Art.com founder Josh Chodniewicz on building a new platform for investors and startups

Back in 1995, only 14% of Americans had internet access, and most of that was painfully slow. But Josh Chodniewicz could see the future of ecommerce, and started up Art.com, which eventually grew to over 1,000 employees. Now as an investor, Josh has struggled with building a diverse portfolio, having access to deals, and finding experts to vet the companies in industries he doesn’t know very well – and that’s exactly why he’s starting Fundify.

Transcript

Voiceover: Welcome to First Check, a podcast so you can learn how to be the next great venture capitalist or angel investor.

You’ve seen the Uber’s, Google’s, and Pendo’s of the world; the 10 X to 100 X returns. And you want to know how you can get in on the action. As a partner at Cofounders Capital, Host of First Check, Tim McLoughlin has invested over $43 million in startups. And on this podcast, he’s going to share with you what works and what doesn’t so you can be ready to write your first check.

On each episode, Tim brings on investors and founders so they can tell you the ups and downs of venture capital and what lessons they’ve learned along the way.

Today’s guest is Josh Chodniewicz, founder of Art.com, angel investor and now the CEO of Fundify.com, an equity crowdfunding platform that simplifies startup funding. On the show, Josh talks about the Art.com journey and his struggle to find capital, what he looks for when making angel investments, and how Fundify fills  gaps in angel investing such as deal flow and access to experts. 

Here’s the host of First Check, Tim McLoughlin.

Tim McLoughlin: Josh, how are you doing today?

Josh Chodniewicz: I’m doing great. Thanks. Good to see you.

Tim McLoughlin: Thanks for being here. You got to take us back 25, 26 years. Tell us about the early days of Art.com.

Josh Chodniewicz: Oh goodness. The early days started with, uh, with my buddy, Mike Marston, who I met in first grade or back whenever that was. And then those years of playing wiffle ball together all turned into him calling me while he was at Virginia Tech getting his computer science degree. And telling me, “Hey, Josh. This internet is going to be huge.”

And this was in 1994 and I replied with, “What’s the internet?”

That started a conversation around what can we do with this new found knowledge that this internet was going to be huge?  And we landed on selling posters and prints. That’s how we got into it at least and got started. Right? So that, those early days were Mike in his college apartment at Virginia Tech and I was in New Jersey in the basement of my parent’s home trying to sell a poster.

Tim McLoughlin: This sounds like the entrepreneurial, cliche story. Two guys in a basement, or two guys in a dorm room, or two guys in a garage. And it sounds like you checked all those boxes.

Josh Chodniewicz: Yeah. It seems like it went that way. I mean, it was, and it’s free rent, right? It’s all those types of things. It’s just getting by and making things happen and, and, really the best entrepreneurial stories I think come out of finding something that you believe in that will happen down the road, right?

You believe you can see the future, if you will. And now it turns into an execution challenge, right? Now you got to make that happen.

Tim McLoughlin: Yeah. Well, I like to think that, you know, I supported you through my boarding school and college days. I like to think that I supported Art.com quite frequently. I had, speaking of cliches, all of the posters I’m sure you can imagine all over my walls from the, the, the funny movie quotes and all that stuff. So.

Josh Chodniewicz: I appreciate it. Thank you.

Tim McLoughlin: Oh, you got, you got it. You got it. We’re going to get into your, your whole investing story, but maybe tell us about the little fundraising story behind that company. That seems like one that grew and scaled quickly. I mean, was it bootstrapped? You raised angel capital? What was the story there?

Josh Chodniewicz: So, we bootstrapped the business in the early days with $35,000 of our own money. We did try to raise some money from angels. But we tried to raise in the early days a couple of, I think it was $250,000 we tried to get. We couldn’t get a dollar, frankly.

So, no one would invest in these 19, 20-year-old kids that didn’t know what they were doing and had, you know, big dreams. And so, we had the bootstrap it just kind of on our own and, and build it profitably, which is kind of unheard of. But, but that’s what we did. We just did the work ourselves and persevered and, and eventually built a business that was, it would have now started to have revenues and was making things happen.

We, I remember later on trying to raise a couple million dollars. At the same unfortunate results, nobody would invest. I don’t know if that’s because we didn’t know how to raise it, or we were  thinking about it incorrectly.

But I do remember there was, it was very challenging. And that ultimately, yeah. Obviously, I lacked a lot of experience in raising capital because I had not done so to that point. And didn’t really know how to go about doing so. And so we tried, but I don’t know whatever the challenges were, we couldn’t overcome them.

And so again, we were left to just building a business and, and so we did end up raising one round. It was 10 years in. We joke because it was our seed round and it was also a $58 million round. And it was the only round really that we raised. But it was more for different reasons than it’s more growth capital or, you know, that’s point. Because your business was already substantial at that point.

We actually raised half of that and then we, at the same time, within weeks, we ended up merging with our biggest competitor, Allposters.com at the time. And so, they had raised $30 million, they have raised half of it on their end. We had raised half of that 58, and then would just put it all together on a conversation that went a little bit like this, “Hey.” Called the other guy out and said, “Listen, we both raised a lot of money. We’re going to spend it fighting each other, or we could just join and keep the cash.” And so that’s what we did.

Tim McLoughlin: That sounds like a good phone call. To our listeners here and people that are looking to get in the game for the first time, a $58 million seed round is, that that is what we call an outlier there. Just so, so when everybody is thinking about how much capital to put into these companies at the seed stage. So from a, I guess, frustrated entrepreneur perspective that tried to raise money, let’s take that perspective first. What was the most frustrating part about trying to raise capital as you were talking to investors?

Josh Chodniewicz: The most challenging and frustrating part was frankly, getting “No’s” and at the same time, having to build your business, right? And every time, I think what happened if I recall, it was more like the circle where you haven’t done this yet. Well, that’s what we need the capital for, right? And, and, and, and you kind of turn around.

I’ve since learned that I used to blame it on investors. And I, I,  I’ve since learned that it’s really more of a testament to the fact that, hey, you couldn’t raise it so you couldn’t raise it. I mean, that’s it. When someone says anything except they’re writing you a check, that’s a no. And so, you can sugar coat it however you want, but if you’re not getting money in the bank, then that’s a no. And so, take it for what it is. And either pivot, change, build, execute harder, you know, that sort of thing.

Tim McLoughlin: Yeah. I try to, you know, I often say on, on this podcast and other places where 99.9% of the time I’m meeting with companies and my answer has to be no. That’s just, you know, the number of deals that we see and the volume we see. And I can understand an entrepreneur’s frustration when I’m going to say no, when they need a little capital.

And when I’m telling them, I need to see, they need a little bit of capital for. But you try to get ahead of that and let them know, “Hey, listen, these are some things you can do in the meantime, while you’re trying to raise that capital and move your business along.” Or maybe targeting another investor that understands your position situation might be the way to go to overcome that.

But I can sense the frustration in entrepreneurs when I talk to them. And, and that’s the response to say, “Well, I need a little bit of capital to prove that out.”

Josh Chodniewicz: Right. Well, I mean, I’ll make a comment on that, is that, even recently, and I know we’re going to talk maybe a little bit about Fundify here in a little bit. But even when you and I originally talked about fun to find what I’m building, what I appreciated about what what you did and your firm is, although it was a no from you and your firm for whatever reason it was, you very quickly said, “Well, how can we actually help?” And made a few introductions, actually, to different people. Some worked out, some didn’t, but it was really helpful. And that’s the kind of environment I think that entrepreneurs need is what you’re building. Because you’re allowing for that to happen.

Right.? You’re allowing to still get the results even if you’re not the solution, right? I think that’s ultimately what a good ecosystem will do. And eventually, you know, that turns around to help you, right? It, it just helps everybody in that regard. So, I think the more that people can do that sort of thing and help and say, “Okay, it’s a no,” but if you do agree with the person or think the idea is a good one, it just doesn’t fit exactly your model, well then who do we know? Or how can we help them make that happen?

Tim McLoughlin: And one of the reasons that we’re doing this podcast and bringing awareness to angel investing and maybe some early stage fund creation and micro funds is, when an entrepreneur with a good idea comes and talks to us, and we think the business is good, like you said, we want somewhere to turn them if it’s not part of our fund thesis. Who can I introduce them to that might write a check to get them to where they need to be? And when I see a lack of capital funds, maybe certain industry expertise that are writing checks, it’s a frustrating end point for me in a conversation with an entrepreneur.

And I’d much rather be able to send two quick emails, three quick emails with meaningful introductions on their behalf. And so that’s part of the reason why we’re doing this. Is to spread awareness and create more pockets and sources of early stage private capital.

Josh Chodniewicz: Right.

Tim McLoughlin: So, let’s fast forward then into your, now, you’re going from the entrepreneur, wearing the entrepreneur hat, maybe to the investor side. Do you remember your very first check?

Josh Chodniewicz: You know, I was really fortunate because my first one turned out to be a really, really good one. I’ve had a good handful of ones that didn’t work out. But yeah, my first check was an idea on a napkin. It was a couple of 20-year-olds uh, that were in Berkeley. And then an idea to build a competitor to Shutterfly. And so, the company today is, the name of the company is Mixbook. And, I wrote the first check to that business.

They raised $120,000 and it was a half a million dollar valuation. It was really early, early. I mean, literally, it was an idea on a napkin, you know. And we crushed it and that business today is, is booming. I think they’ve got 40 or 50 people there full time, profitable, and growing every single year. Since it started, it’s been growing.

And so it’s, it’s lovely to see that type of, you know, that happen. It’s the only company that I’m still on the board of outside of my current ones that I’m running. I’ve kind of recently taken myself off of boards to focus on what I’m building now with Fundify. But that was my first take on that of investing.

We haven’t had a, a full exit there. Although, we have had some liquidity that came from it already. So, I was fortunate that I was already able to take more than my fair share out. My share of the, uh, of my original investment out. So, multiples in already and have way more running. And so, it’s a good spot to be in.

Tim McLoughlin: And Josh, I remember the first time that we chatted you were giving me some insights into some data, right? That you had looked at on what helps make angel investors successful. Then there’s certain things, certain check boxes that say, hey, if you do these things, you’re more likely to have success with angel investing.

And one of them was if you have some expertise in the industry where you’re investing. And obviously, it sounds like the folks at Mixbook and when they came to you with your experience and background, you maybe didn’t know it at the time, but you were kind of following those guidelines; have you had some experience in this? And so, talk about what you’ve learned through that and maybe what, why those kids out of Berkeley approached you?

Josh Chodniewicz: I think they approached me simply because they knew me. And I think that’s probably more true  and an accurate reflection of what happens out there meaning– One way that I like to put it is pretty much all entrepreneurs I meet will tell me they want to raise smart money.

I have yet to meet an entrepreneur who has not taken money from someone who knows nothing about a business. Right? If someone’s willing to write a check, they’ll take it. And the reality is though, that check is just money. It’s either money or it’s worse. Right? And it can’t be really better. The real credibility comes when an entrepreneur raises money from someone who knows their space or what they’re doing because there’s, you know, significant credibility that’s, that’s added to it.

In this case, with this particular company, you know, we have already had millions of customers that have paid and bought items online. And we knew in a very good sense of where the internet was going and, and the benefits of a browser, for example, versus downloadable software in this case. And so we were able to see those things and see the writing on the wall before other people saw it.

And so, that investment turned into be very positive for them because we saw it, we invested, and it’s part of the reason why it was successful. Because we also got to advise them along the way and help them avoid any significant, you know, fatal mistakes. I don’t want to take too much credit because really it’s the entrepreneurs that have done, Andrew LeFou in there, Eric Gross, the two founders there, they’re the ones that did all the work. But the reality is they were smart to surround themselves with a few people that knew, not just me, but others, that knew what they were talking about and then listen to that advice and take it when they felt it was appropriate.

Right? And, but also reject it perhaps when they thought they, you know, and they maybe knew more than what we did because no, nobody knows more about the business than the entrepreneur, itself, right?

Tim McLoughlin: That is such a great point. And it did take me maybe a year or two of investing to realize what I want to hear isn’t, “Yes, you’re right,” when I’m making a recommendation to the business. It’s, a thoughtful response is, “You may be right and maybe I should test that,” from the entrepreneur. Or, “I don’t think you’re right and here’s why. Because I’ve been spending two years or 10 years or 20 years in this industry, and I’ve already tested these things. I’ve already seen that the market’s not receptive to it. So, good idea, but I’ve tried it and it’s not the way to go.”

I now, before we make an investment, need to hear that. We sometimes do postmortems on deals that don’t work out. And on a couple of them, you know, when it’s, hey, what red flags did we miss in our diligence process?

And they were a yes-person, right?

Josh Chodniewicz: Right.

Tim McLoughlin:  And every, every idea we gave them, they thought  was the greatest idea. And there’s no way that’s true. There’s no way that I have that many good ideas in a single meeting, right? And so, that’s something we look back on and we actually flag now in our diligence process.

Josh Chodniewicz: Yeah. Ultimately, your goals are aligned in that they should be about success of the organization, right? Shareholder, increasing shareholder value, that sort of thing. So, questions you may ask or suggestions you may make are really more suggestions or questions, right? As opposed to making things happen. In the early days of Art.com, or maybe in the later days of Art.com, my CFO once told me, he said, “Listen, you got to be careful what you say, Josh,” because we had a thousand people working for us at one point, you know?

And, and he says, “If you say something just as an idea, four people go off and do it at the company.” And I’m thinking, wait, I didn’t want them to go do that. I just wanted them to think about, like, did anyone have any thoughts? That’s all I was wondering. And so, we have to be careful what we say and what we do, right?

Because, and be very explicit about, we’re trying to, this is a discovery meeting, or this is just questions, or this is actually, we’re going to go do this and we’re going to execute on, on this part of our mission, right? And so, yeah, it’s, it’s interesting to hear some of that perspective from you too.

Tim McLoughlin: And entrepreneurs are probably going crazy and they’re sitting here saying, “All I hear about is this word ‘coachability’ over and over again. And investors want to see coachability. And then, the first time that I tell them no to one of their ideas, someone calls me ‘Not coachable.'” And I think it’s a fine balance and I think maybe just point out that we understand maybe sometimes  the challenges in walking that fine, that fine line.

Josh Chodniewicz: Yeah. It’s a good point. That, that’s the challenge that we all have. Investors have it as, you know, as they’re making investments, but startup entrepreneurs have it as well. It’s that balance of being coachable, but also knowing when to say, “Hey, listen. I’m confident in what I’m doing here.” Right? “I’ve been doing this for a while. I know it better than, than most people out there.” And if you don’t know it as well as other people that are just coming in, well, that’s a, that should be a flag. Because you clearly aren’t diving into it or you’re doing something else with your time, right? So, the reason why, you know, I, for example, when I, when I go through my pitch deck with a perspective investor, most of the time I’ll hear, “Wow, this is really put together, I have one or two questions.” And the reason why it’s like that is because I’ve heard a hundred questions and each time reflected upon those and said, ‘Wait, listen. This slide over here, I thought was very clear.”

But it’s clearly unclear. And, because this person came away with a different perspective than I thought I was giving to them. So, now how do I make a modification to adjust for that without changing my thesis. Unless that’s appropriate, right? But every time making it a chance for an incremental improvement on what I have.

Tim McLoughlin: No, it’s so true. I remember raising our second fund at Cofounders and, and presenting our deck and trying to raise money from it. And once, all of a sudden, you got enough people asking the same questions, you say, “Wait, there’s something wrong with the way I’m presenting this information or I’m telling my story. I need to adjust this. I need to tell the story differently. I need to change the deck and the layout.”

Because although it makes sense to me, all these people aren’t wrong. I’m wrong. Right? I’m the one that, that didn’t do a good job presenting it.

Josh Chodniewicz: Right.

Tim McLoughlin:  So, I want to, I want to, I always love when there’s an entrepreneur-turned-investor on because I like to think of, maybe, questions you ask or a diligence process you implement, because you’ve had that entrepreneurial experience that maybe you wouldn’t have, you know, back in the day. But, um, what’s important to you now?

Josh Chodniewicz: Well, I’d tell you that most, most people making investments look at the idea more than they look at the person that’s leading it. But they’ll say it the other way around. I really do genuinely think about the person that’s leading it and running the organization because most businesses that are successful change along the way.

That doesn’t mean they’re completely different, but that means some process changed, competitors came into play over the years, things got moved and, and adjusted. And you want to bet on the right people to make the adjustments that, that are needed to succeed and to, uh, to win in a space that they’re in. So, some of the things that I didn’t know to ask in my early days of writing checks was, “Is this your full-time job?”

Something simple as that. “Is this the only thing that you’re doing?” Because if you tell me it’s something else– my father used to tell me, “If you try to catch two rabbits, good luck. You’re not going to catch any of them.” Because it’s hard enough to catch one, right? So, if you’re looking at two businesses, you’re doing two different things, you get two different priorities, good luck. It’s not going to be successful from an entrepreneur.

So, that means as an investor, my money is going to go with that rabbit into the woods and I’m not going to have it, right? I’m never going to get my return. And so, I’m looking for entrepreneurs that are all in, that are intelligent, that have, you know, a good amount of intelligence that can execute, but, but really it, and then it turns into this execution issue, right?

If they’re really intelligent and they’re putting in the work, then are they going to execute in order to deliver? And that should deliver, that should give me a good chance of delivering on the results that I’m hoping for. Essentially yes, you can look into the size of the market and the play that’s happening and the strategic implications behind the idea.

But all those things kind of come out of the person that’s running it, right? If the, if the right person’s running it, and you tell them, “Hey, listen. This doesn’t look like it’s going to be a very large market.” Well, they’re going to be able to articulate to you why you’re wrong or come back to you like you said earlier and say, “Wait a second, I looked into this and I think we might have some challenges with what we originally proposed. So, we think we’re going to go at it this, right? What do you think about that?” and you start developing a better, a better business because of that question.

Tim McLoughlin: Being receptive to market feedback and, and knowing when maybe your original, original thesis no longer holds water is pretty important.

Josh Chodniewicz: Yeah. It it’s, it’s a fine line right? You need to have that. And you need to also know when there are other people that just don’t see the future the way that it’s actually going to happen. Right? Because that’s where your differentiator or what you’re doing, the proof will come later down the road, right? So, you need to build upon, who was it?

Wayne Gretzky who said, “Skate to where the puck is going to be.” Right? That sort of thing as opposed to where it is. It’s the same thing in business, right? Build a business that as you get there, you’ve actually met the future and what’s being created there. And then you can have extreme success because you’re, you’re on top of that, right? You’re leading the spaces instead of following it.

Tim McLoughlin: And I really appreciate using the hockey references that I can understand. So thanks for putting it in terms that, that I get. So, so let let’s shift gears a little bit and talk about your new venture and what you’re working on, Fundify. Which seems to be right at the intersection of investing startups; your whole world and experience so far. So, tell us about what you’re working on.

Josh Chodniewicz: Fundify is an equity, crowdfunding platform. Our mantra is to simplify startup funding. So, we aim, first and foremost, to help startups raise capital to simplify the process of raising money every which way that they’re looking at making that happen. That we’re starting with regulation crowdfunding offerings. We do think that there’s a significant movement that’s happening in the world and the intersection of technology and capital raising that has not happened in years and decades before.

And we aim to be that provider in the longer haul. I think, simultaneously, in order to make that happen, well, we need to also simplify the startup investing process for investors. One thing that I’ve learned through my investment experience is that it’s a whole lot more difficult to invest capital properly than I thought and maybe anticipated it would be.

Originally, I thought, “Well, I’ll just find a good idea and put some money into it, right? Then that, isn’t it that easy?” Well, no, it’s not actually that easy, especially like to your point. 99% of these ideas are going to go into the garbage. Well, if you spend an hour on each one, well, then two weeks just went by, and you spend one hour on the idea that you’re going to make an investment in eventually. Right? Well, that’s, it’s massively time-consuming. So, Fundify is set out to eliminate the radical inefficiencies of startup funding.

Tim McLoughlin: And so, your value prop to the companies is obvious. I mean, there’s so many great companies that are out there trying to get access to capital. How about to the investors that are in your network?

Josh Chodniewicz: Well, to investors on the Fundify platform, we’re looking to showcase, you know, the, the greatest startups that we can find on the platform and in the world out there that are looking for funding. Now, the challenge that I think that both startups, yes, startups want to raise money, but we talked about it earlier, that raising capital from, just for the sake of capital, is one thing. Raising capital from the right people can actually open up all kinds of doors, help you think through your idea, build your business stronger, eventually turn into advisors for your organization, maybe board members. That’s the right way to do it, right? So, at Fundify, what we’re doing differently than the other platforms that are perhaps trying to make this happen is we’ve built an expert network of individuals.

These experts span many, many different industries, whatever they might be. So, if someone’s coming in with a robotics company, we have robotics experts that are also accredited investors looking to deploy capital in, into the next great robotics company. And we’ll make those introductions for you. There’s no cost upfront for the startup and they can join.

They can build their their startup profiles and we’ll start making introductions for them. Eventually, with the hopes that we’ll start a campaign to actually raise all the capital that you want. And the beauty behind that then is if you’ve raised money from an expert in your industry, well, it’s going to lend all kinds of credibility to your offering because someone that knows what you’re doing is now putting money behind it.

And now, let’s say it’s this robotics company example that we put in, where you’ve got, now have a robotics expert writing a $25,000 check into your business. Then you’ve got people like myself sitting here saying, “Hey, I’m, I’m more inclined to invest in your business even though I have no experience with robotics.” Right?

But I want to diversify portfolio into many, many businesses and therefore, that’s what we aim to provide for investors. The ability to get a very diversified portfolio. And, and I think that the data that we’ve found shows that you need have 40 to 50 startups in your portfolio in order to really get a diverse portfolio that can see really nice returns. And that’s a big portfolio. 40, 50 startups is a big one. And so, I think the only way you can really do that is through a platform like Fundify and that’s what we’re aiming to build and, and deliver for the investors as well.

Tim McLoughlin: Well, I don’t want to, I don’t want to give away all the secret sauce from what we do at venture capital firms to, to, uh, before we make an investment. But part of our diligence is always we’re trying to find 6, 10 industry experts inside of our network or outside of our network. Combination of both, honestly, where we can pick their brains on these ideas. We can get their review. Because talking to those experts have spent a lifetime in their industry.

That’s going to be your best source of competition, where the market is going, and just ask probing questions to those groups, and they’re going to give you more information than you’re going to be able to find just researching for a week. And so, that’s always part of our diligence process. So, the fact that you make that part of your, your platform and your offering, I think is just great.

I think a platform like Fundify in the way you’re going about it and giving the ability for angel investors diversify the portfolio, part of that comes with their time and ability to source deals.

Josh Chodniewicz: Right.

Tim McLoughlin: My full-time job is having a presence so I can source deals and have access to the best deals. I’m sure that’s a focus of Fundify, is to be able to give angel investors that deal-sourcing without them having to work a full-time job.

Josh Chodniewicz: That’s right. And I think deal-sourcing is critical to say– if you never see the next Amazon, or you’ll never actually invest in the next Amazon, right? Because you actually never had the opportunity to do so. And the way you’re going to see those. And here’s the interesting thing. Once they become the great businesses, they raise money very fast.

Right? So, you’ve got to get in at a very quick window, if you will, to make that happen. It’s kind of a,” No, no, no,” until it’s yes. And then everybody’s coming in with the money, right? And so, you want to be in there right at the right time as an investor to get in. That’s what we aim to do. Now, with, with the new regulations and the new laws that have come in under crowdfunding, startups can raise capital, not just from accredited investors, but also non-accredited investors.

And the important thing though, to keep in mind is that you want to make sure you have experts that are attached to what you’re doing; people that know what they’re talking about in your space. And like you said, having multiple ones that are reviewing analyze, sometimes somebody might not make an investment in your startup, but that discussion is actually very helpful because it helps you better articulate what you’re doing and how you’re doing it or thoughtful in, in, in a way that you might change some of what you’re doing.

Right? Because someone brings up a challenge that they think you’re going to incur, and you’re gonna end up hitting down the road. And maybe you didn’t have a good answer. And then you can think through how you might.

Tim McLoughlin: So you talked about a few tricks and tips for maybe maximizing your portfolio. So, diversification, maybe, you know, 40, 50 companies in a portfolio, having some expertise, some industry expertise as investors, or yourself in a deal. Any other tips, data that you’ve seen through the years on what’s going to give you a better likelihood of success in angel investing?

Josh Chodniewicz: Well, we found two major things that had statistically relevant, increased investor returns. One of them was that there was an expert involved and had made an investment in that opportunity. And, this is a Wilcox study that shows some of this stuff that’s out there. And then there’s also the fact that did the investor actually spend at least 15 hours doing due diligence on the, on the investment opportunity?

And interestingly enough, I think only 30% of angel investments have that much time put into them. Somewhat understandable. If an average check is $25,000. How many hours of time are you going to actually spend looking at something? And there comes a point where you got to just make a gut call and, and move on it.

Right? And, and whereas, if you’re a venture firm that’s writing a, like Art did it raising a $30 million check from one firm, they’re going to spend a lot more time thinking that one through. Because they kind of, they got to get 9 out of 10 right. With the angel investing, if you get 5 out of 10, you’ve done well, but your returns are significantly higher actually, because you’re making multiples more at the early stage, if you can make the right ones.

So, there’s that, we’ve seen statistical evidence that shows if you have expertise in the space,  and too, that, that’s higher increased returns, and too, if you have done a minimum of 15 hours of due diligence that also shows increased returns, that’s what Fundify is trying to model off of. Because for example, I could invest in art companies, right? Or e-commerce kind of, how many of those can I, let’s just say I invested in. Even if I were to invest in 40 e-commerce businesses, I’m still obviously having, I would have a portfolio heavily skewed to e-commerce. So if Amazon crushes all of e-commerce, I’m going to be crushed if I don’t have Amazon though, in the portfolio, right?

So you really want from an angel perspective. A good example is, I’d love that biotech in my portfolio. Well, I know nothing about biotechnology, so the best way to get in that is to follow people that have expertise, have spent decades inside that industry, and are putting their own hard-earned money into it after them spending appropriate diligence time reviewing the early stage opportunity. So, that’s, that’s what we’re building and modeling for Fundify so that everyday investors can get their capital in a diversified portfolio across many different startups to make that happen.

Tim McLoughlin: Now, are you really focused on the companies at the earliest stages of fundraising?

Josh Chodniewicz: It depends how you define that. But yeah, we would say yes, we’d say we’re open to first checks coming in. And I’m talking, when we say first check, I mean, it could be a $50,000 check that someone is just getting to get that idea off the ground. And we could raise on a regulation crowdfunding. Within three weeks here, you’ll be able to raise up to $5 million on a campaign like that. So, that can be more than a first check, right? And, but it’s that evolution over time that we can help make that happen.

Tim McLoughlin: And I also appreciate you helping building the brand and the name of the podcast, First Check. We’ve definitely hit the record so far on, on number of times we’ve said “first check” in one of these podcasts. So, thanks, thanks for doing that as well.

And you know, I, I often think that, you know, some, some folks, I think that early stage venture capital and, and crowdfunding platforms can be at odds. And entrepreneurs have to choose one or another, but as funds get larger and larger, there’s a bigger and bigger gap between a company getting off the ground and where someone’s going to come in and write a multi-million dollar check into a business. And more sources of early stage capital for these entrepreneurs is better for the whole ecosystem because there’s more deals, more opportunities for the later stage venture capital funds that are coming in.

Even if they’re at an early level, like we are a Cofounders. I want to see more deal flow, more deals with traction where we can write a larger and larger check into a company that’s further along. So I’m going to give you my, my hard hitting question here. You ready?

Josh Chodniewicz: Sure.

Tim McLoughlin: So, so here’s a hypothetical. So you’re, you’re personally, going to make an angel investment. You meet with 10 companies and you have to write a hundred thousand dollar check into one of the 10. But you only get to ask one question to each company. What’s the question that you ask?

Josh Chodniewicz: Yeah, that’s a, that’s a good question. I would probably tell them, I’d probably ask them what’s the single? And I’d probably say what’s the detail? Give me a detailed answer to why what you’re doing is going to be significantly better than everything else that’s out there. And that probably plays towards the 10X principle, if you will. By an order of magnitude, why is your business significantly better? And in turn, why would my investments see multiples on, on returns here?

Tim McLoughlin: Yeah. Well, I think if you start at that value creation and why are you 10X better than what the alternative is or the status quo is, you know, that that’s where you start to see if you’re, if this company is going to be able to charge, add real value, keep growing.

We always say in, you know, if, if someone’s already doing 85% of what you got, or they can get 85% of what you’re already doing for free, they’re going to stick with that solution. Right?  It’s got to really solve that paying point. Like you said, 10 times over to make the dent. So–

Josh Chodniewicz:  Yep

Tim McLoughlin:  I think, I think that’s a great question. Well, that’s it for me, Josh. I really appreciate you joining us. Congrats on the, all the former entrepreneurial and investment success. Good luck with Fundify. If any of our listeners want to check out more on Fundify, where can they go?

Josh Chodniewicz: Go to fundify.com. You can sign up, register where it’s a good time to get in and get, get going and hear about opportunities that are coming up.

Tim McLoughlin: That’s great. And there’s, we talked about deal flow being a problem. Well, there’s a solution for it; fundify.com. Thanks a lot, Josh, for joining us.

Josh Chodniewicz: Thanks Tim. Thanks for having me.

Full Episode Transcript

First Check is hosted by Cofounders Capital partner Tim McLoughlin, and is a production of Earfluence.

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