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Startup Funding: Leveling the Playing Field

Republic CEO Kendrick Nguyen on opportunity, diversity, and choice for companies and investors

The average investor should be forgiven for reading financial news with a twinge of envy. Only venture capitalists and insiders, after all, reap the rewards generated by the unicorn startups highlighted in the “Financial Times” or showcased on CNBC, while the retirement-saver at home has to remain content with a traditional portfolio filled with slow-growth stocks and bonds. The startup world – complete with the initial public offering windfalls sensationalized by media outlets and lay investors alike – traditionally has remained the province of big money and the well-connected, until now.

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“The democratization of startup funding will lead to more businesses generating more wealth, and will include more people in that wealth-generation event,” said Kendrick Nguyen, co-founder and chief executive officer of Republic, a new platform that allows anyone to invest in a range of startup companies.

Republic hopes to “democratize” the funding landscape for startup founders and funders by allowing anyone to invest. The firm is registered with the Securities and Exchange Commission and FINRA-licensed. The platform allows anyone to choose from a prescreened set of startup companies vetted by Republic and invest; investors can even use credit cards and ramp up their commitment slowly, with $20 or $50 investments to start.

Currently, Republic lists on its site opportunities to fund Alaskan firm Indemnis, which is developing safety devices for aerial drones, Hemster, a San Francisco company that matches shoppers to tailors for speedy alterations, and Ring4, which offers a second phone line without the need for a dedicated business phone. The startups post founder bios, their business case, and funding needs in hopes of attracting investor attention, and investing remains open until a firm hits their goal. Startup investing, of course, remains riskier than a portfolio filled with bonds, but bonds never turn into billion-dollar household names, either.

“The risk of total loss with respect to any specific investment is high, but the return potential can be much higher than other asset classes,” said Nguyen. told “Advisors Magazine”. “Many investors choose to spread their investment across several startups, which increases the chance that one will be the next Uber or Spotify.”

New Companies “For a Different Kind of Consumer”

Think startups and Stanford likely comes to mind, along with Silicon Valley, founders under 40, and mobile applications aimed at first world problems. Republic, however, tends to showcase a different breed of founder – self-taught upstarts, immigrants, and entrepreneurs raised in the American heartland.

ng600x500“There are those who that say Silicon Valley has never been less visionary than it is today. They say no one is taking big bets, and that people are instead fighting for the profit margins of other industries. That may be true in the Valley, but every day I speak with founders from across the country who are building new kinds of companies for a different kind of consumer,” Nguyen said. “They understand a part of the country the Valley does not, and a kind of person who is generally excluded. There are founders in Texas, Virginia, Alaska and Pennsylvania who are out to change the world, and they didn’t all graduate from Stanford.”

In the past, small-town entrepreneurs lacked access to even modest venture capital. Immigrant founders, business owners without platinum credentials, and other Silicon Valley outsiders faced a similar uphill battle in securing funds, especially if their idea targeted an underserved market.

“Silicon Valley is still concentrated in its thinking, and geography,” Nguyen said. “Most founders are building startups for one kind of consumer, consumers who generally look just like them. It’s unsustainable and bad for business ... I’ve got to think that there is more good to be done addressing unsolved problems, and money made doing so, rather than just making a better food delivery app.”

Diverse entrepreneurs inject much-needed creativity into the startup landscape and can provide services to overlooked communities. Several startups listed with Republic provide socially conscious services in niches ranging from banking to diabetes treatments to mental health and elder care, some of which receive precious little attention from traditional venture capitalists.

ng600x400Take elder care, for example, which is projected to become a $512 billion market by 2020. Few startups currently serve that market, a fact highlighted recently by “The Longevity Economy,” a new book written by MIT economist Joseph F. Coughlin. Although in the book Coughlin profiles a small cadre of startup founders targeting the elderly – a friend-finding app and delivery service are covered extensively – their number relative to other, more mainstream, startups remains small. Republic opens up funding to more nontraditional ventures such as these, Nguyen said.

“Going beyond the narrow lens of youth-driven Silicon Valley and enabling a wider range of entrepreneurs and ideas is Republic’s core mission,” he said. “When entrepreneurs from different socioeconomic and geographic backgrounds have access to capital, the innovations they pursue necessarily target and benefit a more diverse range of consumers … At the end of the day, a good product or service is one that solves a real need, and if the market for that need is large, then it’s the recipe for a successful business. That’s why I believe that the big ideas and household brands of tomorrow are being incubated today in underserved communities around the country, not in Silicon Valley or Silicon Alley.”

Venturing a Guess

Everyday investors might find being an amateur venture capitalist somewhat daunting at first. Republic’s clear presentation and pre-vetting of startups makes life easier for investors, but there remains an enormous amount of information to process.

“The best way to warm up to startup investing is identifying a company or two that speak to you, then reading up on their vision and traction and available information,” Nguyen said. “If you still like what you see after all that, then you can make a small investment that you can afford to lose.”

Republic LogoSEC rules barred non-accredited investors – most people – from investing in startups prior to May 2016. The commission eased its rules that year, but the complicated legal issues surrounding these investments created a need for an investor-friendly, simple-to-use platform aimed at increasing access to startup investing. Republic’s founders were not new to the startup landscape, either. Nguyen served as general counsel for AngelList, another service provider catering to startup founders and investors; other senior staff spent time with platforms such as Product Hunt and CoinList, which also are part of the “Republic family.”

Republic has begun discussing the platform’s utility with wealth management firms nationwide, which could make lay investors more likely to dive in. For now, however, investors will need to carefully sort out their startup choices through rigorous research and risk management.

“We’ve been in discussions with half a dozen wealth management firms, including names like Fidelity, but we have yet to finalize a partnership,” Nguyen said. “Republic investing is rather unique. It’s quick and simple, and you can begin with as little as $20 or $50. You can even invest on a credit card.”

Leaving the Valley

Silicon Valley still dominates the American startup landscape, but other cities have emerged in recent years as entrepreneurial hubs. Republic’s listings show a number of startups in unexpected places such as Alaska and Greenville, South Carolina, although these are outnumbered by the numerous San Francisco companies; still, it shows that the Bay Area does not hold a monopoly on up-and-coming firms.

“I love the energy of the tech communities in Chicago, Austin, New York and Los Angeles,” Nguyen said. “Charleston [South Carolina] may be the most surprising yet; it’s startling to witness such vibrant entrepreneurial activities in a city so steeped in history and tradition that one may need a city permit to replace a window.”

Republic offers far-flung startups an opportunity to compete for funding against their Bay Area peers, something that traditionally has been a problem for upstart firms in small-town America.

“For a long time, we thought ubiquitous internet connectivity would suddenly level the playing field between Kansas City and San Francisco,” Nguyen said. “In some respects that’s true – you see more and more mid-to-large sized companies opening satellite tech offices in places like Minneapolis. But funding hasn’t followed fiber, yet.”

Leveling the funding playing field between startup firms, regardless of geography, benefits founders and funders alike. Investors get access to what might be the next unicorn, and founders can find the money they need to put out useful, game-changing – at times life-saving – products.

Republic is working towards a future where anyone can fund entrepreneurship, anywhere in the world,” Nguyen said. “And each of us, regardless of our net worth, should invest in startups whose visions align with ours. That’s the only thing we can do to ensure that our children will inherit a world we think they deserve.”

 

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