Shark Tank’s Daymond John on the Importance of Crowdfunding for Entrepreneurs

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Equities.com | Daniel Banas | Aug 12, 2016

Shark Tank Daymond John

You’d be hard-pressed to find a more inspiring entrepreneurship success story than that of Shark Tank star Daymond John. Growing up in Hollis, Queens, John had few advantages or connections to the business world. Yet, after he started selling homemade hats in front of the New York Coliseum, he quickly learned his humble side business might have major growth potential. John and his mother mortgaged their home for $100,000 in order to fund the apparel business that would eventually become FUBU, a brand worth about $6 billion today.

Thanks to his role as an investor on the wildly popular ABC reality series Shark Tank, John has graduated from successful CEO to an entrepreneurship icon and a brand in and of himself. Recently, John has been involved in Miller Lite’s Tap The Future, a competition that allows entrepreneurs to pitch for a chance to earn more than $200,000 to fund their businesses.

Equities.com had the opportunity to speak with Daymond John about the Tap the Future event, the growing importance of crowdfunding for entrepreneurs, and the state of today’s business climate in general. Check out the interview below:

EQ: Thanks for speaking with us today, Daymond. To start, could you tell us a bit about the Tap the Future Event? What excites you about getting to connect with entrepreneurs directly?

John: I find so many aspects of it exciting. This is our fourth year and our sixth city. Some who pitch will win $20,000, and one contestant will go on to win the grand prize of $200,000. But what I find most exciting is that for the most part, this is free money. We get a lot of entrepreneurs that get up there and pitch head to head with others to see who comes up on top - and they don’t have to give up any of their company to do this. Also, at the events we do a live pitch where three or four people can get up there and pitch live for $500,000. You wouldn’t believe how many people are so well prepared. Their names are pulled out of a hat and they’re ready to go. It’s just like-minded people getting together, and for some, walking away with a bunch of money. I love it.

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EQ: Your role on Shark Tank has certainly put you in the spotlight, and sort of made you an ambassador for the general public entering into the business world as entrepreneurs. How do you feel about being the conduit for a lot of America to learn about just the basics of startups, investing and equity?

John: That’s a good question, I never thought that I would be in this position. There are so many entrepreneurs that are more wildly successful than me, and others who are not necessarily where I’m at. I find it amazing, because no matter what level of entrepreneur you are, we all go through some of the same anxieties, same fears and the same small things to celebrate. It’s a great position to be in, and it’s great to know kids watch the show as young as five to 15. They love the show. It’s even better knowing that the next president, or the next Steve Jobs or Bill Gates may be watching the show.

EQ: What do you think are the main challenges that most people starting out as entrepreneurs don’t expect about building a brand and a business?

John: I think the thing that people don’t know is that money is not necessarily going to get you there. Money is a byproduct, an after product. Once a concept is already proven, then you can add money to it and take loans out and seek out investors. Then, you can double, triple or even quadruple what you're doing, because you've already proven how you're going to scale it. Other than that, people think that everything is just going to go away with money, but it's not. It doesn’t have a strong foundation. You have something that is inferior.

Money is not going to take that away. It’s going to actually give you a superficial high. You’re going to go out there and just keep spending and spending. Also, entrepreneurs just don’t realize how many times they’re just going to hear “no”. They're going to hear “it can’t be done,” or “you shouldn’t do it,” or “you're going to embarrass yourself.” It’s easy for somebody to give advice. Advice is free, and it's not worth anything.

EQ: That makes a lot of sense. Many people definitely seem to think that once money starts coming in, all their problems will be solved. How would you recommend people make that next step once the money is starting to come in and it appears they could be successful? What is the transition to sustaining that success?

John: First of all, it's reinvesting more of your time and energy into what is making things work, and then also trying to reinvest your time into how you can strengthen the ship and look at the things that are not working well, because it's never going to be perfect. Don’t think the money is going to sit there and solve those problems.

Once you receive the money, if you don’t invest in your education, you’re not going to really realize where things are going in the future. You’re going to say, “All right, I made it. Let me get an expensive advisor, or let me buy a big campaign,” instead of taking the time, effort and energy. If you take your eye off the ball and hire a bunch of people, the only selling they’ll be doing is selling you on the idea that they’re doing a good job. Just because you're making money doesn’t mean that you should go and spend more.

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EQ: What excites you about today's business environment? Do you think it's a good time to be starting a business right now?

John: I think it's a great time to start a business for a few reasons. To think that you can use your smartphone to open up a shop right away on Shopify or you can go to the Miller Lite Tap the Future Competition and win $20,000 or open a crowdfunding platform. I think the access to capital is just there, and it's a great time. The challenge is that everybody can do the exact same thing. At the end of the day, the fundamentals of business are still the same. It’s not like training for a fight, or something like that. There are so many different techniques, and so many different ways to fuel your body, but you're not going to cheat and get away from the hard work that you've got to put in. It's the same with business.

EQ: You mentioned crowdfunding. Now that the recent rules for Title III Equity Crowdfunding have gotten off the ground, there's a lot of speculation about how this could reshape early stage capital formation. As someone who is on the frontlines in this space, what sort of changes do you expect to see in crowdfunding? Do you think the JOBS Act is going to make a huge difference?

John: I see in the crowdfunding space some things that kind of level the playing field, and I think that being able to go out to the general public is going to be helpful. I believe over 75% of capital that was issued from venture firms over the last year went to three different states. It went to California, New York and Massachusetts. Out of those three different states, it went to very small areas. If you look at the data, I believe less than 5% were to minorities and female-owned companies. But if you look at crowdfunding platforms, about 40% of companies that were funded were female-owned. I think it helps by giving at least proof of concept. In any business, there are going to be a lot of people that are going to lose money who are not seasoned investors. They have to be very careful about that, and there's going to be more regulation to come down as we see this.

Overall, crowdsourcing is something that’s good. You’re going to get your 20% that are going to do the right thing, and the right platforms that are going to come out there and empower people. Then you're going to get a lot of the other crap that comes along. Like in any business, it's always going to be 80-20.

EQ: As an angel investor yourself, do you think that crowdfunding is going to take a bigger piece of the pie? Do you think that you're going to see more people taking that route, instead of going to angel investors like yourself?

John: I think there's a good reason people are looking to crowdfund first. Why shouldn’t you go the crowdfunding route before you go to an angel? Like I said, you’ve got that proof of concept, so why do you want to go and raise $1 million? You’re going to raise $1 million much faster if you go on a platform, and you have a mark of a $100,000 and you supersede it and get $150,000. You then went ahead and delivered the goods and people reordered the goods. I see people go on crowdfunding platforms, they get a $100,000 worth of money, and either they don’t deliver the goods or the goods come in and they’re crap and people are pissed off. As an angel investor or a venture capitalist or a buyer at a retail store, I want to know what is going on. Having a track record is always better because it's always a risk on our side.

EQ: That's a good point. I’m sure it helps when you do go to the angel investors if you have that experience with crowd equity.

John: Crowdfunding is not anything new. When I stood in front of The Apollo Theater, it was the crowd that funded me. It’s no different. I took that over to my backers and said, “I stood up there all night and I sold out all my stuff.”

Or they came up to me and said “everybody’s talking about this kid in front of The Apollo Theater with hats.” It’s just a different platform, but it's the same method of reaching individuals.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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