Secrets of Equity Crowdfunding – Interview with Nathan Rose
Posted by John Livesay in podcast | 0 comments
Episode Summary
Nathan Rose is from New Zealand but calls himself a digital nomad and lives all over Europe. He’s written a new book on equity crowdfunding, not only for the US but multiple countries across the world. He also gives out a tool at the end to use for equity crowdfunding that you’re want to be sure to listen to and start using right away. Nathan talks about how fund raising and marketing can be done simultaneously with equity crowdfunding. However, there are some downsides compared to Angel Investing and he goes into what those are.
Listen To The Episode Here
The Secrets of Equity Crowdfunding – Interview with Nathan Rose
Welcome to The Successful Pitch. Today’s guest is Nathan Rose, who is originally from New Zealand, currently talking to us from Budapest, and calls himself a digital nomad, which I just love so much. Nathan has a background in investment banking and he went to school in New Zealand and now is the director of Assemble Advisory, which has raised over $11 million. They are equity crowdfunding experts. He takes information and modeling and makes it easy for company founders. They know the market, they know it works and most of all, they can get you results. He is the author of a new book coming that is called Equity Crowdfunding: The Complete Guide for Startups and Growing Companies. Nathan, welcome to the show.
Hi, John. It’s a great pleasure to be here.
Nathan, I always like to ask my guests, how did you get into crowdfunding, in your particular case? When you were studying at university, crowdfunding was probably in its infancy and certainly nowhere it is today. How did you go from being investment banker to being an expert in crowdfunding?
What I really saw when I founded Assemble Advisory was that these startups weren’t being adequately served well enough.
The path of crowdfunding that I help with is actually quite similar to investment banking. When I was working in New Zealand, we would do a variety of deals, some bonds, some rights offers, but the path that I really enjoyed most was the early stage initial public offerings. That was growing companies, entrepreneurs with big dreams and big ambitions. Equity crowdfunding has a lot of similarities with that. It’s startups at an earlier stage. What I really saw when I founded Assemble Advisory was that these startups weren’t being adequately served well enough. The investment bankers wouldn’t generally bring their skills to bare because they needed to pay for the big expensive officers in downtown. Startups couldn’t afford those sorts of fees. There was this ground swell of entrepreneurs coming through with equity crowdfunding, which weren’t being served. That’s where I saw the opportunity to provide the services around that.
We’re always talking about who do you help and what problem do you solve when you give a good pitch. Can you describe what you’re doing in those terms?
I suppose a good example would be an entrepreneur from a sales background or from a technical background who wants to do equity crowdfunding but doesn’t know the market, doesn’t know the different platforms. Because there are a lot of them, especially in equity crowdfunding. The rewards crowdfunding which is important to distinguish here, the Kickstarters and IndieGoGos, which most people are familiar with. Really you would use one of those two platforms in the majority of cases. With equity crowdfunding, it’s much more country specific so therefore if you’re a UK company, you use one platform, if you’re a US company, you use another platform, if you’re a New Zealand company, you use another platform. It’s all subject to different securities regulation. The typical case of who I’d help would be an entrepreneur, a growing company that wants to do equity crowdfunding but needs some help to in terms of communicating their story, approaching the platform and ultimately getting funded.
What would be the main reason somebody would decide to get funded through equity crowdfunding versus an Angel for example, an Angel group?
I think there are advantages and disadvantages to both, we can go into that.
Yes, please.
I think one of the big advantages of equity crowdfunding over Angel groups is the ability to do fund raising and marketing at the same time. When you think of the startup, those two things, getting marketing exposure and raising funds, are usually number one and number two on the list of things to do. Until now, they’ve always been viewed as separate activities. When you pitch into a VC or to an Angel, you’re inside a closed shop and there’s not a lot of publicity there. When you’re doing an equity crowdfunding campaign, it’s out there in the public and a lot of people can be attracted, not just through their investment dollars but through other partnerships too.
[Tweet “Equity Crowdfunding has the ability to do fundraising and marketing at the same time.”]
Great. All right, let’s take a deep dive into this because it’s fascinating to me. I believe it will be to our listeners. You have the choice of doing friends and family obviously, then you have maybe you actually do a little rewards crowdfunding to get some proof of concept. Now, you have to decide whether you’re going to pitch to Angels with a pitch deck and all that good stuff and do it live ideally with a warm intro. Or if you’re going to use an equity crowdfunding platform in your particular country. Is there only one per country? Tell us how do people find where to go.
That’s a very good question. There are multiple crowdfunding platforms in each country. As it turns out, they tend to have network effects happening with each platform, as in the bigger ones tend to get bigger because they attract most of the investors and they attract therefore most of the biggest companies and end up getting bigger by that process. How to find them? That’s actually a really difficult thing right now. It’s something that I’m trying to solve in terms of helping people to get more knowledge about which platforms are out there and what the different strengths and weaknesses are. In the US where most of your listeners may be from, there are a couple I can talk about. There’s WeFunder, which is by far the largest right now. They’re responsible for the first title III crowdfunding offer to raise a million dollars. There’s also Republic, which is born out of Angel List as the equity crowdfunding phase of what Angel List do.
Let’s just take a minute on that. How fascinating is that, everybody? That a lot of people think, “I’m going to put my little pitch deck up on Angel List and hope for the best.” But now Angel List has said, “Ooh, we want to get into the equity crowdfunding business as well so we’ve birthed our own called Republic,” if I heard you correctly.
That’s right.
Are a lot of people doing both or do you recommend people do one or the other?
In terms of?
Doing a listing on Angel list and a listing on Republic equity crowdfunding.
I see. Generally, you don’t really have to choose.
That’s what I thought.
You have to decide which platform makes the most sense because running concurrent offers gets really messy really quickly. We can maybe talk about some of the disadvantages.
Sure. Let’s talk about what’s the downside if it’s all, gosh, if I’m going to raise money and get marketing, why wouldn’t everybody be doing that and not do anything to Angels anymore? There must be a reason to not do it and just do the Angel route. What are your thoughts on that?
You got to do a lot of the things in the background before you get ready to go.
I think the biggest reason is if you’ve got one Angel who’s ready to write a check for you. It can be done a lot more quickly. An equity crowdfunding is not just a case of putting your campaign on the sites and waiting for the internet to shower you with money. There’s typically a two or three months process that goes on behind that to put together all the author material, the video, drum up your supporters. It’s a launch, it’s a marketing campaign. You got to do a lot of the things in the background before you get ready to go. Whereas an Angel can be a lot quicker and cleaner for the companies.
Interesting. I’ve heard the phrase from my business partner, Judy Robinett, that with crowdfunding, you have to bring your own crowd. Do you like that? Do you think that’s true?
I think that is true for some platforms but not for all. This is one of the things that I always tell the entrepreneurs that I work with. There’s a really big difference in between the various platforms because the real value add of an equity crowdfunding platform is the audience that they bring to you. Bring your crowd along, that’s great. Any crowdfunding platform can do that and facilitate the payments and the process and then all that stuff. The bigger platforms are going to give you the added benefit of having their investors who are sitting there waiting for new investment opportunities to come along.
Instead of crafting a pitch deck per se, when you’re going to pitch an Angel group or VC, depending on whether you’re seed or series A, you’re talking about having videos created on the equity crowdfunding platforms, correct? Is that in lieu over the pitch deck?
It’s more as well as I think.
As well as.
You’re still going to have to put together a pitch deck and actually that pitch deck takes more of a longer form because the idea is that you’re seeking small amounts of money from lots of different people. You have to be able to tell your story completely. Because when you’re pitching to Angels, you’re in front of those Angels and they’re getting to ask you questions. There’s still that ability in the online forum but the information has to stand on its own much more in equity crowdfunding because you can’t go around shaking hands with everybody who’s going to pledge $100 at a time. That’s why the videos are so important.
A pitch deck for an Angel group typically, it’s ten slides, ten minutes and a ten minute Q&A. How much longer is a pitch deck that you recommend on an equity crowdfunding and how long should the videos be?
[Tweet “You need to be able to capture people’s attention quickly.”]
I’ll say about two to three minutes is right for a video. You need to be able to capture people’s attention quickly and then convince them to go into the offer in more detail. The video is like the hook if you like. You don’t want to make it too long, you need to make it attention grabbing. I think if there’s one area that you should spend a bit of money on, which is never a thing that startups like to hear especially when they’re trying to raise funds, get a professional video done for sure. It makes the big difference.
Nathan, would you agree that it’s really important not to spend your two minutes, three minutes on a video giving just a product demo? That’s not what people want to see in a pitch for Angels. I’m assuming, that’s not what should be in a video for equity crowdfunding. Am I right or is it a product demo?
I think you’re absolutely right. You’ve had a lot of experience with this too, John. Of course founders are very very experienced normally talking about the features of their product and selling their product but they’re least good at selling their whole business model. You’ve got to excite people about the investment opportunity too.
Terrific. One of the things in chapter three, you talk about is equity crowdfunding right for your company. You’re quoting Nathan Lawrence who raised over 800,000, is it New Zealand dollars on Snowball Effect?
That’s right.
He said, to raise that kind of money, I don’t think people think about equity crowdfunding as raising that seed round of money. When you raise it with an Angel group, that can take a while too because you have to get in front of the right group and then there’s due diligence, which is anywhere from, I don’t know, 45 to 90 days depending on how fast you go back and forth and come up with the terms. How long is a typical equity crowdfunding to raise that kind of $800,000 mark, let’s say?
It’s fairly interesting. There are I think three phases involved. There’s the phase where the offer is actually open. That would be 30 days or 45 days typically. For a lot of people, that’s all they see and they don’t see the preparation that went into that to get that campaign to go live. Before that 30 to 45 days, there’s a preparation phase where you’re putting together the video and getting all the content together. I would say that would be about two to three months that you need to budget for that or up to six months. It can easily blow out depending on how much resource that the founder can put into it and answer emails and so on. An interesting anecdote that I’ll share with you is a company called Monzo in the United Kingdom. They actually closed their crowdfunding round for a million pounds in 96 seconds, 96 seconds it was done. They’d raised their one million pounds.
All right. Let’s hear how that happened.
When you think of who was investing, it was their customers.
The funny thing is, that makes a nice headline. 96 seconds, a million pounds. Really, it was a year in the making that whole campaign. When you think of who was investing, it was their customers. Having that user engagement at the core of everything they did was what enabled them to ultimately raise in that 96 seconds.
That’s really the bring your own crowd in action right there. Your own crowd is your customers and anytime your customers become your investments in any kind of platform, you have a win and other investors want to join in because they figure if your customers want to invest, you really have figured out something that people want.
The parallels with Angel Investing are quite strong in that regard. No one in Angel Investing wants to be the first one in, but once the first one does go in or they can sense that there’s some kind of momentum in the offer, then everyone jumps in really quickly. When I said before that for the bigger platforms you can rely on their audience to some extent, that’s true but you got to generate your own momentum first. If you’re working with a big established platform with a big audience, if I could just throw a number out there it would be something like 50-50 in terms of the crowd you need to bring yourself and then the rest of the crowd will follow along with you. If you can bring that initial momentum to bare.
Let’s go back to this 800,000 round. I’m sure that wasn’t just a bunch of people pledging 100 bucks. Because typically when you raise 800,000 with Angels, it’s 250 here, 300 there, that kind of stuff. Is that how it works or is it much smaller amounts that add up to 800,000?
It can be both is the short answer. There’s a company called Haughton Honey again in the UK who raised very large numbers of small amounts of money. But there are other ones out there who put their minimum investment amount right up at 20,000. That means that you’re not going to get the crowd to come along and you’re going to just effectively do an Angel round or VC round but do it through the efficiencies afforded by the crowdfunding platform.
Would you say that when you’re raising that kind of money, 800,000, that it is typically one or two people starting off on 100,000 and then other people following with similar type sized offers?
I would say there’s a very well established thing in the equity crowdfunding world which is the concept of a lead investor. Crowdfunding absolutely has a higher rated success when you can bring an Angel investor along into the round. Effectively, they anchor the round, they might put in 25% of the round themselves and before the offer has opened, they’ve done things like negotiate the valuation, negotiate the offer terms. Make their name and the experience they have in the industry public. In that way, the people who want to just chip in $100 or $1000 can say, “Hey, there’s this really smart Angel investor here who knows what he’s talking about, who’s put their own money behind it and come up with a valuation that they’re happy with.” For mom and dad investors who find it difficult to value early stage companies, and even the professionals do find it hard, they can then follow on and invest with the Angels, which I think it’s a really good way to do it.
If I understood you properly, one way to go is to do the normal route of have a pitch deck, use your network or hire someone to get you in front of the right Angel investors. They come in and they say, “You know what, instead of having my Angel group fund this whole round, let’s go with an equity platform and I’ll give you this amount of money. I’ll be the lead investor for equity platform as opposed to the lead investor for other Angels.” From there, you start getting other people in.
Yup.
Now, doesn’t that make the cap table very complicated because you’ve got all this people putting $100, $1000 there and you’ve got to give equity each of those people? Does it cost you to have to give away more equity when you do it this way?
The valuations being achieved through equity crowdfunding are somewhat higher than pure Angel or VC rounds.
I think there’s two questions there. It doesn’t mean you have to give away more equity. I think the answer’s no. I think actually in general, the valuations being achieved through equity crowdfunding are somewhat higher than pure Angel or VC rounds.
That’s good to know.
The reason for that is when you go through an equity crowdfunding platform, often there’s more standardized documentation and you as the entrepreneur can set your own terms and then the crowd either follows along or doesn’t. The successful rounds are sometimes getting better terms. The other part of your question was about the messy cap table. There are ways to mitigate that. One of the ways is through a nominee structure, as in all of the smaller investors will end up becoming a holder in a nominee company, which I’m going to explain quickly. It means that that nominee company will vote and make decisions together. If you’re a company founder and you need some kind of shareholder resolution or you ultimately going to sell the company, then there’s just one nominee company that needs to vote and the provisional nominee manager will take care of all the investor communication for you.
Interesting. Now, is that based on a majority rules or is it the one guy who’s supposedly the professional decides for everybody?
Generally, it’s majority roles.
Got it. Let me ask you also about the cost because you write about this. There’s a price tag attached to using an equity crowdfunding agency. Is that like a broker taking a percent of the money they help you raise with Angels and VCs?
The crowdfunding platform will take a cut but generally that percentage is based on success. The fees that founders are really concerned about are the upfront costs, like getting your video done, legal work, anything like that which will be charged regardless of your success or not. It really depends on how much hand holding you need. If you can find the platform yourself, you’ve got a huge email list, which means you can just get the investors to come along or maybe you had someone in your team who’s good at the social media and the video and you can self produce all of that. The cost can be very low. If you need more hand holding by professionals, then yeah, the costs can mount up to, I’d say that maybe in the US, something like $15,000 or $20,000 might be typical, maybe less than other countries where there’s a less a restrictive regulatory regime.
I wanted to ask you one of your earlier comments about don’t expect to just put your stuff up on the equity platform and expect the magic of the internet to do all it’s work and people are just going to find you with your cool pitch deck and engaging video. What else do people need to do besides bringing their own crowd to that platform to market this?
I think you need to make the investment itself step up because you’re going to do a lot of outreach in an equity crowdfunding campaign and people need to see something good there when you direct them to the page. Otherwise they’re going to click away, never to return. I think being good at telling your story, this is exactly the same stuff as you’ve talked about on your podcast many times. Having a clear story about what the problem is, how your company solves it, why people should get excited about your uniqueness and your positioning, how it’s going to make money, all that good stuff.
[Tweet “Have a clear story about what the problem is and how you solve it.”]
Bringing your crowd to the offer, there’s so many ways to do that. I think one mistake that people make is they rely on social media too much. They think that it’s got the word crowdfunding in its name so you can run it exactly like a Kickstarter or an IndieGoGo campaign where if the product is itself just cool enough it can go viral through tweets and shares and likes and all that stuff. I think in equity crowdfunding, it’s more important to go to pitch events that the crowdfunding platform will organize.
Got it. Let’s take a moment and just pause there. That’s a really good piece of information. A lot of people will say, “I know there’s Angel groups that have meetings,” but there are actually equity crowdfunding meetings that you can go to and encourage people to go check out your platform without having to literally pitch them. I’m guessing you’re probably going to have to pitch them a little bit to intrigue them enough to want to go check out your platform. Is that right?
Yeah.
Those events?
The way that one of those events would typically work, there’d be maybe you and five other company say that are giving a short introduction and you hope that you can excite people and that audience enough that they go into your page. By the way, at those events, they do get the chance to shake your hand.
How do people find out about those events, Nathan? Is it just googling it or are there something to belong to?
Those events are organized by the platform themselves. Again, the US is a few years behind some of the rest of the world, which is unbelievable really given the home in Silicon Valley and the whole startups scene. The UK and the rest of Europe is actually quite a bit more advanced in terms of this sort of thing. There’s some places that you can find these crowdfunding pitch events. If you’re in London for example, you could sign up to the Seeder’s Blog, Crowd Cube, Syndicate Room, those are three of the big platforms in that market, or else just ask your local startup incubator or accelerator.
That leads me to the question about your insights on the title III law passing here versus what’s going on to the rest of the world. What are your thoughts on that?
It’s fantastic firstly that the US is now part of the equity crowdfunding revolution. A title III crowdfunding allows a startup to raise a million US dollar in any twelve month period. There are a few extra restrictions compared to more liberal regimes like New Zealand and the UK, but at least it’s a start and we are seeing some money being raised. One of the things that’s in place in the US for example is that ordinary investors who don’t make the sophisticated high net worth threshold, as in people who basically aren’t really rich. They can only put in $2000 maximum into each crowdfunding offer, or five percent of their annual net income. That’s in place. I guess that means that if you were in a comparable market, you could have more people putting in amounts greater than 2000. In the US at least, retail investors can only put in that 2000 in each offer.
Typically within an Angel group, if they already have one type of person they’re investing in, they won’t take on a competitor. Is there anything within certain platforms in equity crowdfunding that they say, “Oh, we’re already funding something that is in healthcare for, whatever, Doctors on Demand. We can’t have another one going on concurrently.” How does that work?
Because they’re on the site, they can see your offer too.
This is a bit like the IPO window back from the investment banking days, which was that each company would try to find a slot where they’ve got the attention all to themselves. I actually think the opposite is true in equity crowdfunding because if you’re on the platform at the same time as a bunch of other offers are, then it’s actually positive because you’re going to get the benefit of everybody else’s outreach efforts and everyone else’s audience that’ll maybe go to the platform for your competitor or for other companies, which aren’t even related to you but are just crowdfunding at the same time. Because they’re on the site, they can see your offer too.
Is there some barrier so your competition isn’t seeing all of your secrets? Because a lot of founders are so paranoid. Obviously investors don’t sign non-disclosure agreements, but do they say, “We already have this. You can’t come on here.” I’m not 100% understanding the yes or no to that.
I think the answer is no, that you will be subject to other companies coming on at the same time.
You have to put enough out there without giving away your “secret sauce”. You can say how, you can say what you’re doing, but you don’t necessarily have to go into that much detail on how you’re doing it unless you want are competition to see it. Would that be fair?
Right. We talked about advantages and disadvantages of equity crowdfunding. I think this is another of the disadvantages. If you are not comfortable with your business’ whole revenue projections and business model and what you think of the market and what you’re doing and strategy being out there in the public domain, then equity crowdfunding isn’t for you.
Got it. Much like people go from a seed round from Angels to series A with VCs, are you seeing a lot of people go and get their seed round up to a million dollars from equity crowdfunding and then VCs are more than happy to fund that just like they would an Angel round?
I think there is still something of a negative stigma around it from some Angels and VCs, as in if the cap table is messy, like a nominee structure hasn’t been used, then they might be a little more hesitant. But I will say that their perception is changing. Some Angel and VC companies, this is just true of the economy in general, some people just don’t like new ways of doing things. In Europe at least, we’re seeing that they’re becoming more comfortable with us. If they want to get access to the best companies and some of the best companies are using equity crowdfunding. Ultimately John, a VC will invest in a company no matter how messy all the structuring is if the company is a great company.
Has a huge potential and traction and a good team and all the other good stuff. I love storytelling, Nathan. I’ve saved your story about how you wrote the majority of your book in a small town in Georgia. Tell us that story.
That is Georgia, the country. Not Georgia the state.
Okay. Tell us where Georgia the country is for those of us who may not know.
Georgia is located north of Turkey and south of Russia, around the Caucus mountains, just between the Black Sea and the Caspian Sea, which is not the typical place to hang out. The reason for going there was to get away from it all for a couple of months while I wrote the majority of the book. It was successful. Two months in a little hideaway where no one knows you, it’s a good way to get a lot of work done.
I bet. Really focused. Nathan, how can people follow you on social media? Do you have a website you want to direct people to?
Sure. The website is AssembleAdvisory.com and within that is the page on the book, which is out now, AssembleAdvisory.com/book. That’s Equity Crowdfunding: The Complete Guide for Startups and Growing Companies. If you’ve heard this podcast episode and you want to know more, then now that’s available on Amazon.
Great. What is your Twitter handle?
My Twitter handle is @Assemble_ADV.
Okay, let’s repeat that for everybody. @AssembleADV.
Yup, short for advisory.
All right, great. We’ll put all this in the show notes. Nathan, thank you so much. Is there any one last bit of advice or thought you want to leave our listeners about equity crowdfunding or just being an entrepreneur in general?
I’ll share one tool if that’s okay, John.
Yes, please.
The tool is Thunderclap. Thunderclap allows you to prearrange social media shares. If you’ve got a crowdfunding campaign coming up and you want people to share the word on Facebook and Twitter, you can get them in the weeks and months leading up to your company actually launching to pre-commence on Thunderclap. That way when your campaign goes live on the arranged date, everyone tweets and Facebook shares at exactly the same time.
Brilliant. That’s a great, great thing to do. That’s bringing your crowd to the crowdfunding. There it is. Love it. Thank you for that great tool. Thank you for writing this book. Thank you for sharing your expertise with us. It’s been a pleasure.
Thanks, John. Thanks for the podcast and everything that you do too. It’s been great.
Thanks, Nathan.
Links Mentioned
J Robinett Enterprises
John Livesay Funding Strategist
Equity Crowdfunding
Assemble Advisory
Nathan’s Twitter
Crack The Funding Code!
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The 2AM Principle – Interview with Jon Levy
Posted by John Livesay in podcast | 0 comments
Listen To The Episode Here
Episode Summary
Jon Levy is a behavior scientist, author of the book, The 2AM Principle, and a keynote speaker. Jon’s work largely focuses on two main areas: Influence and Adventure. While researching what makes and creates an ‘influencer,’ Jon created a private community and dining experience (with a twist!) for industry leaders. Through this dining experience, Jon has discovered the keys to designing a great social experience, and uses this knowledge to help brands cultivate strong influencer programs.
The 2AM Principle – Interview with Jon Levy
Hello and welcome to The Successful Pitch podcast. I am very excited to have Jon Levy on today because Jon is the author of The 2AM Principle. He is literally a human behavior scientist, a consultant and keynote speaker. He’s the expert on influence, networking, and most importantly for me, adventure. That’s the element that people don’t usually have I their lives, let alone in his business.
The 2AM Principle: Discover the Science of Adventure by Jon Levy
He’s going to give us some great tips on how to have your business become an adventure and what that does for your world. He’s known for having these incredible dinners that The New York Times has written about, and how that transforms your life when you give people a reason the get together in a unique situation. Jon, welcome to the show.
It’s great to be on. Thanks for having me.
One of the things that I really find so fascinating about you is, starting with your Twitter handle, not just your name but the initials after it, TLB. Would you tell everybody what that stands for and why? Because I think that’s a really fun place to start.
Absolutely. I was about 17 years old. I was about to graduate from high school. I was thinking what do I want next. I noticed that a lot of the adults around me were seeming unenthusiastic about life. Like the only reason that they got out of bed was that they didn’t die the night before. I wanted to understand why it is that I can hang out with my nieces and nephews and they’re excited about everything all the time. There’s a certain point where things change.
I went back and started reading a lot of children’s books. One of them that I read was Peter Pan. Peter Pan has this group of rambunctious kids that go along with him on his adventures. They’re called The Lost Boys. I wanted to dedicate my life to wonder and adventure in the hopes that that same excitement that we see in youth is retained throughout life. It serves as a constant reminder, an admiration of these characters. It’s JonLevyTLB, or the lost boy.
Isn’t that great? One of the things I’m constantly telling my clients when they’re pitching for funding is you have to be memorable and you have to brand yourself in a way that people instantly get who you are and what you do. You do that better than almost anybody else I’ve ever had the pleasure of interviewing. Because it’s so specific and it pulls people. Can you tell a little bit about how you started the idea of these incredible salon dinners?
Just to give the listeners a sense of what these dinners are. Twelve people are invited at a time. None of them know each other. They’re not allowed to talk about what they do or even give their last name. They cook dinner together. When they sit down to eat, everybody gets to guess what everybody else does. They find out that it’s a famous author sitting across from a Nobel Lit, the president of a television network sitting across from the editor in chief of one of the top magazines in the world, or a two time Olympic Gold Medalist sitting across from a famous actor or actress.
I’ve hosted about 900 people across close to 100 dinners. Everything you could imagine, from members of royalty through Grammy award or Tony and essentially any kind of award winning artist or even Fields Medal winners or mathematicians. It’s developed into this community that’s pretty wild and incredibly humbling to spend time around.
Part of the 2AM Principle: Salon Dinners
It’s so interesting because investors say all the time, if you can’t figure out how to get a warm introduction to me, you probably can’t figure out how to get to your customers. You have some amazing ideas not only of what you’ve done and how it’s changed your life. But also you have some suggestions I think from listening to some of your other interviews, on how people can not have to spend a lot of money and make it their own.
Without a doubt. One of the things that I suggest is that if you want to connect with people, the first thing is it’s not about networking. Networking brings up ideas of people at conferences, handing out business cards and trying to find clients. It’s a very one way interaction, where I’m trying to collect as many names or people. It’s up for a specific objective. There’s nothing wrong with that. It’s just not a very powerful context to be in.
The reason is that if you look at research by Nicholas Christakis and James Fowler, they wrote a book called Connected. It’s all about these surprising impacts of our social networks. What they started off studying was the obesity epidemic. They were curious if it passes from person to person the way a cold does or if it’s a percentage of the population, like Alzheimer’s. You don’t get Alzheimer’s because you’re hanging with somebody who has it. It’s not contagious.
What they found was obesity actually transfers from person to person. If you have a friend who’s obese, you’re chances increase by 45%. Your friends who don’t know them, 25% increase. Their friends by 10% and their friends by 5%. What they actually also found was that everything passes through our networks like that, from happiness to voting habits to smoking habits, exercise, all that.
This also means that if I meet somebody extraordinary, it’s not only important that I get to know them and spend time with them. But that they end up spending time with my friends, because that will lead them to having a positive impact on my friends, who will in turn have a positive impact on me. It’s less about networking and more about community building.
What you’re describing Jon, sounds like the ripple effect, the whole wave, the physics behind it.
The 2AM Principle: Consider the ripple effect of those around you.
It’s absolutely that. If you can find the right people and bring them together, then by having a positive impact on each other and being able to change the cultural conversation taking place, you can achieve essentially whatever it is that you want for your life, your business, your community.
The mission of the influencers became to impact the quality of our members lives, their communities and hopefully, one day, the world with the understanding that by bringing extraordinary people together, we would be able to have further and further reaching goals. Not only that, but the age or the time when a single human being could have a dramatic impact on the world has changed. Now, you need such a diversity of knowledge and experience to create major impact.
What you need to look at are groups of people from varied backgrounds. I’m a huge supporter that let’s say you have a startup. It’s a tech startup. You’re used to hanging out with tech people. Adding another tech person might be nice but it won’t necessarily increase your knowledge. You all are reading the same books, you all are hanging out at the same social circles. It’s a bit of a stagnant experience. Adding somebody in finance, adding somebody in medicine, all of these people that bring new ideas that can trigger inspiration and also expand your second degree network significantly.
A study was done that looked at how people actually get their jobs. What they found is that most people get their jobs based on loose ties, the people you kind of know. Because there are far more of those than the people that we know closely. If we diversify our communities, then it increases, in general, the number of people that we kind of know or have ties to.
[Tweet “Quality of our lives is defined by people we surround ourselves with & conversations we have with them”]
It’s so valuable. Speaking of reading the same kind of books and not reading the same kind of books, The 2AM Principle is a very different kind of book for people to read. I love the title. Let’s start with that. What does it mean, The 2AM Principle?
Let me start off with, I spent a lot of my life searching for adventure. Last year, I went to all seven continents. Every ideal big travel project, like I once did one where every month, I travel to the biggest event in the world, wherever it was.
What I found is that there’s this line in the sand where either things become completely, exceptionally fun and exciting, or you should just go home. There’s no benefit. In New York, that line is 2 AM. The book title is The 2AM Principle, Discover the Science of Adventure. The 2AM Principle is that nothing good happens after 2 AM except the most epic experiences of your life.
If you’re going to stay up past that point, you better make it incredible. Also, know that in different cities, it’s a different time. In Chicago, it might be 1 PM. In certain Latin American countries, it might be 3:00 or 4:00 in the morning because you don’t even go out until 2:00.
The 2AM Principle: Seek adventure and experiences
In your book, The 2AM Principle, you have a great definition of adventure. Would break those three concepts up for us?
Gladly. One of the things I really was happy with when I was looking to define adventure was, as an entrepreneur, to find the incredible overlap that it has with the entrepreneurial experience. As I see it, an adventure is an experience that is one, exciting and remarkable. This is important because as a society or as a species, we’ve passed out our knowledge through an oral history. If it’s not worth remarking about, actually speaking about, it’s not culturally significant.
As an entrepreneur, if what I’m doing isn’t remarkable, if it’s not worth talking about, it’s not relevant as a company. If you’re pitching, if you’re selling, whatever it is, you have to really be able to express that element of what you’re producing that is remarkable, that people will then talk about. Two, posses adversity and/or risk, preferably perceived risk. What does that actually mean?
In an adventure, you have to overcome an obstacle. But people often confuse these dangers, like climbing Everest, with perceived risks, like going parachuting. The important thing is that as an entrepreneur, there’s always this impression that we take on immense amounts of risks. If you look at the most successful entrepreneurs, they mostly take risks that are highly mitigated, highly calculated. Did you ever read Originals by Adam Grant?
Yes.
Warby Parker, the glasses company, has elements of the 2AM Principle in it’s business model.
Excellent book. Grant is a brilliant researcher and writer. One of the things I love is he shares the story of the founders of Warby Parker. These people are brilliant because what they did is they kept their I think jobs and internships long past the point that Warby Parker was profitable and showing signs of success. The reason was that there’s no need to take on the additional risk.
You can have a startup without throwing everything else aside that does great and that makes money and grows at a healthy pace. Once it’s fully established at a point where you can support yourself and you’re not spending your time worrying about how are you going to pay for lunch or you start eating Ramen noodles, then you go full time into it.
It’s almost like the Maslow principle. Get the basics handled of food and shelter, and then you can start doing self actualization. The Originals really talks about you can be yourself. Don’t think that if you’re not an early bird, you’re not going to be successful. That’s I think a big sync with what you’re all about too. Be who you are. No matter what time of day that is, then you can work.
Without a doubt. People often ask me for advice on networking and so on. One of the things that I often emphasize is that there’s this perception that the right way to be in American culture is this extrovert, larger than life personality and so on. There’s no real evidence that suggests that makes you more successful. In fact, you just have to be respectable of if you’re an introvert. That’s the way you are. You just have to take on different practices.
Be remarkable, mitigate your risks. The third of an adventure?
It’s exciting and remarkable, it’s possesses adversity and/or risk. The third is it brings about growth. The person you are at the end is distinct from the person who started. If you look at any great journey, it’s not necessarily reaching the objective that’s important. It’s the growth that the characters take on or experience as a byproduct. They get to be expanded versions of themselves.
That really explains in a new way for me that whole phrase that I heard as a kid and never really understood, which is it’s about the journey, not the destination. When I was a kid, it was like, what are you talking about? These car rides are boring. I want to get to where we’re going. Now, the way you framed it, I totally understand that it’s about the growth you experience during that journey. Not just arriving at whatever location you’re getting to.
Yes. I got out on these wild adventures. I drop myself off in a foreign city. I won’t have a place to sleep, I don’t know anybody, I don’t speak the language. Either I convince somebody to put me up for the night or I sleep on the street. I have a clear mission and an objective. It’s not necessarily about the success of it. If I have to pull an all-nighter and just walk the streets, I’ll survive. I’ll be fine. The type of person that I have to be in order to get a stranger to take me in is an expanded version of myself.
The 2AM Principle: be an expanded version of yourself.
This is what fascinates me about you Jon, and how it relates to getting investors to trust a startup to invest with them, is they have to trust them first. You’re giving an extreme example of someone having to trust you that they just met you, to invite you to spend the night on their sofa or what have you. It really is a micro chasm of what’s going on when someone is getting an investor to trust them to give them all this money.
Without a doubt.
What’s an expanded version of yourself? How could someone take what you do, I’m going to have you tell what you do to expand yourself, and then go, “The next time I’m in front of an investor or even just connecting with people at an event, how can I be an expanded version of myself to break down the initial trust issues?”
One of the things that I do as a practice is that if something scares me and it’s going to kill me, it’s probably a good idea to do it.
That’s like that opening to your book. Tell that story really quick, because that’s so riveting.
Oh my God. It’s about 9:00 in the morning, July 7th, 2014. I’m in Pamplona, Spain and I’ve just made it through the running portion of running with the bulls. I end up at the stadium. There’s this really weird thing called the winner effect, which is if you have a success, your body fills with testosterone to prep you for the next battle, so you have a higher chance of being a winner. The problem is that if you keep winning and keep winning, you flood with so much testosterone that you don’t make really good decisions. In nature, animals spend too much time in the open.
Vegas.
That’s exactly right. They’ll get killed or they’ll get into unnecessary fights and die. In my case, what I thought would be a really good idea would be to run up to a bull and smack it. I do that a couple times. I realize, what would be super cool is if I let a bull jump over me at the entrance. That’s how they get in and out. I take the safest position I could and the bull comes in full speed.
It slips and tries to make the jump, but I realize I’m totally in a bad situation. It misses its jump and lands on my back and crushes me. I lose all feeling in my torso. Literally, everything goes silent, times stops. I’m pretty sure, in that moment, that I might be paralyzed because I can’t feel anything. I can’t move.
I have this internal conversation where I’m like, “Jon, you’ve decided to live a life as this adventure. It may have totally screwed you. You have to be okay with the fact that you did this and that it was just a fluke and you may not get out of this and you may be in a wheelchair for the rest of your life.” I was like, okay, I can handle that.
Time started again and I somehow managed to stand up and search for medical assistance, but nobody could help me because they were literally dragging bodies out of the way from people who were hit 10x worse than me.
Eventually what we found was that, I went to Triage, that it had crushed my left shoulder. Luckily, miraculously, nothing was broken. But the pain was so intense. I started going unconscious. I ended up needing wheelchair service at the airports and all that and six months of physical therapy.
The 2AM Principle opens with Jon’s experience running with the bulls in Spain.
And a great opening to your book, The 2AM Principle.
Absolutely, well worth it.
Man, thank you for that. I just had to let everybody hear that story personally because reading it is a page turner. Now, back to how do you, so we can learn from you, create an expanded version of yourself to create trust in a stranger to let you spend the night on their sofa?
There’s a few things. There’s two ways to look at it. One is understanding the science behind it. The second is understanding the practices that fulfill on that. From the practices standpoint, I speak to everybody. I speak to everybody and embarrass myself pretty consistently. The reason is that I’m willing the be uncomfortable. I believe that the scope or the size of your life is in direct proportion to how uncomfortable you’re willing to be.
That’s fascinating. The bigger your willingness to be uncomfortable is, the bigger your life will be. Would that be accurate?
Yes. Your tolerance for discomfort will define the size of your life. I am willing to be incredibly uncomfortable. It’s something that I embrace. I know not everybody is like that. I’m very clear that most of the concerns that I have are completely perceptual. I end up feeling like a jackass after, but those feelings will fade. What I’ll learn in the process about engaging people is invaluable. That’s the practice.
The science behind it is interesting. There are certain things that clearly make people trust you more in general. Assuming you don’t have a creepy smile. There’s also some interesting characteristics, like the Ben Franklin effect. The Ben Franklin effect is we all know that if I do you a favor, you’ll like me more. That’s reciprocity. These are general rules. They don’t apply to every single person, but in general.
The Ben Franklin effect, Franklin had this contentious rival politically. Rather than try to win him over, he decided that what he would do is ask a favor. That way, the rival will have to invest effort into their relationship. He asked to borrow this rare book, the man does it. What happened was his demeanor totally changed after that point because now he’s invested into the relationship rather than fighting something.
I’m a strong believer in asking people for favors. Because one, it will get them to invest into the relationship. Two, then it will make you more likely to invest into them. It serves to build a community, which is something that I’m always committed to. When you’re asking for favors, there’s additional research that suggests that you should stack them from small to large.
Meaning, if I can get you to invest a little bit of effort, you’ll then invest even more effort because I am seen as somebody worthy of your effort. If I wanted to ask a stranger for complex directions, I would first ask them for the time and then for the complex directions. Because once they’ve invested, they would be willing to invest more.
[Tweet “Why do people like us more if we ask them to do us a favor?”]
Love it. That’s so valuable. It’s almost counter intuitive to think, how can I ask somebody I don’t know a favor? But you really explained it well. Before I let you go, I want to dive into this last topic because it’s so fascinating for everybody, which is routine is the enemy of excitement.
I’m a huge fan of routines for productivity. I get up, I do my first most important thing every morning. I knock it out. I have routines for everything from fitness to communication habits. But routine fundamentally is not an exciting experience because the more we’re exposed to something, the less novel it will be. If you want to lead an exciting life, you have to be willing to go outside of your routine. You have to go explore things that are novel and different from what you’ve already experienced.
[Tweet “You don’t have fun – you create fun”]
That’s great. The other thing that’s a big takeaway from your book on the 2AM principle, and I highly recommend everybody to get a copy instantly, is you don’t have fun, you create fun. The moment you stop creating it, it will disappear. I think that totally shifts everyone’s perspective. If you go to Disneyland, if you’re at Disneyland, I’ve had fun here before or I hear it’s a fun place. They brand it as the most magical place on earth. I better have a lot of fun. Guess what, you could be miserable at Disneyland. You have to bring the fun.
Yeah, it’s a mental state, it’s an attitude and it’s something that requires practice. People often are surprised by the amount of effort I put into ensuring my own happiness. It is a lot of work. Our natural state isn’t happiness. We have to work at that the way we work on our relationships, the way that we have a fitness routine for our health and wellness. Everything is a practice that’s deserving of its time and attention.
And the benefits are so worth it, like you said. If you want to have a small life, stay in your comfort zone. If you want to have a big life, constantly push yourself. I can’t thank you enough, Jon. The book is The 2AM Principle on Amazon and wherever books are sold. You Twitter is @JonLevyTLB, for The Lost Boys. How else can people follow you and keep track of your adventures?
On Snapchat, Instagram, you’ll see completely insane photos, sometimes of my great friends that I met through the dinners, traveling around the world. You can also find me on my website, JonLevyTLB.com.
Love it. Thank you so much.
Thank you.
Links Mentioned
J Robinett Enterprises
John Livesay Funding Strategist
Jon Levy Website
The 2 AM Principle: Discover the Science of Adventure, by Jon Levy
Jon Levy Twitter
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