Raising Capital and Managing Equity with Jason Atkins | PROACTIVE Podcast #122

Raising capital and managing equity for a startup isn't the easiest thing in the world. Thankfully, Jason Atkins from Cake Equity is here to help make the process a piece of ... well, cake.

Video Transcript:

- [Announcer] Welcome to the PROACTIVE Podcast, brought to you by MeMedia.

- G'day world Chris Hogan coming to you from MeMedia studio, here at Burleigh Heads for episode 122 of the PROACTIVE Podcast, and I have with me today Jason Atkins co-founder and CEO of Cake Equity. How are you, Jason?

- G'day mate good, good to be here.

- Mate great to have you finally in the studio, it feels like it's been a long time between chats especially on camera for us.

- Yeah.

- So mate Cake Equity, could you give us a bit of an overview as to what Cake Equity does?

- Yeah, yeah, yeah, so I guess if you're a startup founder, it's really easy to understand what Cake Equity does 'cause you've probably run a capital raise or you wanna raise capital and it is like a total nightmare. So, we streamline and simplify the capital raising process is probably the easiest way to describe what Cake does. For you know, if you're not in startup land, I think it probably just sounds like a whole bunch of, strange and foreign.

- Let's educate them, let's educate them mate.

- So, when you wanna raise capital, you first need to work out like how much you wanna raise, and how you gonna value your company, and then are you gonna sell equity, or are you gonna do a convertible note, or a SAFE, and like every single part of that is normally totally boring.

- Yeah.

- To the person who's got to do it.

- So there was three things you just said, that people would just be like, "What?"

- They're all mind blowing.

- Equity, SAFE, convertible note.

- Exactly.

- What?

- And when you look at it, like each thing has this whole big pile of stuff that people just don't wanna deal with at all.

- Right.

- You know, but you have to, 'cause it is really important if you get it wrong then down the track you come across some professional investor, so one of the worst things that'll happen, so I'm a founder I wanna raise, say half a million bucks, and I go out to some angel people that I find and they give you these deal.

- Angel investor people don't necessarily understand an angel investor either, well put simply it's just an investor right?

- An investor who, invests in really early stage companies. So the first two lots of funding that eventually we'll get when they're getting off the ground.

- Hence they're an angel, they got a heart of gold and they expect that, you're gonna do amazing things.

- Exactly and they really, it's like I don't mean to say this too flippantly, but it's like part donation, part investment but honestly, is because the investor has no idea if you're gonna be successful or not, and they try and do the best they can when they're investing, but the variables are infinite. So, that's why I guess they're called the angels. So those first two rounds are really, really tricky, normally the founders know nothing as you say they don't even know what an convertible note is, they don't know how to sell, they don't know how to do a pitch deck, they don't know how to do anything.

- All right so...

- Normally in the beginning.

- A founder needs money.

- They need money definitely.

- They need money.

- Say you wanna do a software company, what's the minimum amount, you can spend on a decent piece of software like, I mean.

- Minimum 250 grand.

- Exactly, and I think we're up seven figures now at Cake, which I would never believe if anybody had told me that. I remember back in my CFO days I'll be working for organisations as a CFO and we'd get these software codes to build stuff and maybe like three, four, 500 grand and I used to just like, no way. But now I know how crazy hard it is to build software.

- Now you've spent it.

- Now I'm spending it and it's hurting, it hurts. But yeah so, to do SaaS, which is like such a great place to be, because if you can do it well, the upsides are tremendous.

- Infinite.

- We've all seen that.

- Infinite growth right, possibility.

- Infinite growth, 90, 95% gross margin, 50% net margin, businesses with, 20 year time horizons, it's the ultimate business nearly, especially if you're doing good in the world, I should say, because that's what we're all really here for.

- 100% right, 100%.

- So yeah, but so you need 250 grand, not that many people have that, and so you've got to go out and find people that trust you, that will back you, they're normally called angels.

- Great.

- So then...

- So we've got to value the business?

- So you're gonna value it first.

- So how do we value a business, is there a trick to that? Is it annual revenue?

- Like the technical way to do it is like a discounted cashflow, to a net present value, which is more or less impossible because you don't have any cashflow.

- You don't have any product, or any customers or anything.

- What you do have is a pitch deck.

- Yeah.

- And maybe an...

- And a dream.

- And a dream.

- You might have an MVP, you should probably have at least some sort of MVP when you're raising money.

- Which could just be a prototype slidey app thing or.

- Yeah, some sort of proof of concept you need the minimum, I mean, you've got to convince people to give you money.

- Right, the biggest thing that people do need to do is, they need to articulate what problem they're solving, right?

- Yeah, it's normally the team, and the problem and the solution and the deal. Sort of the most important things in the beginning because everything else is an assumption.

- And I think Bill Rocket, he hops on the problem, and that you have the solution, so he's very big on that. And also the founder he's there nearly, always investing in the founder or founders because they need to know if you've got the get up and go or the drive.

- Totally agree, you look at Blackbird, AirTree, top venture capital in Australia, which is the next stage if you're a successful, it's all about the people and the mission, and where they're going, that's what people back, that's what investors back. I've looked at the 500 startups in Goa, Kawasaki, and there's a great matrix out there that sort of says what are these people look at? Yeah, problem, solution team, and then the deal, and what startups quite often get bogged down in is the deal, they don't know how to do it. And it can take months and it could cost them 10, 20 grand, and then even after they've done all that, they can have done everything wrong, like, I don't mean to hassle all the lawyers and accountants involved, but they might not even be experienced at startup deals and people call it off and get bogged down in this stuff. And then they'd go to an angel group and angel groups unfortunately lead them astray. The angel community in Australia is relatively new, and isn't as sophisticated as other developed economies, and so, we need to educate the angel investors as well to understand what it really means, and what the deal needs to be, for it to be balanced between the founder and the investor. Quite often, you see founders getting bogged down doing lots of, you know, special terms in these early deals, that constrain them significantly and then cause them trouble when they need to do the next round. So, what Cake does is provide very simple contracts inside the software to do all these early deals. So literally, if you wanted to you can log in, if you're a founder it would be one shareholder in the beginning, and then you can click a few buttons, and you can be raising capital the very next day, the contracts are built in, DocuSign is built in, you can have it integrated with your registered agents, so assets integrators, you haven't got to worry about, oh is my cap table in sync with ASIC, and all those sorts of dumb things that again, founders really need to get right, but don't know how to deal with, or wanna deal with it, right? So we've combined like six or seven steps all in a row in the one piece of software, so the investors log in, your accountant and your lawyer can be logged in, the directors are logged in and everybody's working in the one place, so that the capital raise is just a hell of a lot easier for the founders. We also do a lot of education, education's a big thing. Founders need to learn a lot very, very quickly, and there wasn't in our opinion, a lot of great information out there around all these matters, so yeah we write about capital raising, we write about convertible notes. Should I get into employee share schemes?

- No, let's take it backward step the valuation of the company, and you using technical terms there as well. So, is there a simple, really simple way to understand what the value of your company is?

- Yeah so...

- Is it annual turnover? Is it net profit?

- It depends on the stage, so right in the beginning, before you have any sort of consistent revenue, you can really only use in my opinion, like it's called the Berkus Method, sounds very nerdy, but it's essentially there's five factors you give yourself a score out of, between one and 10 for each factor. And then you get a value of between zero and 500 K for each factor, so your company would be worth somewhere between zero and two and a half million, depending on where you rate yourself on these five factors, and I'm pretty sure it's the size of the market how far along your MVP is, how good the team is, a couple of other things, it's very practical, it's very easy, and you can talk to the investor about it, you say, "Well I'll give myself a seven and an eight and a six and a four and a three and therefore I valued my company at 1.75 million."

- Correct.

- That's honestly the best way...

- Excellent.

- I've seen the value...

- Excellent.

- Of very, very early stage company.

- That's so fantastic, thank you, so that was called the Burke...

- Berkus Method, B-E-R-K-U-S, if anybody wants to Google that.

- Beautiful.

- There's also a piece of software out these days called Equidam, E-Q-U-I-D-A-M. And they are trying to use big data and a qualitative and quantitative method to create a reasonably sophisticated early stage valuation very, very quickly, only costs about three or 400 U.S to get a subscription and they've got a similar style, they do five different types of valuation, and then you can weight which ones you wanna focus on. So if you're a later stage company you might use a discounted cashflow method, or revenue multiple methods. So these are the more common methods when you go to venture capital, so like I've got to 1 million ARR, companies in my industry...

- So you use a...

- And recurring revenues.

- Yep.

- Yep, so my company is now doing say, 100 K a month in recurring revenue, which is every early stage SaaS's dream a sort of product market fit, right? So you've got there, and then you look around your industry and you say, well, this is when you start to get into those big revenue multiple valuations, if you're doing really well, and you've got a big market, and your product's working quite well, you can get five, 10, 20 times revenue valuation once you get there. So obviously a wonderful situation for both the founders and their investors, so yeah...

- Sorry, I don't get why those valuations exist, you know, like 20 times revenue, shouldn't it just be revenue, that's your value?

- Yeah, I guess it all comes down to, if I put like $10 in today, how many dollars am I likely to get out of this company in the future, and within say, an accounting firm, normally you know, every one's time is revenue, because we might be growing at a few percent per year and you kinda know accounting terms run on say 30% net margin or whatever, right? There's a nice way to devalue that, but with software companies, they can double every year. Sometimes they do three, four times revenue growth in one year and they may have no competition in front of them and a huge market. And that may be running on a 60% net margin. So these are very, very powerful financial drivers that compound year, after year, after year, and that's why investors are happy to take these big revenue multiples, because the value creation is tremendous from these companies when they really get it right. Of course, you know, you need to have a lot going for you to get that type of val, but yeah, I do a lot of investment analysis as well, as like a side project and yeah, the person the pudding, if a company goes from 10 million to 100 million to a billion dollar valuation then why would you not invest?

- Yeah but then...

- So this seems off for people to understand

- No, that makes sense, but how many actually go to a billion valuation?

- No, not many at all, but like from a portfolio perspective so most portfolios will have say 20 holdings, maybe 30 holdings, and the way an investor looks at your company, every single investment they make, needs to return their whole portfolio, and that they won't make that investment otherwise, so if you want a 10 million, if you want a 10 X valuation, you have to show that you can go up a hundred times. If the investor doesn't look at you and see there's a possibility that you can go up a hundred times, then you can't get that val, and they'll try and have 20 of those in their portfolio in the hope that one of them will go up a hundred times, and you know six out of 10 will go nowhere.

- Yep, so what's...

- It's a funny, it's funny for most people to sort of get their head around this stuff, it's funny for me to get my head around it and I'm sort of doing it regularly.

- So I mean what's Uber and we work down to you know, I guess this investment market, have they totally ruined it for everyone by basically, not making revenue, not sorry, not making profit, just exploded evaluations.

- Yeah, I think it's a good thing that they've exploded as in like imploded, it's great when these companies implode because it highlights the risk, I think one of the worst things about early stage investing is when people do it without an understanding of the risk, they're not very good at maths, they don't understand portfolio theory, they're not investing with the right people at the right time, for the right reasons, this is the, that's much worse than companies imploding. You know, one of the worst sort of things that can happen is the, say venture dumps a company on the public market and then they implode, you know that nobody really wants to see that, I don't think the venture industry would really wanna see that either, because it makes their life more difficult, but it is certainly a balance that always needs to be in check, and these implosions do that because you have a couple of really big ones, everybody talks about it, all the valuations across the venture space should in theory then drop a bit and there should be some more DD going on, but also we need to be aware that quantitative easing has been occurring now for quite some time and there's a huge amount of capital around globally that needs to be deployed, so that's just a fact of the modern markets, so it's tricky to allocate capital and we see that in the U.S much more so than in Australia, there's a huge amount of capital that needs to get allocated and yeah, so whether or not that's being properly allocated is not something that I'm able to properly articulate but it does create a bit of a question mark, you know I suppose for individual investors when they're trying to find a return and they know that there's this huge wall of capital out there and trying to get that balance right is definitely something that the industry is grappling with.

- Yeah, okay that's great. So Cake Equity is a software platform, it's SaaS platform. So Software as a service, that founders, investors, accountants can all log into to see how the businesses is, it's tracking on its valuation, it also does, you can obviously distribute shares, and it's used to distribute shares to employees as well right?

- Yeah, I think employee shares is a concept that was really popular in Australia, like in the '80s and then it got really hard. And in 2015, there was a really awesome scheme put in place to allow startups, particularly to give their employees shares without causing any tax dramas. And it's fantastic, we love it. Startups are not easy and they are built largely on the effort and creativity of their teams, and so yeah, most startups in Australia have 10, 15% of their equity held by their teams, which is awesome because then, if and when they're very successful the teams can really have a life-changing financial event, something to we are super pumped about at Cake.

- Cool, and so how long do they generally hold those shares for that's for whether they're employed or not, right?

- Yeah, it depends the company normally puts those rules into the scheme in the beginning, so you sort of have to design the scheme, with good leaver and bad leaver provisions, so normally if an employee gets, fired or, does something bad the company has to protect itself, and so they'll normally take those shares back at a pretty big discount or, potentially just nab them back, because that's not a good outcome, and then yeah, but normally if someone's a good leaver then yeah, they can hang onto their shares, and what the employee really wants is like a dividend day, or if they, like just say Canva now, Canva is worth 6 billion or 8 billion or something like that now, after quite a few rounds, and they're a global SaaS Gaggenau.

- Are they profitable?

- Probably I haven't seen their deck, they're a private company but I'll be surprised if they are profitable, and this goes into, I guess we can talk a little bit about the economics of a SaaS company if you like. 'Cause I think a lot of Cassius Kings of prominent thing, I think especially on the Gold Coast in Queensland and most people here would be much more familiar with cashflow businesses, and understanding the economics of how a loss making business could be worth so much is super baffling.

- Mate.

- I've spent my life...

- It drives me nuts.

- So I have a pretty clear understanding of why although I need to be careful not to drink the Kool-Aid of the bloody, the unicorn brigade sometimes but, they're probably not making money, they would be investing all their profit in growth would be my guess.

- Which that's the regular story, that's the usual story, yes, no, we're not making profit, we're investing in growth right, yep heard that one too.

- It doesn't always work for sure, and I think, it's a double edged sword with venture capital sometimes.

- What sort of timeframes are they sort of working on mostly, like people work on 10, 20 year time frame?

- I think it's about a five to seven year, sort of time horizon normally for a venture capital firm. So they'll look to get the maximum number of customers or market share in that timeframe, and then be looking for an exit, that's sort of pretty standard timeframe. And so, as a startup founder you've got the option of going for venture capital, or looking for some more patient growth capital, or bootstrapping or, you know, and then there's like little combinations of all those things but, a venture capital's normally, extreme ultra growth at all costs, invest all money at all times and raise more money and spend all that money constantly to get the most market share you can, and then the principle is that at some point in time when the growth is not there, you flipped the company back into an operating model and you should be always tracking your operating margins versus your investment, your growth investment, we do that at Cake, so we kinda know what we operate on, and then what we're investing into growth, and then if you can see your operating margin is, with SaaS companies could be as high as 60, I've even seen them run on 80% net margin. If you can see your operating models at 80% net margin and you can be growing customers at three, 400% per annum or some of them grow at like 10, 20 X per annum, customer growth within 60% operating margin, it's very alluring to go after that market share, knowing that once you flip into operating, you'll be throwing cash out like crazy, but it's very high risk, very high return which is the why there's so many failures, and why the model can have a bad name 'cause it's super hard to get right?

- Yeah, yeah.

- And there's so many variables, but yeah I'm still learning all this stuff, and at Cake we need to learn, and we need to make these decisions ourselves, we're sort of, we did some funding, we've done two rounds of funding and we're sort of gearing up for our 2021 growth and strategy and all that and just trying to assess, which funding path we go down, and how we grow, and all those sorts of things, and I can tell you from inside a growing company it is extremely hard to do all the stuff you've got to do so, hats off to the ones that get it done.

- [Chris Hogan] So let's just take a step back to getting funding, so you said that Cake can help you organise all of your numbers, and et cetera, and the paperwork in order to get funding, does Cake help you actually pitch for funding as well?

- Yes or no, yes or no, so our core business is definitely just making it all happen.

- [Chris Hogan] Sorry, making what all happen?

- Well yeah, okay so, let's use a used case, right? So I'm a founder, my name's Joe and I'm raising capital. Typical method to raise capital will be investor readiness, is the first phase, so how much am I gonna raise? We've talked a bit about val, I've got to get my pitch deck ready, most founders can sort of get all that done, then they'll got to go and have all their meetings, so you go and have all those meetings.

- [Chris Hogan] With?

- With investors, and off the back of that meeting, there's normally some follow-up questions and then they'll want their, they'll wanna know what the actual offer is, so the sign up documents. That's where Kate kicks in, and there's normally, somewhere between just say there's 10 investors in around you're looking at 100 different emails and four or five different data points for every investor. And, it's just an absolute nightmare, I've done it myself. One time I had to issue just three convertible notes and I sat up on like a Sunday night, and it took me two hours to put the information into the document, and then put the thing into DocuSign, and then put all the data in the thing and then check it, 'cause you can't get it wrong, like you send an investor document with their name wrong, or the amount wrong, or anything wrong, it's a big red flag.

- [Chris Hogan] What's a convertible note?

- So convertible note is like, it's a very common way to raise capital in the beginning especially when evaluation is unknown, and it's a loan essentially. It's a loan agreement that where the loan converts to equity at some point in the future, normally when you do your next round, it's a very common way to do it, in Australia is the pre-seed round, which is like the first round, sort of like the friends and family round, is a note.

- [Chris Hogan] Friends, family and fools. Good point, good point.

- Yeah, that's quite often done as a note, you don't have to...

- [Chris Hogan] So it's a loan?

- It's a loan.

- [Chris Hogan] And is that...

- It never gets paid back, so it's a bit of a trick calling it a loan.

- [Chris Hogan] It's a donation.

- It's a very, very high risk loan, basically it's the highest risk loan that exists, and what the common problem in my opinion, with angel investing is that the investors want their money back when they invest it. And they put all these clauses in to make sure they get their money back, but that's not the objective of the investment, objective of the investment is to see if they get to the next round, that's the only objective of angel investments.

- [Chris Hogan] Just get to the next round.

- I like you, I like that, I'm gonna fund you to get to the next round, now I want a big return for that, I want a 100% per annum return, which is fair, right? Because the risk is like out of control, but they what normally happens is they factor in the 100% return, plus they put a hook in to get their money back at the earliest possible point, which is like super bad for the founder, and the company, and it's seriously constraints their ability to operate. And then when they go to the next round, the investors are like, ugh, what's that? I'm not dealing with that.

- [Chris Hogan] The investors see that they've got to pay back the 100% on the $500,000 gift that was given from the angel investor.

- Exactly.

- And they go, wait a minute.

- Exactly, they're never gonna invest.

- [Chris Hogan] We're not here to pay that guy back or girl.

- Exactly, and even if you need to negotiate with them, the investors will see it and go, red flag not happening.

- [Chris Hogan] Right.

- Every time, and it's a really big problem in Queensland particularly when we have such a new angel community, and you know there, it's a big problem that Queensland startups in my opinion, the terms that they can get themselves into early on and, there's innovation in this space like to sort of balance out this point, so Matt Allen is starting like a revenue share, like venture capital firm, and there's a couple of others out called Lighter Capital is another one where you get the money up front and then you pay back at revenue share once your revenue kicks in, so the very, very early stage investors can get their capital back. But not necessarily, using a loan structure, and it just seems to be I guess it's a bit of an experiment to see if we can help the early stage investors get a return but not get constrained with shitty terms that the later stage investors don't wanna deal with. Because I guess again, to balance it out the risk in the beginning is out of control hot and angel investors don't wanna just peg their money in the gutter.

- [Chris Hogan] Yeah, no fair enough.

- You know, we need to balance it out somehow.

- [Chris Hogan] Fair enough, so there's the friends, family, fools, so that's called pre-seed?

- Pre-seedish, these days I think it's being wrapped up into that, so that's not my convertible notes.

- [Chris Hogan] Yup, and that's basically convertible note is a donation, a loan, a gift that I want 100% return on potentially so I want you to pay back what I gave you, plus that on top.

- The main thing is that, if I'm investing now, when you do your next round I wanna see that I've had a 100% uptick. I don't really want my money back, although some of them might if they're using one of these lighter capital style revenue-share things or, but you don't normally get your money back, it's just that if I'm investing now I wanna know that I had a 100% uptick and you normally get, say a 20 or 30% discount on the price of the next round and you can get some interest as well.

- [Chris Hogan] Okay, so the next round is the seed round?

- Seed round, yep that's normally the priced round, that's normally, the company is selling equity, creating new equity at a certain price share price, so you can't really get away with the seed round in Australia too often without setting an actual price. And it's important you know, because to set a price for your company normally requires quite a professional and sophisticated investor, that's called the lead investor, very hard to get in Australia. Normally it's easier to have 10 investors that say I'll invest if someone else invests. Which is super painful for most founders, I shouldn't laugh, I laugh in pain because I've been through this. And fortunately I had a really good guy helped me with my seed round Richard Moore at a Brizzy, one of the more prominent Brisbane angels, and he's now on my board, which is cool, it's great to have people like that around your company. He helped me with that lead investor thing and...

- [Chris Hogan] Most investors do like to be on the board, don't they?

- Normally for a proper seed round, say 500 K or more, they'll normally want a board seat, not always of course, you can sometimes even get a venture deal done without a board seat, but the board seats there just to protect the investor money, you need to be careful as a founder what terms you accept, but I would normally recommend people read the AirTree open-source term sheet. Essentially, the terms in that term sheet I believe should be, plus or minus 20% implemented as the standard seed series a terms for Australia. One of the big problems we have in Australia is everybody wants a different deal in every situation. And at the end of the day, it makes no difference, it makes no difference, we just need lots of companies funded, we need them to fail fast, and so the good ones survive, and we have a thriving innovation community. Well, unfortunately we see now is deals take a really really, really long time, with everybody negotiating over every little term, and then everybody wants to be involved. We see this at Cake all the time, like we've got this perfectly good agreement, that's like the industry standard, and then all the directors and founders wanna go, and all their advisors wanna go, and then the team wanna have a say, and then like four months later they haven't even got a document in place.

- [Chris Hogan] Yup.

- How costly is that? Anyway, I'm rumbling on a bit.

- [Chris Hogan] Yeah, that's right, I'm trying to keep to time, so seed round, up to 10 investors.

- About that.

- [Chris Hogan] We've got a valuation held in Cake, it's all in the documentation in Cake?

- Yep.

- [Chris Hogan] And really easy to access, so I've spoken to what, 10 times that, to actually 10 times that?

- Exactly, so you got to have...

- [Chris Hogan] So potentially a thousand people I've spoken to just to get those 10?

- Roughly 100.

- [Chris Hogan] Sorry, 100.

- Roughly I reckon if you've got about 100 in your email list you might have 30 meetings, or something 30, 40 meetings and you get your 10 investors or something like that. So that means you have to send a couple of hundred emails in the first instance and then 50 or 60 follow up emails.

- [Chris Hogan] So Cake helps me send all of those emails?

- Yes, as soon as you've had your meeting, you put the name and email address in, of the investor and you ping them in an email and they can log in and see the documents, they can invest directly through the platform, they can sign the actual subscription form right there and then with the amount that they intend to invest. So the ability to close your round is massively enhanced. Plus just the time saving for the founders out of control. So it's a big, big upgrade on the manual systems.

- [Chris Hogan] Excellent, so I used, so I invested in an Outland Denim.

- Yup.

- [Chris Hogan] And went through the Birchal crowdfunding.

- With Birchal I think.

- [Chris Hogan] Yeah, yeah, and that was really easy, or there was communication, obviously all around, hey this is high risk, don't do this if you're not prepared to lose money kind of scenario, I think and all, everybody says the same thing on that platform, I think they educate people really well around.

- Yeah, they're the industry leader in Australia Birchal, we're really closely aligned with those guys.

- [Chris Hogan] Yeah, and that's right, because then I'd just got flipped over to Cake to finalise my investment, sign all the documents, and now I can log into Cake and I can actually see what my investment is doing.

- Totally so, you know, I probably shouldn't say exactly how many shareholders Birchal has now, but off the back of a big crowdfund like that it's a huge number of shareholders so on the Outland Denim side, they love Cake because they can just upload this huge investor list and then start communicating with everybody really well from day one, you know companies need happy investors and then you get an email and you can log in and see what you own, you can see the key documents, they can keep you updated with all their announcements on that platform.

- [Chris Hogan] So, so... So on the company side they're happy, they got a huge efficiency upgrade and happy investors, and on the investor side, they're really happy 'cause they can easily see what they own, and this is like a, this will perpetuate more investment, right? 'Cause you had it invested, and then not really received anything, and then you couldn't go and see, and then Outland Denim couldn't communicate with you, and then, like imagine the next update from them is, hey, fantastic the value of your shareholdings gone up like 50% or whatever, that's kind of what you want with these high growth things, then you're much more likely to invest again in my opinion, I don't know, what do you think?

- [Chris Hogan] Absolutely.

- Yeah.

- [Chris Hogan] Absolutely, so I think Outland Denim said, openly James Bartle was on our podcast and he said openly that he's got thousands of investors now.

- It's a lot, he's the top, he's got the most.

- [Chris Hogan] He's got the most.

- He's got, he broke the record at the time, and it's been broken, I think once or twice since but we've got all those companies on Cake, it's sick, we just love all those innovative because the ones that go through these crowdfunds they're the coolest companies, you know they're the people that the crowd care about, so...

- [Chris Hogan] That's right, so it's actually our proof as well, it's social proof, it's market fit, product market fit as well, which is, it's fantastic to know that people are prepared to back you in that way.

- It is awesome yeah, big part of the future.

- [Chris Hogan] Yeah.

- For finance in Australia I reckon where you can back the things you care about and have a stake and then get involved.

- [Chris Hogan] Yeah.

- Modern business, they talk a lot about community and brand, and people wanna know what they're buying, and where they're buying from, and so I think crowdfunding is lending on that sort of trend and employee share schemes again lending on that trend, build a community around your business, make sure your team, and even your customers, and your suppliers, anybody who's loyal to your brand, they can now, have a piece of ownership in your company through either employee share schemes or crowdfunding and I think it's just a great trend, and I think it'll continue to grow.

- [Chris Hogan] Yeah fantastic, so what is Cake's purpose then?

- So our purpose is to take equity, which sounds pretty boring and turn it from like a a rock, into like a currency. So it's so hard to raise capital for private companies and it stops people doing it.

- [Chris Hogan] It's just making equity raising easy right?

- Yeah, just make it easy, we just need more great companies to be funded, so they can grow and build these amazing businesses of the future that we need, otherwise, we're just gonna have, all these oligopoly businesses just doing whatever the hell they want without any competition.

- [Chris Hogan] Yeah.

- So we think it's really amazing to help these companies get funded.

- [Chris Hogan] Yeah I mean for example, there's businesses out there, that we may never need to purchase from. But essentially they're doing such good in the world that why wouldn't we wanna back them? And we can see the potential for their growth and understand their purpose and the problem they're solving maybe slightly earlier than the next person, hence what, yeah absolutely, I wanna invest in them. So I guess what I'm understanding is that for business owners to increase their capital raising potential, grow a little bit faster, because organic growth is super hard, doing it on off the back of revenue is super hard.

- Especially when in the beginning, when you don't know what you're doing.

- [Chris Hogan] Or mate, just anytime, anytime.

- Anytime, in a startup, you normally don't know who your customer is, or what you're selling them, or how to sell it to them, or any of that stuff.

- [Chris Hogan] But there's the peaks and troughs of business, when you're at seven people, you could be going absolutely awesome, then there's a trough until you get to 12, and Daniel Priestley author of "Key Person of Influence" says, "Do not hire the 13th person unless you're prepared to go through a desert to get to the 40th person when you are actually basically bridge the gap to the next phase of revenue and profitability.

- I love that, we just did that, we had to change everything in the last six months in the company to go from what we were to what we wanted to be, I would, it's hectic.

- [Chris Hogan] So a cap raise in that moment could actually be really handy.

- You wanna do it before.

- [Chris Hogan] Yes, I mean obviously.

- We raise capital and then yeah, you go through, and you got to hit the milestones on the other side, otherwise then you have like down rounds, it's not so good.

- [Chris Hogan] No, right.

- Down round is when, the round after is at a lower valuation to the round price.

- [Chris Hogan] No, thanks.

- Not fun, can't be done, but yeah avoid.

- [Chris Hogan] Yeah okay, Jason, thank you so much for your time, I think we are gonna wrap it up, but what would you say, I guess the best course of action is for people that listen to this and still went W-T-F, and went, okay I need to understand more about this, you said you do a bit of education, how do you do that, and where do you do that?

- Yeah, so we've got a blog, cakeequity.com hit the blog, there's a tonne of great resources there, we try and simplify everything, so most of them are just four or five minute reads, there's a couple of a bigger eBooks, so you can sink your teeth into those. They're very practical as well, there's some checklists. And then look if you do wanna raise capital, just get on Cake, it's so, so affordable, we've tried to make price not an issue at all, it's just a simple monthly fee and it's actually free for the first five investors, so if you're just starting out, get on there, you can literally raise capital and do an ESOP for free, which is pretty hectic.

- [Chris Hogan] ESOP, what's an ESOP?

- Employee Share Option Plan, so you can start giving shares to your team, for free right, which is pretty wild, would recommend you probably get some legal advice with that, but you don't have to.

- [Chris Hogan] Do you have links to those people?

- Yeah, so we sort of coordinate everything for you, so sign up for free, have your onboarding session, we've sort of packaged everything up, so it's like fixed fee and a smaller cost as possible, so we just want people to be able to use these amazing tools get funded, and then once they're growing, then they can potentially continue to professionalise things and pay for things a bit more.

- [Chris Hogan] And so if I registered with the platform, I'm on there, I'm using it I'm going, this is really cool, I know some stuff I didn't know before, where do they say I need help, and who they reaching out to? Are they reaching out to you or your partners?

- Yeah, directly come to us, so there's a chat feature in the software, there's a chat feature on the website. It comes straight, sometimes it'll come straight to me, if you ring Cake right now, I'm pretty sure I'll answer the phone.

- [Chris Hogan] Not right now.

- Don't do that.

- [Chris Hogan] We're on a podcast

- Not too many

- No, no I'm kidding, but no, just give us a call, hit us on the chat, we'll point you in the right direction. We've got yeah, we can definitely solve most things around capital raising, and employee shares in Australia.

- [Chris Hogan] Great.

- And normally in a matter of five or 10 minutes we can demystify like heaps of stuff and, it's incredible how we can unblock you if you just ask a couple of questions.

- [Chris Hogan] Fantastic, thanks so much Jason, I think that's great peace of mind for you guys out there, founders, CEOs who are looking to raise capital or do those ESOPs Employee Share Option Plans?

- Nice.

- [Chris Hogan] Woo!

- Quick learner.

- [Chris Hogan] And look, get on the platform, it's free up to five people, five investors, which could be your employees, and why not?

- Why not?

- [Chris Hogan] You could learn something, I wanna get on there myself I might learn something. Thanks guys, you've been watching the PROACTIVE Podcast. I'm Chris Hogan from MeMedia, this is Jason Atkins from cakeequity.com check them out, thanks for watching.

- Thanks Chris.