Private Capital Markets 101:Why Founders Are Ditching VCs and Raising Directly from Investors

When it comes to funding their business founders think their only options are venture capital, bank loans, or bootstrapping. They're wrong.

In the inaugural episode of Behind the Raise, VirtualAd co-founders Martin Kocandrle and Brendan Manley pull back the curtain on private capital markets — what they are, why they're growing fast, and why more founders are ditching the traditional VC route in favor of raising directly from accredited and retail investors.

In this episode, Martin and Brendan cover:

• What private capital markets actually are and how they differ from public markets and institutional capital
• The legislative changes (including the 2012 JOBS Act) that made direct-to-investor fundraising accessible to everyday companies
• Why VC isn't the right fit for most founders — and what the alternative looks like
• The investor portals powering this space today (Dealmaker, Dalmore, StartEngine, Wefunder and more)
• How a predictable, scalable capital raise engine actually works — and why it's not passive
• The difference between Reg CF, Reg A+, and Reg D 506(c) — and which might be right for your company
• Whether online capital raising is a replacement for institutional capital or a complement to it

Brendan also shares three pieces of advice for any founder considering this path for the first time: be open minded, choose the right offering exemption, and be all in — because this only works if you do.

If you're a founder exploring your funding options, feeling frustrated by the VC process, or just curious about how companies are raising millions directly from their communities and customer bases — this is your starting point.

Behind the Raise is hosted by Martin Kocandrle and Brendan Manley of VirtualAd, a capital raise marketing agency specializing in direct-to-investor marketing for private market issuers.

Transcript

SPEAKER_01 0:02

Welcome everybody to the inaugural episode of Behind the Rays, a podcast hosted by Virtual Ad, myself, Martin Kocandrill, and Brendan Manley. And we are doing this podcast because we have uh evolved as an agency over time to start to specialize in the capital raise space, which we have found increasingly interesting. And we want to share some of our journey across this space. We talk to a lot of founders daily that are just learning about how to raise capital online and all the intricacies involved with it. We're also learning every step of the way. The partners that we work with are also learning and sharing lots of interesting evolutions as this space grows. And so we really want this podcast to serve as a resource for the founders that we talk to and others in the space, basically a place where you can learn about tech creative and how investor psychology drives investment. So, as our first episode, we wanted to do a bit more of an introductory one where we go through some of the basics around private capital market investing. And then Brendan and I are gonna have a bit of a convo around some frequently asked questions that we get from founders as well. Yeah, Brendan, any opening words you want to say before I get into things?

SPEAKER_00 1:19

I'm just excited to launch the podcast and to talk with you today, Martin. It's an interesting space. There's a lot of growth in it and a lot of people, you know, investing in private market deals. So it's an interesting time for us. Um, but I'm excited to just get into it.

SPEAKER_01 1:32

So yeah, I'm gonna just uh start off with some of the basics, I guess, around what is a private capital market raise. And um, I guess for people that have been in this space for a while, it might sound surprising that we want to start from ground zero, but I would say there's people that I've talked to that have raised tons of capital across the board from like major institutional banks, like hundreds of millions of dollars that we get on the phone with, and they're learning about this for the first time. Private capital markets is basically a way to raise money outside of public stock markets. And um, it's also the one that what we deal with specifically is um not like VCs or private institutional capital, but more so accredited investors and retail investors is really our specialty. And what that means is that you're essentially a private company. You are not listing on an exchange, you're not selling your shares publicly, but you're selling them ideally to like a private individual. Uh so that means everyday investors, accredited investors, potentially customers of yours or community members, depending on what type of company that you are. And it's increasingly becoming a more popular route for a number of reasons. One is that there's been some legislative changes over time. So in the US, there's been the Jobs Act, uh, which was in 2012, which basically made crowdfunding a lot easier to do. Seems like only yesterday, but it's actually a long time ago now that I think about it. Basically, it's made crowdfunding more of a thing. There's also been changes around the accreditation status that you need to be able to invest in these opportunities. So it used to be more of like a closed door type of scene where maybe you have an investment banker that knows a deal and he tells his friend, and that's kind of just like a closed loop circle. But similar to other spaces, this space has gone a little bit more D to C or direct to consumer. And now companies that are looking to raise capital are going directly to either to their customers or people that are a good fit. And the secondary change that's enabling it as well is also technological. So if you want to do one of these investments, you'd have to like fill up paperwork, go through some external third parties. It becomes extremely like laborious and onerous. And time also kills deals. So if you're looking to work with a lot of private investors and they gotta like ship their documents somewhere, they're probably not gonna close. So it's actually become a lot easier now with a lot of the investor portals that are available, like uh that we work with. Like I'll give a shout-out to a couple like DealMaker, Dalmore, Start Engine, WeFunders, another one. All of these have really made investing in private markets a lot easier. Each one of them kind of has their own advantages to it. And I'd say from the um the founders level, what makes this an attractive option is that if you're going to venture capitalists, they tend to want to take uh like control in a large slice of your company and they have really high growth expectations. And they also don't like always spend a ton of time getting to understand everyone's business. They might have a surface level understanding, quick to say no. And so, really a lot of technical founders might get frustrated during this process or they just hear a lot of no's. So they want to expand their investor base. The other is institutional capital is also really tough to get into. When you're going after these really large checks, you have to wait a long time until they close. So you might be waiting like months until you get like, you know, you get a big check, but you you might wait months or a year. Whereas if you go have a private capital markets engine that's constantly raising capital, it's more evergreen and it's always bringing in your cash flow so you can keep your operations going, continue to plan projects, fund your company if you're, you know, a really uh up-and-coming startup. We've seen a couple of those as well. That's why it's it's really becoming a lot more popular now. And I'd say, you know, it's the evergreen nature of it, the control that people get. Um, but it's also not without its challenges, which we will explore throughout uh throughout the episodes that we go on. Maybe, Brennan, we could go over just a couple of like common questions that we're getting as we're hopping on calls with people. And maybe, you know, you've been on a couple of calls recently, if there's anyone, any particular ones that come to mind, um, and or happy to, you know, serve you up a couple that I've been hearing with recently.

SPEAKER_00 5:30

I think the biggest question that I like, you know, it's unconventional approach to raising capital um beyond institutional investors, beyond shaking hands and going to events and conferences and and things like that. So the biggest, you know, question that people have is what do you guys do and how does it work? Um, because uh not everyone's familiar with raising capital online through, you know, marketing funnels and paid media and what the options are. Um, so I mean, people just are curious to understand what we do and how it all works. And, you know, we obviously preach something that's a little bit different than just people that you know in and raising capital through your network. Preach sort of a predictable, scalable, repeatable sort of system, you know, helps you raise capital on a continuous basis. Um, that sounds like magic. It's not, you know, there's a lot that goes into that. You know, every component of it, it's also very collaborative with the clients that we work with. You know, they play an important role. People are just curious to know how it how it works, what the options are, what platforms are available to um, you know, make it easy to uh get people to invest and manage your IR, you know, processes after they invest in more detail. But that's you know, a common question that I get.

SPEAKER_01 6:51

I actually got an interesting question the other day, which was just starting out a little bit, and they were like, is this marketing or is this fundraising? And it's interesting because it's kind of a little bit of both, quite honestly. So there's certain companies that, you know, aren't selling a product that are raising money. So those would be like real estate funds, for example. Like they're not necessarily selling a house, they are selling returns on a project that they're building. But then there are certain companies that are in operations that are, you know, still selling a product, but they're also raising they're raising funds as well. So it's an interesting uh space because it kind of does both for you. So it's gonna help you raise funds, but then also help you grow your business. And I think part of the reason that we've been successful in this space is because it is essentially marketing, but raising dollars. So I find it an interesting blend of both.

SPEAKER_00 7:40

Yeah, it's funny. I I spoke with someone, I think two days ago who wants to raise a hundred million dollars. Um, and you know, originally he went to institutional investors and you know, because they have about 7 million that they've raised, and they've got a great platform and they've got a great proof of concept, they've got really good validation in their returns, you know, with the capital that they do have, you know, over the past four years. So I really do believe in what they're offering. Like the institutional investors think that the company is too small, you know, to give them the time of day at this point. So they need to get to that$100 million threshold for these institutional investors to actually take them seriously. And um, so that's kind of where we come in. It's like push this out to the general retail accredited sort of retail market, you know, the appropriate offering exemption and, you know, following, you know, all the compliance, you know, considerations. And that's kind of, you know, get you to where you need to be to then get you to that pump, which is a billion dollars, you know, is where where they want to get to next.

SPEAKER_01 8:42

That's an interesting example too, because that actually, in a way, works out well for the investor too. It's like you can get in for a company when it's it's smaller. It there's not a lot of that institutional interest. But as soon as that institutional interest picks up, like the valuation of it will increase substantially. So it actually speaks well to our system in a sense because it allows people to accumulate these smaller investors, but it actually benefits the the the investor as well when there's that growth. You brought up an interesting example around, yeah, raising a hundred million too, because I get a lot of questions on like, you know, how long does this take? And so there's always it depends answer, I guess. I feel like you have a good perspective on like timelines and what are the varying factors that can impact that. Because you can kind of like you can take a long time or you can speed it up if you want. But um, I think it's interesting for people to know what impacts that.

SPEAKER_00 9:36

Yeah, yeah. I think it also does depend too on the offering exemption that you have. You know, uh if you're doing like a crowdfund, the marketing funnel and the timelines associated with that might be different versus like a reg D 506C sort of offering, which might dictate, you know, a different approach. Everyone that we talk to wants to raise it as quickly as possible. And I feel like I try to level set and give us more time because the the reality of it is the quicker you do it too, you lose some cost efficiencies because it's all done through paid media, right? So we're we're marketing and we're spending money on ads online. And the quicker you scale out your ad campaigns, you lose some cost efficiencies with, you know, the cost per investor, you know, the cost per lead, the cost per meeting, depending on the type of offering you have. We've done our shortest was, you know, four or five months. You know, we're doing even shorter crowdfunds right now that we're already kind of in market. So we're helping kind of close those out. But for any sort of like accredited investor sort of offerings, like a reg D sort of offering, ideally we have like 12 months and would be kind of like a good sweet spot. Again, it's also dependent on how much you're looking to raise as well. Like if you're looking to raise 20 million, you can do that in 12 months. You can do 50 million in 12 months. If you want to raise 100 million, you might want to expand that out to 18 to 24 months. There's also people that come to us with projects, right? Like especially on the real estate side. Some real estate developers or issuers have five or six acquisitions a year. They raise funds for a particular project. And so then you've got the marketing material for that project, which has its benefits as well, but those oftentimes have a much shorter time window from identifying an opportunity to completing the due diligence. It's usually like a four to five month window. So it kind of depends. It's a bit of a long-winded answer.

SPEAKER_01 11:28

No, no, I think that those are all important factors. And yeah, it's interesting with the reg Ds too, because like once you hit a certain level of success, it's like there's no reason to stop really. You might as well just keep it going. The limiting factor becomes like how big can you grow the team and you know, how much can you spend effectively without really eating into your cost of capital? And so it's almost like we found in certain situations the speed of it becomes throttled a little bit by internal operations. The ad spend or the reach scalability is much quicker and faster once you find the efficiency. But there's also a lot of like internal operations that need to be built out to handle that issuer needs to meet.

SPEAKER_00 12:13

Yeah. Yeah, exactly. Especially if like there's meetings involved. There's an investor relations sort of pipeline, acquisition pipeline, and there's a closed period and there's some tweaking to those processes. Yeah.

SPEAKER_01 12:26

I'm interested to get your take on one uh last question here, which would be have you run into the situation where somebody's asking you whether this is a replacement for something like institutional capital or if this is like a sole source of capital. Have you had those types of conversations or questions before?

SPEAKER_00 12:42

People haven't come to me like asking if it's a replacement for institutional capital. It isn't necessarily a replacement. I'd say it's more complementary. Kind of using the example I gave before, institutional investors oftentimes want to see some proof of concept and some validation. So this is a good vehicle to if you see success with something like this, you can bring that to the banks or whoever you're trying to raise capital. And then that makes that conversation a lot easier. For larger raises, I always encourage diversification of fundraising. It's important to not put all your eggs in one basket. And that's why on the marketing side, we do more than just one marketing funnel or a lead funnel. Like we do in-person, like we do event promotions, we do third-party publication promotions, we do lots of webinars. There's lots of different, you know, initiatives that we do. It's just a different approach. Oftentimes you want to raise capital from different sources.

SPEAKER_01 13:33

I know we we covered a lot for this first episode, I would say. I think just to wrap things up, what would be a piece of advice if you have one that you would give to founders that are like considering or starting this journey into this type of race?

SPEAKER_00 13:46

I'd say one, be open-minded because like we said at the beginning of the episode, it's somewhat unconventional. Um, but you know, if you are willing to learn more about it, um, you know, it could be really advantageous for your company or for whatever you're raising money for. It's a mind because you can benefit from predictable investor uh capital. So be open-minded. You don't have to make any decisions. You can kind of meet with broker dealers, you can meet with, you know, agency partners and just try to understand, you know, how it all works. If you make the decision to proceed, I think, you know, choosing the right offering exemption is important. Crowdfunds are interesting, they're really in effective for, I'd say, really disruptive sort of technology that has, you know, a lot of uh growth and scalability potential. And there's a mark, you know, a huge addressable market with a lot of potential financially. And so, you know, if you have a cool product and you actually have video, like it's not a concept. Like you actually have the product, you have proof of concept, but customers and revenue, you know, you can explore a crowdfund. The only challenges with crowd funds is you know, there's a lot that goes into that. You know, there's you're trying to get a ton of small investors. And so it's almost like an e-con, like you're very transactional. So you have to really dial in your marketing message and you have to have a great offering. I'd say if you're open to taking meetings with people, um, I would, you know, strongly suggest you look at a Reg D 506C offering exemption and focus on looking for larger investor opportunities with, you know, higher, you know, checks that they can write. The cost efficiencies are a bit better there. And so one, I guess, you know, be open-minded to um, you know, choose the right offering exemption. Like there, you know, there's costs associated with get, you know, with your lawyers and you know, getting so you want to make sure you have the right thing in place. And then three, when you actually launch, you know, understand that there is a little bit of an investment to get started. Also be willing to collaborate with your agency partner because it is a two-way street. Um, we need feedback, you know, from from you guys on the quality of the meetings, the no-show rate, the show rate, and so that we can make tweaks on you know the automations and and kind of improve, improve things. So you need to be all in yourself. It's not a passive strategy where you're just kind of sitting back and the money's rolling in. Like you need to be available for meetings, you know, ideally uh twice a week, but at least once a week. And you and ideally you're also open to you know filming some video content um as well. So open-minded, choosing the right exemption and and being all in yourself um and making time for making this a success and being collaborative with your agency and broker dealer partners. That is uh a killer answer, if I can say so itself.

SPEAKER_01 16:40

Um yeah, that that's awesome. I don't have much to add on to that. I think that's really well said. And yeah, you had a good point that it's not passive in something, you know. I think whichever exemption you're doing is it's not passive. Like a reg CF is not passive. Like you gotta get in front of the camera, you gotta film some ads, you gotta be evangelizing your solution. And then yeah, the reg D is like, you know, you have to be really on top of the investor relations side. I will add my um my two cents in terms of advice. And I I think what you said was perfect. My advice kind of like a different lane, which would just be having a long-term vision around this, because I do feel like it's uh when you go down this route, if you can truly commit to it, see it through, it's something that opens a ton of doors. And if you can do it successfully once, you can do it for like the next 10 years. But if you take that truly long-term vision, you put all the right pieces into place, it's uh a really great stepping stone to just um you know having different regulation types, closing more capital. So I think that long-term vision is important because it helps to set up the the right strategic uh uh components. So I think that was uh that was a good um good good first run, Brendan, and great insights from you. So thanks for hopping on today. I hope uh our listeners got a lot of value from it, and uh, I'll see you on the next one.