Currently there are three flavors of crowdfunding (sorry but just had to get the metaphor in here). I interviewed 2 of the 3 ProHatch co-founders Liz Kulik & Barry Barovick about the unique aspects of this new Crowdfunding platform.
In taking your own advice, What is your Story? More particularly the back-story that we would not be able to see on your website?
They are the best and have an extraordinary management team.
Barry was head of Global Real Estate Advisory at Ernst & Young and CEO of Grubb & Ellis. Liz's background is in global real estate investment, business management and enterprise value creation. (CSO-Grubb & Ellis, Partner-Helix Global Partners, Senior Managing Director-FTI Consulting) (see linked in: Barry M. Barovick, Elizabeth Smith Kulik)
They both knew from experience in growing global businesses and advising clients around the world, that a strong thought process has to go into launching and growing a business… it is not just "getting capital and starting a business". "We are more than a transaction, we provide value add advisory services and education to the entrepreneurs on our platform"… services which I elaborate more a bit later in the article.
They found a strong connection to crowdfunding in their real estate experiences "Every real estate transaction is a combination of entrepreneurial vision, financial strategy and execution planning. It is new, risky and many there are many parties trying to find their own. So the common components are financial projections, a business plan, understanding the risk, assembling financial sources, assembling the team and executing the plan." Liz says this she knows from real estate that raising capital is not a one-time event, and is the same for crowdfunding… a strong planning process it is the core of success.
There are different types of crowdfunding, so where do you fit?
Barry said "We are a hybrid based on what we call Crowdfunding's Money Supply Chain". Wait… what is the Money Supply Chain? Liz gave me a great example based on a starting a mobile food truck.
"You start with donation rewards based crowdfunding. Create rewards that inspire people to donate to your project. Start with the people you know, build your story and involve your stakeholders in spreading the word. The internet makes it quick and entertaining". I call it "prove it works" capital! "Direct consumer products businesses have the opportunity solicit your customers as the funders. You are building shareholders without the equity… because your stakeholders see other benefits than financial returns." Barry said "The food truck brings people into the neighborhood, who may also shop at other neighborhood retailors… so both food truck customers and local enterprises could be early donors who see the value in supporting your project… because you, as the food truck, fuel the local economy and are building real value for the community". So now let's say the food truck wants to expand into four states… you can go back to the donation model based again, or move through crowdfunding's Money Supply Chain to equity based crowdfunding. ( pending outcome of SEC regs ), with a following that were involved with your story and your success from the start.
They are launching ProHatch with the donations part of the money supply chain initially with equity crowdfunding coming later.
Phase to Raise Process
I really liked their Phase to Raise program which I will cover in more depth in the future. Essentially it is based on a series of 30 day funding cycles, called Phases, each with 3 prescheduled milestone reports back to funders as the funds raised are put to work. I find far too many entrepreneurs who have no clue about milestones and developing clear and achievable objectives. "We work with entrepreneurs to help them set their fund raising goals in increments that align with key milestones in their Plan. We get you, as the entrepreneur, to think realistically about how you raise and use capital to create value, and then report back to funders. " This may all sound complex and ProHatch has a proforma building process that walks the entrepreneur through the initial business planning phases.Next see how a startup food truck gets help from ProtHatch’s Phase to Raise funding cycles.