed opportunity—right now for these investors in the space because in our dataset we count well over 2 million checks that have been written. 2 million. That’s a lot of people that have pledged conviction to this, and we’re not taking advantage of that.

Andy Field (Host): No, that’s a great way of framing it, actually—”pledging conviction”—because that’s exactly what they’re doing. It’s their hard-earned money, and they’re really putting a lot of faith into it.

Okay, ridiculous scenario: if you were regulator for a day, and your objective wasn’t just to protect investors but to actually maximize entrepreneurship, innovation, and wealth creation while still preventing fraud, what would your crowdfunding framework look like?

Woodie Neiss (Guest): Right off the bat, I’d raise the cap to $20 million. I’d do it with guardrails. I’d make sure that if you’re raising over $5 million, you have an audit. That just makes sense. Those companies raising that kind of money usually have higher revenues and can support the cost of an audit. Under $5 million, the whole point of a review or CEO sign-off is questionable. I’d lean towards a review just because it adds credibility that someone has reviewed the numbers other than the CEO. But if you’re raising $100,000, it doesn’t pay to have that type of review.

So I’d put these guardrails in place. I’d raise it to $20 million.

The second thing I would do is address liquidity. Liquidity is an important part of the conversation everyone talks about, but we need to focus on it. We’re 10 years in. There are companies in here that have gone public. There are companies that have been acquired. We need to have a better structure that allows companies that raised money through investment crowdfunding to actually allow their early-stage investors to exit.

That can be as simple as a VC coming in, offering to buy them out at a price that everyone agrees on where they’re not taken advantage of. Or it can be starting secondary trading platforms that allow these issuers to list their shares—provided there’s a market. Supply and demand will drive everything. But if there is demand for these securities, give them the opportunity to list those shares and provide liquidity for those investors in the marketplace.

But to do that, we’ve got these antiquated laws in the United States called blue sky laws that sort of require issuers to register their securities in each state in which they’re sold. We’ve got exemptions like the manual exemption that says if you file ongoing disclosures in a national securities manual, you do not need to register your securities in all the states. It’s a patchwork thing, but that type of thing needs to be addressed. We can’t have secondary trading if we don’t address blue sky compliance.

As I was telling you before, we need to simplify the disclosure requirements. The SEC, the regulators need clarity when it comes to what people need to disclose, how they need to disclose it, and when they need to disclose it. And it needs to scale depending on the size and complexity of the raise.

I would also open up the door from day one. When we wrote this law, it was really focused: let’s help Main Street businesses and startups raise capital. That’s what we went live with. I wasn’t thinking broad. I was like, “Let’s get an industry going.” And we got an industry going.

We’ve seen very little fraud in this industry because it’s hard to commit fraud through a disclosure regime than outside of it. With that proof point, we can tell people we need to open it up to other groups that can leverage this funding mechanism.

What I mean is early-stage venture funds right now are struggling to raise capital because you’ve got all these Silicon Valley venture funds that are all AI-focused, saying, “We’re going to make you billions of dollars.” All this capital is moving in that direction.

But you’ve got the whole opportunity to fund early-stage startups through venture funds still. What I would like to see the regulators do is open it up so it’s not just a company that can raise money through investment crowdfunding, but a venture fund can leverage this as well. That would really open the door to a lot more capital coming into the space.

Andy Field (Host): Of those, which do you think would have the biggest impact? Would it be raising the cap to $20 million?

Woodie Neiss (Guest): Yeah, absolutely. Without a doubt. A lot of this comes not just from Woodie saying, “Hey, let’s do this.” It comes through conversations we’re having. I get calls all the time from people saying, “I need to raise $20 million. I have thousands of customers who could be really great advocates for me, but I’m not going to do an offering for a million or five million.”

There’s demand for this. These are companies with much higher revenues, lower risk of defaults. That’s where you want people investing—in companies scaling at lower risk, with the potential to be bought, acquired, or go public. It’s a win-win-win for everyone. So $20 million is clearly where I’d put it.

Andy Field (Host): Okay, so let’s change your job from regulator to a different mission. You’ve got a mission to make crowdfunding 10 times larger over the next decade. Where would you start? Obviously you’ve answered raising the limits. What would you then go on to do?

Woodie Neiss (Guest): I really believe this industry isn’t going to scale properly until the larger financial institutions get behind it. Right now, any of these big financial banks—they just can’t scale down and make investments in these small companies. So this industry isn’t going to scale until you’ve got billions of dollars backed by these large institutions coming into it, and that’s where early-stage venture funds can come into the marketplace.

If we wanted to 10X it, open up the door to early-stage funds investing in these investment crowdfunding offerings. They can raise money through crowdfunding to invest in these Reg CF offerings. Now you’ve created a vehicle that financial institutions—typically larger ones like Bear Stearns, JP Morgan—can look at and say, “We now have a pathway to allocate.”

Even if they said a billion dollars, that would 10X it right there. For them, it’s a small amount, but for the industry it’s a huge amount. It would allow us to fund—through the data, we can see what promising startups are scaling the fastest. We’ve created predictive models to look at that and make investments based off it. That’s our whole venture fund.

If you get the JP Morgans into the industry, the Goldman Sachs, and they say, “Here’s a billion dollars,” you’re going to 10X the industry very quickly.

Andy Field (Host): Sure. And it’s in everyone’s interest for that to happen. Should the industry as a whole be coming together a bit more effectively and actually campaigning for this more effectively?

Woodie Neiss (Guest): Yes. I don’t know—I have no control over the industry. I share my voice and my opinions through my own channels. But I share these ideas with the hope that other people are like, “Hey, Woodie’s got a good idea. Let’s get behind this.”

I also know I’m not a whisperer of what I want. Things will happen the way they happen. But I do think if we all sat down—to your question—about what will 10X this industry and forget everything else that’s going on, we’ll come to agreement on things like this.

Andy Field (Host): Interesting. Maybe that’s going to happen. So looking forward, what excites you most about the next five years for the industry? And following on from that, what’s one message you’d leave with the industry, regulators, platforms, entrepreneurs?

Woodie Neiss (Guest): I love the data. I am by any shape and form a data geek. Everything you see on the wall behind me are data reports based on slicing and dicing the data every way you can. So I’m super excited about the data itself—what you can learn from it, what you can tell other people about it, how you can change policy that we talked about at the very beginning.

I think the opportunity for women and minorities is really huge. I really want to focus on that. One of the things we did—there’s this thing in the United States, actually it’s a global thing, called the Startup Genome. They look at ecosystems for startups globally, rank them and all that stuff. I was just like, “I can do that.” So we created the Crowdfunding Genome.

We literally looked at what the Startup Genome is, looked at their signals, and applied it to all our data here. We’ve come up with this ranking for the United States. I think if we start doing stuff like that collectively—collaborating with Europe, Asia, South America, or crowdfunding associations—we can actually show people the importance of supporting these crowdfunding ecosystems.

How it directly relates not only to innovation but to job creation. How that’s an economic stimulus pumping into local economies. That’s what we want to show people. So I’m excited for that type of thing too.

In the United States, the one thing you guys in the UK have done great that we have fallen on our face with is incentives. We don’t have any of the tax incentives that would really help this industry scale. To your point, if we want to 10X it, I think if we had incentives similar to your EIS, that would really de-risk it from an investor perspective and allow more capital to come in. Because people are like, “The government’s going to back it,” or, “They’re going to allow me to write off any losses,” or, “They’ll allow me not to pay taxes on my gains.”

We’ve got certain qualified small business exemptions and all that stuff—it’s a patchwork again. But if we had tax incentives directly tied to investment crowdfunding, that could really help scale this industry. I think it’s a matter of time and the right administration. I think this administration could be one of the ones that would lean into that. It’s just the priorities of what’s happening in DC.

Andy Field (Host): Amazing. Woodie, we’ve run out of time, but that was a fascinating conversation. As we mentioned before, we could have talked about some of these things for hours. I’m sure we’ll record another episode and go into things in a bit more depth.

For now, I just want to say thank you so much for taking the time to talk to us. Your experience across the platforms, the markets, and data really highlights how far crowdfunding has come and how much potential still remains untapped. Conversations like this are exactly why GECA exists—to bring together diverse global perspectives, challenge fragmented thinking, and help shape a more connected and inclusive equity crowdfunding ecosystem.

Thanks again to Woodie for appearing today, and thanks to our listeners for tuning in. Stay with us for future episodes as we continue to explore the people, policies, and platforms that are unlocking crowdfunding without borders. Don’t forget to follow GECA for more conversations with the people shaping the future of this amazing industry. We’ll see you next time. Thank you very much, Woodie.

Woodie Neiss (Guest): Thank you. Appreciate it. You have me.

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[END OF INTERVIEW]

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