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Louisville’s Cornbread Hemp just scored a local fundraising first. They’re the first company to receive Render Capital’s $20,000 investment in their WeFunder Match Fund.
They’re also the first local company to raise funds using Regulation CF equity crowdfunding through WeFunder, one of the nation’s top equity crowdfunding portals.
Equity crowdfunding is the way of the future for startup companies, and Cornbread Hemp is blazing the trail in the Louisville area.
In this episode of the MetroStart podcast, learn:
— how Cornbread hemp got started;
— what they learned about equity crowdfunding;
— the pros and cons of equity crowdfunding;
— pitfalls to avoid; and
— how to make equity crowdfunding successful.
Transcript (This has been machine transcribed, so there may be some typos.)
Alan (00:02):
Welcome everybody to the MetroStart podcast. I’m Alan Grosheider, and today I’m talking to Jim Higdon. He’s a cofounder of Cornbread Hemp Company, and we’ve been talking about raising capital and what he did to get his company started for a little while. And I’ve been trying to give him any experience that I could and what I’ve learned in raising capital. And he is hot in the middle of doing a regulation CF crowdfunding capital raise on Wefunder. So we thought it was a good, a good time for us to talk, to help others learn the process that he went through to get his company started and, and what he’s doing to raise capital. Hey Jim?
Jim (00:47):
Uh, Hey. Thanks for, thanks for having me. It’s really, this is really great.
Alan (00:51):
Yeah. So just, just for recording our thoughts right now, we’re, we’re right in the middle of all the coronavirus stuff and everybody’s on lockdown and staying home. So it’s, it’s a really weird, interesting time.
Jim (01:07):
Yeah. It’s a strange time to be running a business and raising capital. It really kind of afraid about, uh, you know, how this was, you know, obviously you and I had been talking about Cornbread Hemp and us raising capital for six months now or so. Um, and so this is not an, not a new thing for us, but as we finally got our legs under us and finally figured out the path forward and how to do a reg CF crowd fund and, and, and, and to find the right platform for our crowd fund, uh, all these things took a little time and as soon as we got everything lined up ready to go, that here here comes a global pandemic, you know, not something that we anticipated dealing with obviously. Um, but you know, doing a quick heat check on ourselves and our company, we really feel like we’re a company of the moment. Uh, we were getting reviews from customers saying that our products help them with the anxiety they’re feeling as a result of social distancing, uh, related to the coronavirus. And it’s just a really, um, it’s a really good time too to be, I’m trying to grow a company that is helpful in this situation.
Alan (02:18):
Yeah, I think there’s, there, there are a few industries that are going to do pretty well. You know, my day job is a company called Bluetooth 22 that helps companies manage remote employees and manage remote contractors. And it looks like it’s actually going to be something that is a good thing in this weird economy where people can’t travel.
Jim (02:42):
So we’re, or the travel is certainly going to be deemphasized and all alternatives are going to, are going to be looked at first.
Alan (02:49):
Right. So let’s talk about how you got the company started and maybe maybe a little bit of back about your background first. Where did you grow up in the Louisville area?
Jim (02:59):
I grew up in Lebanon, which is Marion County, which is on the other side of Bardstown, hens on who you ask whether that’s the Louisville area or not. But anytime I’ve ever been in a bar and anyone asks me where I was from, I can always point to the bottle of maker’s Mark behind the bar and say, I’m from there. Um, so, uh, I grew up in, in central Kentucky and went to central college and then went off to school in the Northeast. I went to Brown for a master’s degree and then I went to Columbia journalism school. And while at Columbia I put together a book proposal to come back and report the story from my hometown, which was the cornbread mafia, a story of a 70 men arrested on 30 marijuana farms in 10 States in the late eighties with what police said was 200 tons of marijuana.
Jim (03:47):
And then the success of that book led me into a journalism career and I was covering, uh, I was freelancing for the Washington post when news broke in Kentucky. And I was also covering cannabis policy for outlets like Politico, excuse me, those, a motorcycle driving by. Um, it’s when I was covering, uh, the farm bill, uh, hip, the hip legalization aspect of the farm bill of 2018, uh, for Politico, I saw a CBD hemp harvest come in in Western Kentucky and realize the reality of, of the CBD marketplace was finally upon us. And none of the brands, none of the companies that were working to get this industry on its legs. I felt we’re doing things the right way where they in, in terms of branding and evoking the Kentucky traditions that made this whole thing possible. And by virtue of having literally written the book on Kentucky cannabis realized that I had, um, advantages in, uh, in the marketing in the hip marketing space that just weren’t being exercised elsewhere and really understood it to be my opportunity.
Jim (04:56):
Uh, I had a, uh, an investor, uh, who, who had tried for years at that point to buy the film rights to my book, to the corporate mafia book. And because they were tied up elsewhere, I just couldn’t do it. But I maintained a relationship with this guy, um, because I just personally liked him. And then when this opportunity presented, presented itself, he was a natural first, uh, uh, first source for a seed capital for as an angel investor. So I partnered with my first cousin, Eric, who is a young, uh, e-commerce Wiz with an MBA in two e-commerce exits under his belt before, uh, he and I joined forces to start cornbread, him and we had this angel investment of a hundred grand lined up at the beginning of 2019 in January. And then by April of 2019, we were shipping our first products. And so when you and I first started talking about, uh, fundraising and crowdfunding was about six months after that, we were, uh, you know, uh, doing revenue
Alan (05:58):
rolling in, in revenue nuisance. We product launched in April. So this month, April, 2020 is our first month over month. A set of data or we are our first, our one year birthday was just last week. And so we’re, you know, we’re moving right along. That’s how we got here. That’s fantastic. How do, explain a little bit about the, the legal side of CBD versus marijuana in, in, you know, just [inaudible] cause I don’t really understand w w where the legal land lies right now.
Jim (06:37):
It’s a very good question and it’s hard to know because when you see these CBD fields, uh, videos, videos, we have of the CV of the, of the hip farms that were, uh, extracting CBD from their unfertilized female flower to an untrained eye or to even a trained eye, they look and smell like marijuana. Uh, and that’s certainly not what people thought they were legalizing when they decided to legalize him. But what happened was, uh, when co when Congress first in 2014 in the farm bill and then in 2018, um, uh, created these pilot programs and then outright legalization, they did it by changing the definition of him. To me, the cannabis plant with not more than 0.3% Delta nine THC, which is the, the cannabinoid in cannabis that that produces the euphoric high feeling, right? So they changed the definition of hint to be the cannabis plant where they rock bottom level of THC. Um, and so instantly geneticists in legal States were, I’m presented with a challenge. Uh, all you have to do is create, um, females, cannabis flowers whose THC level is federally compliant. And then you’ve got a legal plant. So that’s, that was the revolution between 2014 and 2018 is geneticists taking advantage of this redefinition of him as just being defined by the THC level and breeding varieties of cannabis that matched that definition.
Alan (08:16):
So this is just way off the business side, but it’s fascinating to me that that marijuana is illegal and alcohol is not illegal. It can, I assume being the historian that you are and involved in, in the, uh, this industry, that you have a pretty good idea of why it’s now illegal and you know, what, what took place? Can you give a short story on, on, you know, why, why is marijuana illegal and alcohol is not
Jim (08:48):
the, the, the short history of the marijuana prohibition. It’s no coincidence that alcohol prohibition ends in 1933 and cannabis prohibition begins four years later in 1937. Um, more than anything, both these prohibitions are forms of population control and specifically minority control. These are racist laws meant to control minority populations. Um, in the case of, of the book that I wrote, cornbread mafia where there’s 70 guys on the record being arrested, all of them white. This is very much a, um, an exception that proves the rule, rule concept and very, uh, very few. In fact, in the documents I have cover, um, from uh, internal FBI DEA records, um, investigating the cornbread mafia. They were mystified that uh, all these guys were white, but there were no minorities involved, no foreign nationals involved because every drug organization by definition involved minorities and foreign nationals. Um, because the nature of drug laws is to control minority people and minority populations and we’re just slowly, the legalization of hemp is just slowly waking us up out of um, uh, this, you know, immoral, unethical prohibition that’s keeping, um, a natural plant from the people is how I feel about it personally.
Alan (10:16):
So do you think things in Indiana and Kentucky and this region of the country are starting to move in the direction of legalization?
Jim (10:27):
I think so without a doubt. And, and, and, and here’s the, here’s the X factor is that now farmers have a sense of what this plant and this crop can do. Now, last year was a big disappointment for him, farmers in Kentucky because it was produced because, uh, everyone anticipated the FDA in good faith issuing regulations last year and whether it was in good faith or not, for whatever reason, the FDA did not issue those regulations. And it really hamstrung a lot of plans for expanding the market into major retailers. Uh, and so a lot of farmers got burned in 2019. Uh, but with that being said, there’s still, the farmers have now had a couple of seasons of growing, uh, unfertilized female hemp flowers that look identical smell identical, essentially are identical to marijuana except for the chemical makeup. And, um, farmers are hurting right now. The dairy farm is, is, is almost a thing of the past.
Jim (11:25):
And to keep the farm economy alive in places like Kentucky and Indiana. Uh, farmers need to, um, evolve with the times like everyone else. And, um, in, in Frankfurt, I can’t speak for state government in Indiana, uh, but, uh, I have some experience, uh, dealing with state government in Kentucky and Frankfurt. And if there’s ever a political issue where the police are on one side and minorities are on the other side, in a place like Frankfurt, law enforcement is going to win that political argument almost every time. It’s very difficult to move. For instance, the expungement bills that came, that were passed through the Kentucky legislature, um, it took years to get a very modest and reasonable expungement bill through the legislature because of the active resistance from people like law enforcement. Um, but when you add farmers into that mix, when farmers become a political, um, uh, constituency in a conversation, all of a sudden, all those dynamics change and farmers are, are, are valued very highly by rural legislators because farmers control large voting blocks and they’re small rural communities and farmers are really getting on board with the idea that cannabis, hemp and then, and then full of strength cannabis down the road can really pay the future for the family farm for the next generation.
Alan (12:49):
Yeah. It seems like Sarah, it just in my completely, um, just, just my opinion that it’s no more dangerous than alcohol and that there’s so much money for, for this part of the country to make in, in selling, um, you know, and selling marijuana based products that, that it’s crazy.
Jim (13:16):
Well, let’s see. Okay. So in Indiana you have this, you had this additional dynamic, which is Neela Lilly, right. And Eli Lilly makes products, makes drugs that are directly competitive to medical marijuana. And what’s really fascinating as a journalist in Indiana named Adam Ren, who last year, uh, discovered Elana Lily, the person’s, uh, uh, graduate thesis from the pharmacy college that he went to and his graduate thesis was on cannabis medicine and Lily had like a, literally had a cannabis arm’s medical marijuana farms in Indiana in the early stages of the company. And Eli Lilly, the corporation has sought to suppress this history. And when, when Eli Lilly cannabis artifacts pop up on, on, on eBay for instance, um, you know, there’s, there’s, there seems to be some interest in, in keeping those items from, from being well understood. And a, this journalist in Indiana really kind of crack the lid on the fact that, uh, now Eli Lilly, the company is making products that they feel are competitive to medical marijuana and then so therefore, perhaps a opposed to it. So Kentucky does not have that kind of political dynamic. We don’t have a major pharmaceutical company headquarter here to my knowledge. So it’s not quite the same thing. I think Indiana has a tougher road to hoe when it comes to this stuff for that reason.
Alan (14:48):
Yeah. The history stuff is fascinating. My father was a history for 36 years and I wanted nothing to do with history. I thought it was so boring. And now as an adult, I, it’s fascinating. Uh, you know, I, I love hearing about, you know, the, the odd things like that in our history that, um,
Jim (15:07):
yeah, well, especially now when we find ourselves in an historical moment where we know that this moment we’re living in now is important to the history of tomorrow. Um, having some knowledge of how, uh, you know, people in businesses operated and survived in other periods of turmoil and who came out the other sides of those as the winners is really instructive for a time like this.
Alan (15:30):
Hmm. Well, let’s shift back to business. So the business side win win, I guess what, what gave you the, the courage to pull the trigger and start the business, you know, and, and jump off the ledge and get going?
Jim (15:46):
Well, from my perspective, I’ve been looking, I’ve been looking for one of two things. As a freelance journalist, I was looking for either a stable staff position in a good journalism outfit, um, or an exit from journalism in a way that, uh, leveraged what I had been doing in journalism that wasn’t a cold restart somewhere else and I didn’t just want to get into PR or, uh, government relations or something like that. Um, I, you know, so I was looking for something that I could plug in the work I had been doing. The network I had created, the knowledge I had accumulated in a way that, um, uh, you know, was the next, next step forward. That made sense to me until people looking at it from the outside and this was this perfect opportunity. There wasn’t, um, there wasn’t going to be another opportunity where I could leverage everything that I’d done in the journalism space, in the book writing space to create a product and a brand that people would recognize and trust.
Alan (16:46):
Right. And then getting started, I guess, did you have that first investor in place before you got started before you got started at all?
Jim (16:55):
As my memory serves, my cousin Eric and I started talking about this over Thanksgiving. He had just come back from Nashville and uh, and there were a couple of ways we could have made it work and I just, I just reached out to, to our seed investor. He was the first, he was the first guy we called and uh, he didn’t give us what we asked for. Um, but we got, but it was enough to get started.
Alan (17:20):
Right. Yeah. And I think that’s, we, we kind of, before we got on, uh, started recording that, that talked a little bit about it, that it’s so important when you are passionate about something and have an idea that you feel is, it’s something you can, you would really enjoy doing and feel passionate about you. You have to jump off the diving board before you’re 100%. You’re never going to be 100% safe and ready.
Jim (17:48):
Well, you’re going to be safe. I mean, that’s the whole point, right? Like if, if it was safe, someone would have done it already. But the idea is that as an entrepreneur, you see a vision of where this thing is going. And you also see that no one else is doing the thing. And the only way to secure the thing from being, you know, the only way to do it is to do it. And, and so, you know, you have to, you know, it’s a, it’s definitely a leap, but it’s also a step by step process. You have to keep following it up and, and keep it in motion. Um, no one’s gonna keep it moving, but you know, but you and your co-founders. So it’s, um, it’s something that, you know, like every day at night, something that we, that we do, um, because we’ve got this vision of where this product company can be in five years, but it’s not going to get there unless we navigate the situation.
Alan (18:38):
Yeah. I think I’ve, I’ve read there were Richard Branson talks about the risk level of entrepreneurs and that a real, a good entrepreneur is not a huge risk taker. They are an incremental risk taker. So they, they start one step, but they S they get it started and they take a step and they make sure that, that if they fall from that step, they’re not going to fall too far and then they can keep going, you know, something to that effect.
Jim (19:08):
Well, I mean, th that, that, you know, a man who owns his own airline can say whatever he wants. Right. Um, but, you know, I think that seems like a rock climbing, uh, metaphor, like, you know, keeping a pin in the wall so that when you fall, you don’t fall too far and a lot of truth to that. Um, you know, for us it’s just, it’s, it’s, I mean, the, the risk in, in a, in a CBD company is interesting cause it’s, it’s inherent and it seems on the outside is, is, you know, we’re approaching mainstream, but we’re still kind of marginal. Uh, and so people will understand the risk, but also understand the potential of the value. So, you know, it’s, it’s not like, you know, it’s, it’s, it’s not like a tech company for instance, where, um, some people have, uh, have trouble understanding the risk of tech companies because, um, if you’re not involved in that space, it’s difficult to determine the value of one over another until it’s, you know, the next big thing.
Alan (20:09):
So, on the, on capital raising, what happened next? What was your next move? You know, how, how far did that first chunk of capital get you?
Jim (20:19):
Oh, we’re still talking about that first chunk of capital where we did a 250 K in revenue in our first 12 months. And we’re profitable as about a couple months, a few months ago. So, um, you know, we’re a perpetual motion machine. We’re doing this, uh, we funded around, um, you know, to, to supplement, uh, to help us grow. Uh, but that a hundred K is, you know, is what we’re still, is what we’re still moving on.
Alan (20:46):
So in, in your journey to figure out how you wanted to raise capital for the company, did you, did you talk to other local angel investors or had a w how did you make the decision to go with we funder and in doing a regulation CF crowd fund?
Jim (21:03):
Sure. So there’s a long path, a long process and, and the advice I’ve got from you personally, you personally along this way, uh, um, very much affected our decisions and how we ended up where we are. So I just want to thank you for that very generous, uh, with your knowledge and your time, uh, throughout this process for us. Um, the way it worked is, you know, and as I’ve learned, uh, not dissimilar from many launches, uh, and, and, and, uh, founder, you know, relationships with capital. Um, we thought we had some private equity lined up over the summer of 2019. It looked very good. Um, had a very good relationship with a private equity guy in New York. Uh, thought this thing was going to go through all summer long. And then finally by labor day it was apparent that it was not going to happen.
Jim (21:54):
Um, and it turns out in retrospect that VC guys are very good at part of their skill set is kind of stringing boundaries along until the opportunities right on their side and it just wasn’t working. And so then we pivoted and started networking and reaching out to the local investment community. That in part is where you and I met. Um, whether that was startup week or any of those events down at down at a story, a little go on. He’s on his main. Um, yeah, that was really important to begin that networking process to talk to other founders and other people in investment community. Um, we started last fall offering a convertible note, uh, trying to get a couple of years of operating capital. Mmm. And you know, we didn’t really have, we hadn’t been in business long enough to have a, an evaluation that anyone could really agree upon.
Jim (22:49):
So maybe that was part of the problem. I think that the investment community in Louisville is also rather conservative. Um, and so as a CBD company, that was a challenge. I think a lot of, um, other CBD companies had come and had come before us, uh, and tapped into that investment community and, uh, not all of those investments that the community made in CBD, uh, turned out to be profitable. Um, and so there was some history there. Um, as we went in, uh, looking for investments, uh, I probably, I probably shared between 40 and 50 slide decks with potential investors in a local area, um, before, um, we decided to shift gears and raise a more modest amount. Um, the crowd funding, um, which was a process that we began in January, let’s say. Um, and it took us a while to settle on a platform we found along the way that, um, in fact, uh, Larry Horn from loop from leap [inaudible], uh, told us, um, that, uh, we funder had a partnership with render capital locally and render was offering a 20 K magic investment for the first 20 K.
Jim (24:00):
we raised a and a discount on the wheat, on wheat funder’s percentage. So it just, it just, you know, made that a really simple decision. And we funder for other reasons just turned out to be a really good fit for us. Their team is really great. Just got off a call with somebody from the we funder team who’s going to help us to this next stage of the process. Um, and there’s a lot of, you know, I dotting and T crossing that it takes to get that, to get that page live. Um, learned a lot and that process, you’ll filing a form C with the sec and things like that are things that I have not done before. Um, so there was lots of new and first-time things and learning a new vocabulary along the way. Um, but now we hear on the other side of it, we launched, um, our target date for launch was April 1st.
Jim (24:49):
That was our first April 1st is our, is our birthday as a company. Uh, launched our first products April 1st of last year. So it made a lot of sense for us to watch the crowd fund on April 1st. Um, because of legal and compliance issues. We did get it launched on the first, but it was at like 9:30 PM Eastern. Uh, but just before the sec portal closed at 10. Uh, and then so Thursday the second we hit our first 20 K and a couple of hours and render came in with its matching investment before lunch. And by the end of the day we had 50 K in the bank. And then the following day we added another 10. And now as we’re sitting here speaking up, if we’re just shy of 65, um, and we’re capping the raise at one Oh seven, I, so, uh, we’re over, we’re 60% subscribed and uh, you know, really like, you know, kind of in our first uh, uh, pause in the raise and looking to, you know, carry out this momentum and get this thing subscribed.
Alan (25:50):
Let’s see. I mean, it sounds like you guys are, are, are doing it the right way. And I’ve heard some, you know, good and bad things about people that have tried to use regulation, CF and you know, a lot of the things that I shared with you were your, my experience based on really studying the industry over time and, and doing a different type of public capital raise for my own company. Um, and that, you know, had a regulation D [inaudible] I won’t get into that right now, but the, I think some of the important things to kind of tell the audience for for Metro start is um, you know, generally when you’re doing a regulation CF you have to be really careful. But I think where people have gotten themselves in trouble is, is using a safe agreement that that converts two preferred shares in the corporation.
Alan (26:47):
Uh, and when you have a bunch of small investors in the, and this is, you know, probably over, over the head of, of the audience, you know, talking about the safe agreements. But, um, that’s where I think a lot of companies get in trouble when they do reg. CF is those shares converting to preferred shares because then a VC or a larger investor that comes in later is going to be very uncomfortable with seeing a whole bunch of small shareholders on the cap table. But they’re now, and I assume, I guess that’s where I’m going with this, this question is I assume now that we funder has a advice on how to use inappropriate convertible note or safe agreement that will convert those shares into, into one a LLC or an entity that that would only show like multiple shareholders would show up as one investor on the cap table.
Jim (27:44):
One line on the cap table. Yep. Yeah, that’s [inaudible]. And that’s a lesson I learned, um, from a number of people in the last six months. But, but principally from you, uh, heard, heard you tell me a number of times, keep the cap table clean and it’s, it’s a lesson that, um, that we certainly, um, internalize some of these other equity crowdfunding platforms. Uh, you know, don’t offer this sort of arrangement. In fact, we funder might be the only one. Mmm. We were told by another platform to embrace the messy cap table. Don’t worry about it. Oh yes. Oh yeah. Um, and we were, we were just ready to pull the trigger with that other platform before. Um, we got the news of this relationship render and we funder that just made sense. And then it was part of that learning process. We learned that a we funder, uh, had all the paperwork together, had all the legal stuff done that would allow for that one line on the cap table that makes, you know, that could really make your break the next round.
Alan (28:56):
So the agreement, what kind of agreement did you end up using?
Jim (29:00):
It’s a convertible note, not a safe. Okay.
Alan (29:03):
So it’s a convertible note and basically the, in the convertible note, it just States to the investor that when their shares convert they will convert into an, uh, an SPV.
Jim (29:18):
No, this is, uh, an answer that I should know. Um, but off the top of my head, I mean the [inaudible] their investments convert into equity. Um, but I don’t think it’s a, uh, was the people that I’m special
Alan (29:38):
special purpose vehicle is just an LLC. It’s what a, it’s a single LLC and all the investors roll together into one little little company, an LLC that, that then owns one chunk of the main corporation.
Jim (29:55):
I am unsure of the mechanics of the conversion other than I am certain that it’s one line on the cap table.
Alan (30:00):
Okay, good. Well I guess it’s good. It’s good to know and good to get the word out there to the Metro start audience that, you know, we fund has that under control and, and just for everyone to be aware that when you, when you are doing a regulation CF capital raise, that’s a, that’s a very important thing to make sure that all of your shares, all of your shareholders end up as one investor on the cap table.
Jim (30:28):
Right? Because when, when that next series a or that next big fundraiser comes around, you don’t want, um, a larger investor interested in your company and then finding a reason to say no because the cap table is too messy.
Alan (30:41):
Right. And it’s just the mechanisms are all there. There’s no reason why you, you can’t make that happen without gumming up your cap table and you know, you just need to be careful. And Mmm. As you mentioned, I’m shocked that there are, that there are reg CF portals that haven’t addressed that and just tell you to forget about it. That’s crazy.
Jim (31:05):
Literally told us. And I don’t want to, I don’t want to spread, you know, I don’t want to talk bad about a platform, so I won’t say who, but just, just know that we funder, uh, it has been really good, like not just in terms of the mechanics of what they offer, but they’re, you know, their customer service and their help getting us on board and their team to help manage this raise once we’re in the midst of it has just been, it’s just been really great.
Alan (31:32):
Oh, that’s good. That’s good to know. So, um, and it’s, it’s really good to know about, about render. I guess I knew about that, but I think our, the audience really needs to know that that’s a great resource that they’ll match $20,000 for your raise. And then also you get a discounted fee.
Jim (31:50):
Yeah. It’s [inaudible] it’s 5% instead of seven.
Alan (31:53):
Yeah. So just, just I guess a two. So everybody for the audience to understand the way it typically works when you raise capital on a regulation CF portal, that regulation CF is the, is the exemption that you are using with the sec. So you are filing with the sec to tell them that you are going to raise capital for your company and that, um, you are going to be using a portal that allows you to, um, sell equity in your company. And that the typical, most of those portals that I’m, I think 7% is the average. And, and what happens is you, you, you set up a [inaudible], a page, a landing page on their site and they collect the funds for you and you can advertise, um, that landing page as much as you want to, um, with certain restrictions on what you can say.
Alan (32:52):
And can’t say, but you can advertise as much as you want to drive people to that page. They invest, the money goes into an escrow account held by we founder or whoever the portal is. And then once you complete your res, they take their 7%, or in this case 5% out and uh, and then you, you take your money. So it’s a great mechanism, but you have to be ready for it and you have to, you, it’s not, it’s not going to work if you just, if you, if you’re not prepared to do some marketing. Right. Is that, is that your experience right now? I mean, if you guys put some marketing effort into this,
Jim (33:33):
I mean, honestly, not yet. Yeah. I mean, that’s going to be, you know, that, that’s a, that’s a next stage, like once our, once our network is tapped out, but we got to, we got to 50 with, with render, uh, through, through a friends and family network, um, in friends of the company. And then we’ve, we’ve sent emails to our customers and our retailers and we just put it on social media today. You know, it’s, we’ve not yet purchased a single ad, um, for this capital raise at all.
Alan (34:09):
Well and they, I think what you mentioned there though is important too, that I think if you, if you are a business that has a lot of customers regulation, CF, I think that’s a good place to use regulation CF because you do have a [inaudible] you have an audience out there that you can advertise to already that you’ve already built. Uh, you’ve got, so if you have social media that you’ve built up, if you have email lists that you’ve built up, that’s gonna go a long way to help him with a regulation CF capital raise.
Jim (34:39):
Right. Cause then you, you, you, you’ve, you’ve converted that customer into a, into an ambassador and, uh, you know, someone who’s, who’s really gonna talk to other people about your product because they’re there, they’re bought in.
Alan (34:51):
Right.
Jim (34:53):
It’s really, it’s really the ideal investor.
Alan (34:55):
Yeah. Yeah, exactly. Cause they, you know, if they really care about what you’re doing, they, they would like to own a piece of it and it’s, um, it makes it more fun for them. You know, to own a little piece of something that they, that they like. So, um, yeah, I think that’s, I think especially, you know, consumer facing products that, that have some ability to scale and build a company, um, are, are probably a good place for regulation. CF,
Jim (35:23):
I just want to, I want to share one other little thing that I’ve learned about the CF that might be a picture as to your audience. And that is um, uh, with we funder you can begin withdrawing. Um, you can a trench, uh, at 50 K, um, and also you have to wait 21 days and that’s a federal law between the start of the race and when you can first make a withdrawal on the race. Um, and 50 is the minimum per wee funder. So once you cross 50, um, you’re able to begin a trench. Uh, but you can’t do that until 21 days out. So right now we’re in the midst of that 21 days and we’re interested in and just maximizing what we can, what we can raise towards our goal and that 21 days because what’s an escrow at the end of that 21 days, we can go ahead and withdraw.
Alan (36:20):
Yeah. I think that’s a, that’s a really important thing to mention because if you, if you build that into your plan and you can raise that first $50,000 Mmm. It, depending on how much money you’re raising, I almost think that that, that can be used to build your marketing team to really accelerate your capital. Raise my, my advice to people now just learn what I’ve learned about regulation, CF crowdfunding and then the larger version, which is regulation a plus crowdfunding, is that the companies that are really successful, they, they almost set up part of their company, part of their ongoing operations are capital raising. Um, and I think that’s something that, you know, to think about if you’re going to go that route of publicly raising capital, that needs to be an ongoing part of your business until you feel like you’ve accelerated your business to a point where you don’t need to raise more capital. So I think that’s just, you know, general advice for that type of capital raise.
Jim (37:29):
It always takes more time to do this then, uh, you want it to. And it became very clear to us early on that, Mmm, the fundraising and the networking required to, to, to, to start the fundraise to, you know, to be the fundraise takes more time away from the core business functions then than anybody wants it to. But the more you embrace the reality that you’re going to have to spend some time doing it, uh, and adjust, you know, accordingly and communicate with the team that that’s what it’s going to take, the better off the team is.
Alan (38:03):
Yeah. And I’m hoping that, you know, I’ve talked to you about it and it’s not really a, I’m not releasing it publicly yet, but one of the things Metro start has always planned to do is, is build pre-build and audience that companies like yours can use to raise capital when you’re raising capital for your company. And we have some things in the works that are going to greatly accelerate that, uh, building that audience so that, that Metro start can help, uh, local companies and regional companies. Um, you know, Excel, just really prime the pump for a capital raise if you’re raising publicly.
Jim (38:48):
Yeah. That’s really sort of the step that we’re in right now where I’m past the friends and family stays stage and in, in the, you know, regional investor, um, customer stage where people will know us, uh, as a company, uh, and, and, and are interested in us as a company, not that they know us personally. Right. So, um, effectively doing, uh, getting a, a bump, getting a, a chunk of this raise done at that stage is where we are. And it’s just a new sort of level of reaching out to folks, um, and uh, and getting on people’s radar. And a lot of times it takes two or three or four touches from various ways. But, uh, you know, we haven’t, we haven’t purchased any ads yet on like LinkedIn or, or Facebook. Uh, we’ve got some interesting challenges as a CBD brand. We can’t, it’s difficult for us to advertise on social media platforms. Uh, but I believe for the fundraise that we will be able to because we’re selling shares, not products. Um, we’ll, we’ll see if that works out the way that if they get my, but, um, certainly on LinkedIn we can, we can run ads and eventually, uh, a third stage of this fundraise might include some, some LinkedIn ads.
Alan (40:05):
Nice. Well, I’m anxious to see, you know, when it’s all over with, we’ll have maybe do another podcast just to get your recommendations on what you’ve learned.
Jim (40:15):
Oh, sure. W in, in, you know, like I’ve learned a lot that, you know, that I, I didn’t realize the skills that I didn’t have. And, um, doing things like networking at startup week and going to these events downtown with other founders and investors really helped get my mind around the skillset necessary and, uh, and the vocabulary necessary to really navigate, uh, this stage of growth. And, you know, it’s, um, we’re in the middle of it now and so, so bye. Bye. That alone, it’s been a success. Um, but we’re really looking to just maximize that, you know, in this 21 day window.
Alan (40:58):
Alright. So for other entrepreneurs out there yet that, you know, you mentioned a number of things, is there anything else that you, you would think you would want to tell and are they the entrepreneurial community about starting your company and fundraising and, um, you know, where, how to get started with all that?
Jim (41:18):
Well, goodness, I mean the first thing to know is that there’s still capital out there in the age of the coronavirus economy is a really scary time to be raising money, but there’s definitely money to be there. Um, you know, you’re going to have a lot of conversations with a lot of people and they’re going to tell you all the reasons why they can’t invest with you right now. Um, and it’s important not to take those nos personally, uh, to bounce off of them, to uh, to circle back to those people and give them an a second opportunity. Um, because sometimes that no turns into it. Yes. And just to not take that stuff personally and just move on to the next one cause it’s just an opportunity for them and you’re giving them that opportunity cause you like it.
Alan (42:03):
Yeah. That’s a good point. When you’re any type of entrepreneur, there’s going to be a whole lot of nos and I’m not taking it personally. Is, is really important cause you can, you can, you can make yourself a pretty miserable if you’re taking too, too many nos to heart.
Jim (42:22):
Well, and some of those are good nos and some of those were bad nose, right. So no, they’re ignorant knows and some knows. Makes sense. Um, so the, the, the nose that makes sense are easy to bounce off of. It’s when someone says no and then they give you a reason that doesn’t make any sense. That’s frustrating and it’s fine to be frustrated and it’s just important not to take it personal.
Alan (42:41):
Yeah. Well I appreciate you, uh, you know, coming on and, and we’ll uh, uh, I’m going to send out an email with this podcast and information about how to invest in cornbread. Him.
Jim (42:56):
Yeah. It’s just a we funder.com/cornbread head. It’s the easiest thing in the world.
Alan (43:02):
Okay. Um, so yeah, it’d be nice to it. Hopefully some of our audience can, uh, help a local company grow and um,
Jim (43:11):
yeah, help a local company grow. Get on, we funder, go to [inaudible] dot com slash cornbread head and uh, and, and jump in here. It’s great.
Alan (43:20):
And my belief is that that crowdfunding really will be the way that startups get started more and more in the future. If you look at the numbers, the, you know, bigger investors are waiting later and later, seasoned angel investors are waiting to invest at later and later stage. So R w R in order for us to keep getting startup started, crowdfunding is going to have to be used and people are gonna go on to need to support local startup companies. And um, you know, that’s where all the jobs come from. That’s where growth comes from and the economy. So, uh, yeah, anybody listening get out there and invest in cornbread, hemp.
Jim (44:02):
And that’s a, that’s how creativity gets realized in the marketplace, right? That’s like people have ideas and those ideas have traction. And in our case, it’s a product company. Uh, but w we need help to get this thing to grow, uh, at a time when we can’t be on the road like we used to. And so this is just a really effective vehicle to help move that forward. I got one, one idea of, of, of a, of a good sort of nuance tip that I’ve learned in this process that I’ll pass along to your listeners. And that’s pro-rata rights, which I did not quite understand before. But, um, in this case, uh, some investors in early startups can be concerned that, uh, their position that their, you know, their equity position will be diluted in later rounds and to a certain degree, they’re not incorrect.
Jim (44:50):
Right? So, and so the, the solution to that is pro rata rights and that is the level at which you allow investors to have the right at a later investment round to reinvest to maintain their equity position. Um, and, uh, the boiler plate language in the we funder contract for the convertible note is 25 K investment for, uh, pro-rata rights threshold lowered that to 10 K, uh, to give, uh, more people the opportunity to maintain their equity position. Um, because we felt that, you know, for people who are asking about it, that’s important and we weren’t going to make it so expensive as to be, you know, an unachievable for at that level. So if you’re interested in coming in and cornbread him with pro-rata rights, the threshold’s 10 K.
Alan (45:43):
excellent. So how can anybody contact you if they want to?
Jim (45:48):
Uh, I’m reachable on all the social platforms. Uh, I’m James Higdon on LinkedIn and Jim Pickton everywhere else. So at Jim Higdon on Twitter, uh, Jim Higdon on Facebook. Um, they can also email me directly at gym, at cornbread, hip.com.
Alan (46:03):
Fantastic. All right, well Jenn, thanks again for coming on the Metro start podcast and good luck with the capital raise. Good luck with, um, getting through the,
Jim (46:13):
the whole pandemic. Thanks. Thanks for having me on. I really appreciate your advice and your mentorship along this process. You know, crowd funding when I started this process wasn’t something that I even understood conceptually. You really helped me think my way through this stuff. And so thank you for having me on your podcast and include me in the newsletter. Uh, you know, cornbread hip would not be here without, uh, without the advice and counsel of great people in the liberal local start community and, and, and you know, you’re a, you’re a great citizen of that group.
Alan (46:45):
Well that’s nice to hear cause it’s, you know, that a lot of times, um, [inaudible] you wonder and who, how you’re affecting things. And, and know if I can help get a few companies started then, then you know, I’ve done something and that I’m happy about. So I, I’m glad to. Glad to see what, how, how well you’re growing and that we’ve under is working for you and I know you’re going to be successful. Thanks so much. All right. Thanks. Bye.
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