Howard Marks is the CEO of Startengine, an innovative startup crowdfunding platform focused on helping entrepreneurs achieve their dreams by providing democratized access to capital. In this interview, Howard will be discussing the Startengine unique features and the opportunities for investors.
1) Please tell us your name and about yourself?
I’m Howard Marks, the co-founder & CEO of StartEngine, which is a leading equity crowdfunding platform. My background is in software development and the video game industry. I co-founded Activision Blizzard in 1991 and turned the ailing company into a $50B market cap video game industry leader. During my time at Activision from 1991 to 1997, I served as Chairman of Activision Studios, and I helped Activision become an industry leader and sell millions of games.
After my experience at Activision, I founded Acclaim Games, a publisher of online games now part of The Walt Disney Company. I have received the 2015 “Treasure of Los Angeles” award for my work to transform Los Angeles into a leading technology city, and I was named one of the 500 most influential people in Los Angeles by the Los Angeles Business Journal. I am also bilingual and a triple national of the U.S., the UK, and France.
2) What is StartEngine?
After my experience in the video game industry, I wanted to invest and help other entrepreneurs succeed. I set a personal goal to invest in 60 companies. I founded StartEngine in 2012 as an accelerator to do just that, but what I quickly found was that the companies that came through the accelerator had a really hard time raising capital for their business, particularly when the founders were not white men that graduated from Stanford with connections to venture capitalists.
During my time running this accelerator, I came across something incredible: a piece of legislature called the JOBS Act, or the Jumpstart Our Business Act, which would let the general public invest in early-stage startups. Previously, this was reserved for wealthy accredited investors, a very small percentage of the population.
I saw the JOBS Act’s potential to disrupt finance because suddenly, there was a real solution to this problem of access to capital. If a company could not get funding from institutional investors, they could get capital from anyone in the crowd: users, friends, people that came across the offering online. On the flip side, the public could participate in these early-stage funding rounds, which of course is risky as any investor can tell you, but it gives the crowd the chance to earn lucrative returns that are not possible once a company does an IPO, which historically is the moment the public could invest.
The potential was undeniable, so in 2014, I, along with my co-founder Ron Miller, pivoted StartEngine into an equity crowdfunding platform that uses the JOBS Act in order to help companies raise capital by selling securities (common stock, debt, convertible note, etc) to investors online.
3) What are the major features and services provided by StartEngine?
StartEngine is a FINRA-regulated funding portal, which means that our platform can host Title III Regulation Crowdfunding offerings. We also host offerings that utilize Regulation A+ and Regulation D 506(c). We enable the equity crowdfunding process, meaning that we help companies prepare and file their offering with the SEC and facilitate investor payments via credit card, ACH, wire, and Bitcoin.
We offer rolling closes on our platform, meaning that companies can withdraw raised funds while the offering is still ongoing, and we offer a premium package in which investors can get in-house creative accounting, legal, and marketing services.
4) What is ICO 2.0, tell us what has changed and how this will improve the future of ICOs?
ICO 2.0 is a term we coined last fall that refers to a regulated ICO. In 2017, ICOs raised $5.6B, but the majority of those ICOs were unregulated. This was a problem because it turns out that most ICOs were the sale of securities. The SEC came forward this winter issuing dozens of subpoenas and reiterating publicly that ICOs were the sale of securities and needed to be issued as such. It couldn’t be clearer. This confirmed our stance, as we began hosting ICOs on StartEngine in the fall of 2017 but only those that followed US securities laws, ones that use Regulation Crowdfunding, Regulation A+, or Regulation D 506(c) like the rest of the offerings on our platform.
I believe that the evolution of ICOs into a regulated funding model will benefit the industry as investors will be protected from fraudulent offerings. With a regulated marketplace, the companies launching an ICO have to do more legwork up front, but investor participation will increase in the long-term as regulation creates a safer, more consistent marketplace and a better user experience.
5) Could you give us a walkthrough of how the StartEngine platform works?
The first step is determining how much capital a company wants to raise and what structure they want to use (whether they sell shares, debt, convertible note, etc). This is up to the company; they set their own valuation and the terms. Our team helps companies prepare their raise, the paperwork, in some cases an audit is required. Depending on the exemption used (Regulation Crowdfunding, A+, or D 506(c)), we take a percentage of the total capital raised by a company or charge a flat fee. Investors can browse offerings on our platform like backers do on Kickstarter and invest directly on our platform.
6) Would you like to share with us some of the startups you have helped succeed?
To date, more than 160 companies have successfully raised capital on our platform, so there are a lot of them. Elio Motors, our first ever offering, was a big success and raised $17M from 6,600 investors. Other successes include Golfboard, GeoOrbital, xCraft, Rayton Solar and tZERO.
7) Do you have any available opportunities for investors in the StartEngine business?
Yes, there are currently over 100 offerings on www.startengine.com that are accepting investments. We are also testing the waters for our own ICO – a $10M raise at $10 a share. Our ICO is currently being qualified by the SEC, but investors can reserve their shares at this time.
8) What is next on your roadmap and where do you see the StartEngine business within the next 3 years?
The next milestone for StartEngine is launching StartEngine Secondary, which is our secondary trading platform where investors can buy and sell securities. We have applied to become a broker-dealer and ATS (Alternative Trading System) with the SEC to run this secondary trading marketplace ourselves as opposed to outsourcing the ATS to a third party. We are also building a patent-pending blockchain technology called LDGR that will tokenize securities on our platform and track their trading and bring greater transparency to our secondary marketplace.
What’s compelling about Secondary for our business is that investor trading will bring liquidity to privately-held securities and give investors a much earlier exit. Traditionally, investors in startups have to wait 7-9 years to see a return on an investment. Now, investors will be able to trade those securities instantly or after a one-year trading lock. I believe that this will increase investor interest in our platform, drive more investments, and help companies raise more money.
In three years, I see StartEngine continuing to scale. We will be in the business of launching thousands of companies per year rather than hundreds, and thousands of investors will be actively trading their tokenized investments on Secondary. We will be a full stack platform where companies can issue securities and investors can trade them all on one platform.
9) Tell us about your dedicated team and customer support?
We have tripled in size over the past year and are now just over thirty people. Even with that growth, our hiring process is rigorous. Everyone on our team is dedicated to our mission of helping entrepreneurs achieve their dreams. Since we are disrupting finance, very few of our team members have backgrounds in institutional finance, but we are all experts in the JOBS Act and securities laws. We have creative, marketing, legal, and accounting services all dedicated to helping our clients launch and raise capital.
10) How Safe is StartEngine, would you like to talk about your legal and security measures?
StartEngine is safe in the sense that all offerings on our platform go through bad actor checks and each offer must go through our due diligence process and get approval from our compliance team. However, keep in mind that this is early-stage investing. This is risky for investors and the standard advice to diversify your portfolio and don’t invest more than you can lose apply to StartEngine’s platform.
11) Do you have more information for our readers?
If you are interested in raising capital or investing on StartEngine, check out www.startengine.com. You can also email me with any questions at email@example.com. Lastly, I write a lot on Medium about regulation. You can read my work here: https://medium.com/@howardmarks.