May 3, 2021

Fundraising Without Pitching—Why Not? A New Way to Raise Money: CAFE. With Thibauld Favre

Fundraising Without Pitching—Why Not? A New Way to Raise Money: CAFE. With Thibauld Favre

Thibauld Favre, co-founder and CEO of Fairmint talks about a new way to raise money from your customers on an ongoing basis. CAFE stands for Continuous Agreement for Future Equity—continuous being the key word—and this new form of fundraising is on the rise.


Fairmint's website: https://fairmint.co/

For those who aren’t very familiar with standard SAFEs, here's an episode with Phil Nadel where we discuss them: https://www.fundraisingradio.com/Phil-Nadel/

CAFE of Opengrants: https://invest.opengrants.io/signin

Thibauld's LinkedIn: https://www.linkedin.com/in/thibauld/ 

Transcript

And today's a guest speaker have Co, founder and CEO at Fairmount and this app is a, will talk about something new and to be more specific and new kind of fundraising. So there is a safe and there is.

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Cafe, which is what feminine is doing. Confess, stands for continuous agreement for future equity while say, stands for simple agreement for future equity. Am I right?

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Yep, I remember. I remember great. I'm doing good. All right so, in this episode, we'll talk about what cafe is what does this continuous part mean? Where is it? Downsize of it where the good size of it and how do you founders use it?

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And also, how is it different from the crowdfunding more specifically equity for our fine so let's kick it off by giving us some background on yourself and on Fairmont.

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Sure um, thanks for, uh, thanks for having your 1st, like a very glad to be here. Um, so, yeah, from it. So, basically from the vision realise of like 2 founders, right? There's myself and there's like, choice. Did I knew who is my Co founder?

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And so we're both like, sale entrepreneurs. Uh, we had like, very different, but very complimentary journey. Uh, we both had like several companies.

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We sold them, like, we know, like the ups and downs of raising funds, like a financing of growth and with pyramid.

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Basically, the idea was, like, okay, we think we found a way to make it much easier to use equity and to use equity. Not only to raise funds, but also to incentivize your key customers, your key stakeholders and so.

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And so basically, we started families like 2 years ago. And the idea behind families is very simple is like, we want to give founders.

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More control over that company we want to give investors more liquidity and want to give stakeholders, more access to the company's cap table. And for that, like, we created a new financial instrument, which is like the cafe.

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So, the continuous agreement for future equity and the cafe, you should see it basically, as a layer 2 of equity. So that's what makes your equity programmable and using. That's the great thing about the cafe that you can create a continues offering.

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So, that means.

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That instead of doing fundraising, as you do today and today, how do you do? Like, you just stop working and start making, like, pitch decks and you start like practicing and you start like contacting 100 people.

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And then, like, a new stuff is the ones you don't want, and you've finished with the ones that you'd like to have and it's a whole process that can take, like, 3 to 6 months is exhausting. And what do you do that? You don't work right?

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So this is fundraising today with faramir and with a continuous offering. What you do is you actually set up a continuous offering. So that means that you put an invest invest now button.

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On your website, and then you get back to work you get back to work and you try to create as much value as you can for your customers and every person who comes on your website or every vessel that comes along and ask about your company. And whether they can invest.

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Well, the the answer is, yes, you can invest at any single time. People can come on your website, click that invest now button and have the ability to invest in your company. And if I take the example of from it, because we have our own countries offering.

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How translates is that every morning you wake up and the 1st thing you do, is you look at who invested last night where you were sleeping. And so that's kind of the after feeling.

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And we are something like, we really want to reinvent how companies fundraise in a way that is much healthier for founders and also much better for for investors like a much easier, much streamlined.

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All right, so 1st question is actually about not the difference between cafe and safe, which will get to a bit later. But 1st question is actually about the different between.

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Cafe and equity crowdfunding so it seems like the premise is very similar, you know, you don't have to actually actively investors going on those features.

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You just create the campaign as just out there for X amount of time, in case of equity profile of courses for a limited amount of time, in case of ads for unlimited amount of time. But can you name some of the major differences between cafe and equity?

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Crowdfunding such as platforms, like.

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Public that actually brings you the investor. So whenever you get a republic, you get automatically a lot of attention from investors who are just, you know, purchased beyond Republic.

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So so, yes, so there's does actually many differences. So, the 1st difference is that.

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Fairmont, like, enables you to do your offering on your own website right? It's not like nothing happens on Fairmont. It happens like, you put your investment button and your investment is on your own website.

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So so what it means is that there's not yeah,

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there's not an intermediary between you and your investors and so that is key because 1 of the problem of crowdfunding portals is that we often say that there's an adverse selection,

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meaning like,

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usually companies who go on fundraising on the crowdfunding platform like,

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every serious investor will tell you well,

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they went there just because they were not able to secure funds from professional investors and there's like this stain of going to platform because it is that okay,

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you are not able to secure funds.

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We serious investors and so that's that's the product. And the 2nd thing is that.

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If you do a crowdfunding campaign, basically, it usually runs like, a a limited amount of time. So it's like, you have a month, 3 months to raise your funds. And so that means that still like same game.

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You have to stop working, you have to create like, some stupid marketing formal.

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Around your fundraising,

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because you really want to raise these funds and and what happens is that later people know that but,

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like,

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between 30 to 40% of the money you are raising in this crowdfunding campaign actually goes to Google ads and Facebook ads to drive people to raise money.

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So so, so it is, it is not a very.

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Um, I don't want to offend anyone here, but there's a better way. Right? And the main difference with continuous offering is that and we tell our customers all the time. We said.

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This is not a crowdfunding campaign, like, if you have a business momentum, like, people will come and 1st, it's going to be your close stakeholder, your customers, your users who are gonna come in and kind of invest and why are they going to invest?

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Because they use your product, they know what you're doing. So so they don't need to be convinced they don't need to be pitched they know the value of what you're building. And then, like, these people investing.

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Sends a signal to other people, right? And so, and other people say, hey, you know what, like, uh, you had already, like, uh, let's say 50 people who were convinced that this company makes sense and that what they do is actually useful.

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So, maybe I should tag along and so, and and the fact of having this continuous offering is really.

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A key difference and on top, and we'll get there, like, uh, when we talk about the, maybe the cafe is that with the continues offering your valuation goes up automatically with the number of investors that invest. So.

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To to, to make the parlor with a crowdfunding campaign when you do a crowdfunding campaign, you're going to say, okay, I'm going to.

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I want to raise 1Million dollar at a 10Million valuation. Right? And so and then you, you start with the drum and you try to to raise this 1Million dollar. Right? And then once you've raised it well, that's it. That's it.

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You made your fundraising and the people wanted to invest after that they cannot you need to wait until you do another company of fundraising. Maybe and every time you a campaign of fundraising, you dilute yourself continue.

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Suffering is different, because you're suffering like you are going to set.

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A fixed allocation of equity I'm going to say, okay, I'm going to do a continuous offering.

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And I'm going to allocate 10% example, it could be anything.

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Of my company's equity to this continuous offering and what's going to happen is that this is fixed so it's not it's not going to change unless you want to change it but and people who are gonna invest and take a stake in those 10% and the trick is the earlier

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people invest the cheaper price they get and so that means that if I am British on your company,

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and I'm a early believer,

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I'm going to invest.

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I'm going to invest 1st and as a as a compensation for investing. 1st I'm going to secure the best price and if I'm more like, a risk averse type of person.

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I'm like, Ah, I like this company, but I want to wait a little bit more like, if they deliver the product that they said, if they start having customers and then I'm gonna wait and maybe in 3 months then I'm confident.

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And then I'll start putting like, a 1st investment, and maybe after 6 months that the company is getting it and then I can come back and put more money. And so this is.

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This is really important. The fact that.

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With a continuous offering, your valuation grows with the interest that you raise among investors.

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Right. I have to take a moment to say that's not 100%. Agree. I would say, like a.

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I definitely disagree with you or statement on equity profiling is definitely not the place where you go. If you fail to raise from investors.

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I've seen a lot of founders actually go specifically for equity crowdfunding, because it offers a ton a ton, a ton of value there.

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So, people, if you're going through that road, if you're looking at, it definitely continued, it might be a perfect option for you. So, do not be discouraged by the statement from people here it's.

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Some people can share, I can amend, I can amend what I said, if you will not be there. I've seen investors who see the exact same thing.

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I've seen, like, 3, maybe 4, but again, the others are like yeah, I love equity profile is good. I personally participate in those. I.

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You know, make small investments, even though my normal check is 2Million. Sometimes I throw in 500 bucks into the company that I see on republic just for fun. I like it like the video that they make. So.

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You know, if you're doing that, keep doing that, but now, let's go back to cafe and talk a little more about the topic does personally interest me the most probably in that. Or at least the question I did not understand quite yet.

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So, the question is about this increasing price and can you tell us a little more about how that works so you allocate a certain percentage of your company to those who want to participate in this continuous rounds? How is the price growing.

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So it says, I take simple numbers. Let's say you want to allocate 10% of your equity, and you want to start like your offering at a 10Million valuation. Okay so that's the initial minimum evaluation.

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So then if you take 10% of 10Million, it's 1Million. So that means that at the beginning, like, you are going to have to raise 1,000,000.

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Dollar before the price starts increasing and so if you decide take an example, because you can choose the starting price of your offerings. So let's say you start with, like, a so the, the instruments called the cafe. So a 10 dollar cafe.

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So that means that you, 1st need to sell a 100,000 cafes, a 10 dollar piece to raise 1Million. So the 1st, 1000 cafes are going to be sold at the same fixed price of 10 dollar.

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And then only then, like an investor that will come after you've raised 1Million, then they're gonna every investor that comes in is gonna push the price up because they're going to buy the cafe at always a slightly higher price.

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And so, maybe the investor that comes after, like, a, is going to buy at an average price of 11 dollar, and the 1 who comes after this 1, is going to buy at a price of 15 dollar. And so, and this is how it works. Is it basically says.

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The price of the cafe is proportional to the amount of investment you've received.

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Okay understood so, basically. And how exactly does it work in terms of so you've allocate 10% of your company and once it goes over 10%, is it going through a secondary market? It's your very 1st, investors selling part of their share or do you just extend the raise?

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Basically so you give out more than 10% of your company there.

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No, so it remains 10% you need to understand and it's not shares. Like the investor is not by your share is buying rights for future equity. This is the cafe, right?

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And so, that means that when, like, when you sold your 1st, 100,000 cafes, and then, like, people keep investing and new cafes are automatically being issued at the price being dynamic.

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And so those cafes, obviously, they dilute the 1st investors who came in right? Okay. It's not, it's not important because, like, the 1st, investor secured a better price, and this is, and this is the other key parts. The key difference between a safe and a cafe.

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Is that a safe is going to convert into a share at the next financing event? So so you have some cafes.

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And then you have an investor that comes along and say, okay, I want to do a price round and so you make a price run and at this moment, you're safe converts into shares. That's not how it works with the cafe. It's the cafe, the cafe only converts into a share when does a liquidity event.

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So it's when you sell your company or where you go, when you go and so doing all that time.

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Basically, the, the cafe remains the cafe. Okay. So, and it's a, it's future equity.

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And so this is why it's important, because when you say, there's 10% of your equity is allocated to the cafe offering this 10% is actually calculated at the end when does the liquidity events.

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So, when does an increased event, when you sell your company, this is the moment where, like, look and say, okay, what is 10% of this company? Oh, 10% means this number of shares and then she hasn't been distributed to every cafe investors, pro rata their holdings.

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And so that's an important property. Because that means that as a cafe investors, you're protected against dilution.

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If you if the company was to raise funds on the cap table,

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if the company wants to do a series,

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a B or C,

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because you collectively or caffeine vessels are always entitled to a fixed fraction of your company,

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no matter if you raise more funds on the cap table in the future,

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but before that you mentioned that if the,

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if you raise your intended,

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if you sell out,

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basically the Internet,

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10% of your company in the future shearing force and then investors just keep investing this continuous offering.

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The initial investors are going to be diluted, so eventually, right.

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Yeah, they, they just get a different way better. The only thing that could dilute a caffeine better is another cafe investor investing use census continues offering.

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So, can a founder basically open up this coffee in the very beginning of the company, and just keep it until the eggs? And so basically throughout this entire journey, you know, maybe 10 years it's going to be still opened.

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Yep, exactly. And today that's possible because.

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Yeah, that that's what you should do.

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So so today,

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the goal for us is to,

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like,

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you you incorporate your company,

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you allocate a fraction of your equity so that immediately you can have your 1st customer your,

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your mom,

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your dad,

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your your friends who can invest and because usually you don't take that money because you're like,

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oh,

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I'm not gonna pay lawyers to create,

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like,

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a 2 to get a,

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I don't know,

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like,

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80,000 dollars investment.

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It's not worth the cost. And here it is story was because you open up, like you create your colleagues offering, and all of a sudden anyone who wants to invest is able to invest. And then the goal for the division of friends is that when you're.

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Growing like, when you are strong enough, and you have, like, a 2000 shoulders.

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Then you can become a public company and do your, but you do.

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Again, using faramir on your own website, like, um, mm.

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So, that's that's the, that's the vision. So, and we talked today with founders that are creating their company and founders that are Pre. Like, the common thread between all the finance we talk to, is that they.

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There are people who understand that the biggest competitive advantage that they can build in their company is to actually have a very align ecosystem and community of stakeholders and that everybody is aligned to the success of the company.

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So so that's the common thread between all the founders that we talked to.

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Right, yeah, that is definitely my favorite of both the equity profile and cafes, because I was just having a.

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100,000 people backing you up in your business up does just insanely great for you and for your.

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Branding basically. All right so now that we'll cover all of that good stuff. Let's talk just a little bit. Oh, by the way before I forget people, if you actually do decide to raise from your parents in a normal way, you know, through a safe it doesn't have to be super expensive. Do not hire, like.

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Personal words, to construct a contract just for you there are simpler ways checkout, fundraising, radio dot com, go to the section that says illegal and we covered all of that good stuff in that section.

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So, yeah, if you want to figure out how to construct, that was a legal agreements. Definitely check out those previous episodes of hours. Right? So now, let's talk about.

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Your personal use case, I'll cafe and how you raise money through it so you raised over 1.2Million dollars through this continuous offering cancel a little bit more. Where did the money come from? Who are the major investors? And how do you usually find them?

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So, yeah, so it's, it's the, um, the main thing. So, um, so, yeah, we ready actually, whereas more than this and, uh, so I cannot announce it, but actually today we closed.

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Uh, a multi 1Million investment in our offering so so, yeah, so that's very good. Was referring to yeah. And kept offering from a very, very worldwide renewal investor. So I cannot share it now, but yeah. It's very cool.

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So that's why I said it was, it was a good day today and so, yeah, but it started we started offering in February last year, right?

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And for 2020, and at that at that time, like, in 3 months, I think in 3 months, we've raised, like, 200,000 dollars right? And.

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And it was really people who are gravitating around the, the company who believed in our vision and say, hey, these guys are doing something that looks cool. And, um, so the, the thing that you need to remember is that we never pitch anyone and that is for us, it was really important to prove that this model works.

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And so what we always focus on doing is we focus on creating a great product.

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And doing the shipping greatness, we try as much as possible to not disperse ourselves into doing things, creating FOMO around a campaign or fundraising. We just.

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Our laser focused on shipping a great product and then when we announced a cafe, it was in in September.

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Then next thing starting, like, going like, very wide because people, all of a sudden people, when we put the word cafe.

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People understood what we're doing before it was not that clear when we came out with the cafe, people started to understand that. It's the next iteration that gets a better safe. It's a continuous safe and so then it clicked and then we started having much bigger investment.

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So before that, like, I guess the biggest investment would have been at 20,000, the smallest was like, 20,200 dollars.

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And after that we started having like, a 100,000 dollars 150, and then 200,000 dollars investment and so so then, like, obviously, we started raising money much faster. But again.

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Like, them I often said to our customers select the difference.

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The world before from it is that you're doing your product, you're passionate about it and at some point you have a VC that reached out, right?

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Because they want to know more about what you're doing, and then they reach out and then so you tend to call you pitch them and at the end of the call, they ask you. Okay. What about fundraising raising now? What's the plan? And more often than not?

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You're not fundraising, because you're building your product, as he said well, I'm not fundraising right now, but I will be fundraising within 3 months or in 6 months.

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The problem is, you come back to them in 3 months in 6 months and then well, their attention span is as gone and so now have to force your way through and try to create a FOMO. So that people pull the trigger and invest.

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And so that's this is what is exhausting in fundraising, right? Because this is this thing will be able to close will I be able to create such a momentum that people will be willing to pull the trigger invest and now is from it the same happens. So, you build your product.

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And then he comes along and ask about your product and your company, your vision you pitch, and at the end, he says, are you raising? And he said, yes, I actually am raising him always raising can just go on my website and you click this invest now button and you're able to invest right now.

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And so this is magical. This is like this magical feeling or.

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I don't have it's not a problem. If I don't have a great pitching skills. I have great product skills so I'm going to show the world. What I can do is my product and by product is great.

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Like, people are able to invest and and what I would think that is cool also, is that usually.

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As VC usually have the upper hand, because like, you're doing your fundraising and so you're telling them please invest now because this is not a fund raise. So then they're like, okay, maybe like, give me give us more data.

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We need more signal and now, like, with families and it continues it's like, okay, you don't want to invest now don't invest. There's not it's not a problem. You can invest in 6 months.

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But maybe in 6 months, the price will have doubled and so it's really up to them to decide whether, when they want to invest. And because you don't care if they don't invest as a lot of you see, there's a lot of capital out there.

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If you do something that is great, you will find investors and people will invest in your company. So.

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To illustrate this since September last year every month we've received more money as investment that we spend in the company. So we're quote, unquote cash flow positive since September last year.

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So, yeah, yeah. Let's let's let's say, it's let's call it a cash pilot. That's how startups work. Yeah, definitely.

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I mean, the cafe clearly has its own benefits otherwise you would not be on fundraising radio. Something you I mean, again, it always has its own downsides and actually, let's talk about those downsides before we wrap it up. So.

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Can you give us a few more examples of other starts raising money through cafe? Have you seen those startups? Maybe struggling with the more traditional investors who refuse to invest because they know that, you know, when they're hitting being or.

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And epic acquisition, 10% of the company is going to belong to that crowd that invested in cafe.

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So, thank you for saying that, because this is actually a key point that I did not mention yet but the, the thing was the cafe. I don't know how much of your listeners are into crypto. Right. But, uh, so Fairmont, even though we look like, we're not and not a crypto company in the back end, we're all crypto.

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And why do I mentioned this is because, like, when you're using feminine and you're doing a continuous offering after 1 year, because when the investors invest, like, there was a long period of on the investment of 1 year.

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After 1 year,

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you,

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as the founder of the company can decide to create a secondary market using crypto technologies I,

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I would not go into detail in now but basically it enables you to create a liquid healthy secondary market where investors can actually.

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Sounds like before the before the set of the company and so this is, you remember when I said, like from it, we have to give founders more control investors, more liquidity and stakeholders more access. So that's the liquidity for investors.

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And this is also why with the cafe get? No governance right? So, we think this is really important. Why do investors ask for governance?

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Rights is not because they want to bother you is because their money in traditional fundraising that money is locked into your company and they cannot walk away. They cannot sell from 1 day to another say, you know what I'm done I want to sell. So, it's like a wedding right with your investor.

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And so this is why they want to make sure that their money is well used. And what we do is feminine continues offering concept, is, we'll say, well, there is the secondary market and so, if you disagree with the company, you can always sell.

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You can always said we can walk away with your with your investment and you work with your feet. You vote with your feet and this is why investors are happy investing into the cafe, even though there's no governance right they just get the financial upside.

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They don't get worried about the strategy of the company. So that's very important to your question about about customers.

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So, I'll get 1 example that just happened, like, 3 weeks before. So we just launched a customer and he was in this situation. Like, he had raised the 1st round of fundraising. And so he has a good product is growing is making revenue.

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But so he was, he was trying to get investors on board, but, like, he has not yet, like, the metrics of a series day. Right? And so she did this continuous offering.

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And in 2 days is secure 200,000 dollars.

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From his customers, and he did not even pitch them the customer so that they had launched this offering and so forth. That came came along and invested 200,000 dollars. And there was like, because we're on Slack together. And there was like, these holy s*** moments.

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Like, yours is crazy, I did not pitch them and even like, this is, we're dragging their feet and now, like, all of a sudden, I have 200,000 from my own customers and so that's perfect. And 3 weeks after is almost racing.

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Like, he's almost rich, like, 500,000. so so, yeah, it is super happy Super happy because.

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It's a transformative experience like, once you want to try it, uh, it is, it's addictive, right? Yeah, I can imagine, you know, it was just.

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There was a button showing on your website and people just click on it and boom, at least 500 bucks is being your bank account. So, yeah, it definitely sounds interesting. Another thing that actually caught my eye when I was looking through your website is program bubble rewards programs.

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So, can you tell us about more about that? How exactly does it work? How do you allow your customers to basically earn the equity in your company?

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Yes, so so that's a big part because, like, there's 2 ways for people to become owners of the company. So obviously you can invest. That's that's way. 1.

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But there's another way, and the other way is to earn equity and today earning equity is not that popular because it does a lot of friction. It involves a lot of legal. And so what we did is, we, we.

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Absorb all this legal and all those tax issues and everything, and we transform it into a product that is easy to use. So, basically, if I, what what we do.

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Is we enable you to automate create automated stakeholder incentivization post I'll take an example your over the future over right?

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And so you say, okay, I want all the drivers who generate more than 10,000 dollars of revenues every month to get compensated the 500 bucks in equity of the company. Right?

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And so what we do is we enable you to create that pool.

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Based on your cafe offering can create the pool for drivers. Okay. I'm going to incentivize my drivers and then, like, we provide you as an API so that from within your product.

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At the moment, you see fit when it when it enriches your metric. And on your terms, you can say, hey, you know what I want to incentivize Konstantin a 1000 dollars with this vesting in this case.

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And you just should that API call. And then, like, constantly will receive an email, and we'll get through a flow where at the end is going to be compensated in equity.

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And so we try to make equity compensation plan as automated and simple and efficient as possible.

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Perfect love it and yeah, it sounds like at least 1 of the best parts of cafe and that's yet another reason why you are on fundraising radio today.

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So, moving on to the very last question, this episode, which is the 1 that we ask every single person call to action. So.

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Would you want to do as soon as the episode is over.

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So I think 1 thing you should do. Definitely. You should look at the cafe. Like, I'm not saying, like, this is a silver bullet that's going to solve all your problems.

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But I think it's really interesting and you should know about it,

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like a,

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and if you feel compelled to learn more,

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like,

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go to the website,

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and you click on that get early access button and you have very short form and then you'll be able to book a zoom call with us and where you can ask away all your questions and,

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um,

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and yeah,

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we'll help you a,

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like,

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a set up your contacts offering if that's what you wanted but yeah,

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so.

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Learn more about the cafe would be my advice.

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Sounds like a call to action. My call to action is going to be be critical cafe. Sounds awesome. Definitely. Love the idea. Definitely. Love a lot of its aspects, but there are multiple, multiple other ways of raising money.

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So be sure to learn more about them. Don't just like, oh, I love coffee. I'll go with it, right away checkout other options.

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See what fits your specific use case because, I mean, as I said, there is no silver bullet for anyone. Otherwise fund renumerated would not exist. So, yeah. Learn about your options, check it out.

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I'll make sure to leave the link to a Fairmont in the description itself. So you'll be able to learn more about cafe and also I will leave a link to.

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Coffee off, open grants dot I. O, because that's actually how I learned about it. Uh.

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The founder of open grants is the previous speaker at fund region where you a great guy. Great solution. So everyone who is interested in grand funding should definitely go check it out and maybe you'll be interested in investing in them as well.

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So do that be critical and as you usually have a good day.