03 May Find Who Else Cares About Your Startup with Laura Wagner
Today’s guest on The Successful Pitch is Laura Wagner, who is the CEO and founder of Digitzs, which is changing the way we are going to pay for things. She assembled an amazing team of people from Apple and PayPal and even Kevin Harrington who was one of the original Shark Tank judges. She said, “Everybody wants to be needed and wanted. If you trust and like and admire these people to get them on your team first, then you show investors who else cares about your idea.” She was able to raise millions of dollars on equity crowdfunding platform, Crowdfunder, by having this amazing team of people who believed in her vision to raise money to get it built and now they’re on their second round of funding and have their first revenue coming in.
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Find Who Else Cares About Your Startup with Laura Wagner
Today’s guest is Laura Wagner, the founder and CEO of Digitzs, which is all about changing the way we pay for things. Laura has an incredible background in this expertise, she’s assembled a team of people from Visa, PayPal and Apple. Laura, welcome to the show.
Thank you, John. Happy to be here.
One of the things that make you so interesting is that you’ve won so many awards in equity crowdfunding. You have the first female founder to reach number one on the CNBC Crowdfunding 50 Index, and number one for the largest capital raised by a female founded company. Clearly, you know what you’re doing. How did you become such an expert in this?
It’s super new, crowdfunding. It’s odd to be called an expert in something that I’ve got about a year and a half in. That’s the opportunity for other people too. I challenge you to beat us on the number one spot. We started in 2015 around April. I’m so non-technical. I’m a non-technical founder. The story will make you chuckle a little bit. I remember the day we launched with Crowdfunder. We put out a press release and had the video ready. About three or four hours went by and I was totally bumped because there was no activity. I was on my Crowdfunder page. I’m like, “Nothing’s happening.” I called my Crowdfunder person, Katie, who I adore and she’s like, “Laura, hit the other tab. You guys have already raised $500,000 of interest in the first two hours.” I screamed. I was like, “Wow.” I was on the wrong damn tab. It’s funny that you call me an expert. It’s been a long road from there.
We’re always talking about how do you figure out a problem to solve that is big enough to start your own business. Can you share a story of how you had a frustration at McDonald’s in the paying business without having cash?
That’s how I actually got in the payment space. I fell into it. I’m from Texas. My first day in LA, I tried to go to McDonald’s while I was moving and they only took cash. They wouldn’t take my Visa Check Card. I had to leave hungry, which totally got my attention. My next stop was ARCO ampm gas station. They had this weird thing I’ve never seen before where you pay with your debit card. You put in your pin number and they added a $0.50 fee. I’ve never seen that before. I called the phone number on the top of the pump and probably it’s just beginner’s luck. I asked the guy who answered the phone at ARCO, “Why don’t you guys do this at McDonald’s?” He said, “You’ll never get McDonald’s.” I’m like, “What if I did? Is there money in it?” He’s like, “There’s tons of money, but you’ll never get McDonald’s.”
I went down there to meet him the next day. I started learning a little bit about what was involved with payments. The money caught my interest, of course. It took about a year to get the exclusive marketing rights from ARCO to bring this into McDonald’s. We went after McDonald’s and we won out over 200 companies. We pitched free equipment, free everything. We pay you $0.50. We charge the customer an extra $0.50. We give you a dime of that. Everybody else, all other $1.99 were pitching equipment cost X, transactions cost Y. We just interviewed a bunch of people who owned McDonald’s to figure out their paying points and packaged it up in a very simple product or service and had tons of success.
We hear how important it is to be persistent. You have a very clever way of doing it, about leaving creative and fun voicemails, for example, as a way to stay in front of someone. Can you share that?
That was how we got into McDonald’s. Once I had the marketing rights from ARCO, I started going after McDonald’s. It was important for that particular business at that time to walk that up first. I had to do that first. Once we had that in the bag, I started calling the West Coast division of McDonald’s. There was a wonderful woman, Rose Nash, who was Head of Technology. Rose was inundated with everybody and their dog trying to sell them credit card processing. I called her 29 times and I would leave crazy voicemails. One time I put my radio to the phone and it’s, “One way or another, I’m going to find you, I’m going to get you, get you, get you, get you.” By the time she answered the phone one day, she knew exactly who I was. I said, “A-ha.” She just started laughing. I said, “Don’t move.”
Actually, I went down there to Irvine, to her office, and we stayed in her office until 10:00 that night. I remember distinctly because they were vacuuming the floor, and we did not speak about business until the last fifteen minutes. We talked about relationships, losing weight, everything.
If people haven’t ever read or listened to Harvey Mackay, Swim With The Sharks Without Being Eaten Alive, I was raised on that book. It talks about getting to know 69 things of the person that you’re pitching; the name of their wife or husband, the names of their kids, are their kids into soccer. It may sound manipulative, but it actually gets you on the opposite end of transaction. So many people these days are so transactional. Rose and I, we’re two human beings and we’re just talking about life. We felt good and secure with each other. That was enough for her to let me in at the ninth hour to pitch McDonald’s, when most people had been in line for a year.
If you want to have a successful pitch, get that relationship connection first because people buy ultimately from people they trust, like and know. If you don’t start the trust factor and the likability factor first, you’re never going to win. Now, speaking of winning, when you’ve launched Digitzs, you had to get amazing people on your team before you could even go on an equity crowdfunding platform like Crowdfunder. You have this great phrase about proving who else cares enough to be on your team. Can you share with us how you started your team at Digitzs?
David Jaques was the first CFO of PayPal. He’s the Chairman of our Board. Linda Perry, she ran Visa seventeen years. Edward Katzin sold his company to American Express and filed numerous patents for Visa. I always tell startup founders, you just have to absolutely get people who are way more important than you are and way more accomplished than you are. Surround yourself with those people. Because, at the first glance, if you have a household name, for instance, Kevin Harrington with Shark Tank was one of our investors. The way you go after those people is the same way, relationships.
I just let those people know how much I wanted and needed them to be part of my company. I think everybody likes to feel needed and wanted. That’s a basic human need. Everybody actually likes to be part of something new that they can be in the wanting with. It’s not that difficult. You just have to seek the right people out with the right expertise. Of course, you have to like them and you have to trust them. You have to admire them. If you have that formula, don’t be shy because you would be surprised. Don’t ask, don’t get.
When you were putting this team together for Digitzs, did you look for people who didn’t have the same expertise that you did? I hear that’s a really important thing, that you can’t have three people that all know marketing.
One thing that’s really, really key is that I’m not a technical founder. The key when you’re not technical is to have a technical cofounder. Stacy Moore is my technical cofounder. She has built our platform from the ground up. I’ve known her 25 years. She’s also from Texas. She happens to live here in LA. She’s definitely a unicorn. She’s a strategist. She’s been a partner in every business I’ve had. She also is hands-on. Finding a technical cofounder is imperative to a non-technical founder.
Also, what’s really important here is investors, whether they’re in equity crowdfunding or Angel or VCs, they love it when the team has worked together before because it shows that you guys get along and that you have experience in the shorthand of communicating.
I have no idea why David Jaques still talks to me. He was involved in Pay Wherever which was a prior company that didn’t work out. He was involved and invested in, by the way. I actually think that’s quite key. Most of the folks on the team are people that I’ve had a relationship with and respect highly.
Would your advice be for someone before they go onto an equity crowdfunding platform, to have your team assembled first before you start asking people to invest in the money? As you said, they need to know who else cares.
Absolutely. It really needs to be somebody with some impact. Like with Kevin Harrington with Shark Tank or David Jaques, the first CFO of PayPal, or Linda Perry, who ran Visa for seventeen years. It’s got to have some cache, because you’ve got to stand out. If you threw a bunch of names out that nobody’s ever heard of and they haven’t done anything significant in their life, that is the instant decision somebody’s going to make about your company, which is unfortunate. Most of the time, people are judged that way.
Can you go back to the first $2 million you raised? Was that your seed round obviously, and you had your pre-revenue?
Pre-product. We were just literally an idea.
You have an idea, but you’ve got this amazing team with amazing backgrounds of big brands. If you raise the $2 million, the product will get built. Then will you get revenue from that seed round or is that just getting the product built?
Just getting the product built and getting a pipeline in place.
Obviously, you achieved those results to be able to have the second round, correct?
We achieved it enough to, yes, be able to move into the second round. We just literally processed our first dollar last week. We started this raise in May. It’s going on nine months ago, this $3 million, series A. The whole time we were doing that, we were pre-revenue but post-product.
Do you have a waiting list of people who want to be in? Because I’m very curious, you have certain reservations? Can you explain to us the reservations versus the round? That would really be interesting for the people.
That’s always really confusing to people. On the CNBC Crowdfinance Index, all they can pool in is reservations which are “interest.” If you stumbled upon our profile and you thought it looked interesting, in order to reach out to us, you’re required to either select a dollar amount that you might be interested in investing or not do that at all and just ask for docs. We have a back-end portal with Crowdfunder that we get a text if somebody makes a “reservation.” It goes into our CRM, which we love. It’s called Close.io which is the best CRM ever on the face of the earth.
Why is that?
It’s so simple. It’s ridiculously simple. Every CRM I’ve ever used in my life is just like, you want to buy a Maserati and they lift up the lid and say, “Look at this carburetor in here.” Who truly gives a shit? Nobody. The other thing that Close does is it integrates your email and it just becomes your inbox. It becomes a second inbox which, I don’t know about you, but everything I do is email-related. I can see who I own email to that stands out outside of my entire Outlook inbox. It just makes things super efficient. I highly recommend that.
Anyway, we then connect with the investor and set up a time for me to chat with them one-on-one, which I do. I’d say one out of four times, somebody’s not accredited, which right now, they have to be an accredited investor, which for those who don’t know, you have to have an income of over $200,000 a year or a net worth of a million dollars excluding your home. We do get a lot of outside of the US investors, which they don’t have to be accredited. I would say that a third of the folks who’ve invested are non-US citizens, which is awesome.
Is that because you’re in series A? Did the people have to be accredited investors to invest in your seed round?
Yes, they did, because both are public, so they are 506(c) not B. We did a note round of 100k initially. Then we did a note round of 275k before we got onto Crowdfunder. Those were private 506(b). You still had to be accredited, but you can do a self-assessment. The difference is when you start to publicly offer something, we have to get third party accreditation. A CPA or an attorney has to vet that investor or sign a form, or the investor has to send us their tax returns. We have an obligation if we publicly solicit to make sure that we don’t harm them.
That’s not the case for everybody on other equity crowdfunding platforms or even within Crowdfunder. That’s the whole reason for the new law, is that people don’t have to be accredited investors to invest in some of these companies.
It’s still a pretty small percentage where you don’t have to be accredited. It’s getting better, but in order to do a Reg A raise, there’s Title III. I’m not an expert at this, by the way. There’s Title III and you can only raise up to a million dollars. There’s Reg A and you can go up to $50 million. It’s expensive to prep for either one of those raises. What I find when I’m talking to investors is they’ve assumed all crowdfunding is for everybody because of the JOBS Act. One out of four end up not being accredited, but they thought they could invest when we got on the phone. Two out of four hear the pitch and it’s just not right for them. One out of four ends up putting their money out.
The biggest challenge, if you’re not using equity crowdfunding is getting in the right room. You typically have to talk to a lot more people than one out of four to get a yes.
It’s a heck of a lot nicer experience to have somebody come to you than you going out to somebody. They’re actually interested. They are interested to the degree that they set up a call and hear a pitch. I’ve had a blast. It’s the only way for pre-product, pre-revenue companies to get any money these days candidly, outside of family and friends.
Thank you for explaining all this. $11 million out of $3 million that you’re raising. That’s just letting people know that there’s that much interest, but it hasn’t completed yet. You still have some money available to finish that round.
Whatever people show on these websites as the dollar amount, it’s pretty normal that about 20% or 25% of that gets in the bank.
Let’s hear about what it sounds like when somebody says, “I’m accredited. I’m interested. This is a fit for me. I’d like to hear a pitch.” How do you pitch them? With slides? How long is the pitch?
Never ever with slides. We send them an email with a deck and an FAQ and a very long email with as much as detail as we can. When I get on the phone with them, I’m just talking just like I’m talking to you.
I hear that time and again, Laura. Be a human, have a conversation, as opposed to memorizing a script that you can’t go off of. If somebody asks a question, you get lost because you aren’t able to have a conversation. The pitch deck, if you use them, is supposed to just be a frame of reference.
I had screwed up so many times on having a deck in front of me. Back in the day, I always joke that decks are so 2015, because it’s just a barrier between you and the other person.
You still need one. Obviously, you’re going to send them the deck. Sometimes, they probably have questions from looking at the deck, “I see on your competitions slide XYZ, or how did you come up with this valuation?”
A deck needs to be no more than ten slides and very large font, lots of pictures. These days, we are almost never asked for any other due diligence documentation, which is pretty outstanding when you think about it. It’s just the deck, it’s an FAQ, and me.
Have your financial projections changed dramatically from your seed round to the series A?
The seed round, we really were pretty clueless about what those projections really could be. But we were always very candid about that. I think just being completely candid with investors is perfectly okay. It’s okay to say you don’t know but you think. It’s like, we think there’s gold under the hills, but we don’t know until we get the money to buy the shovels and get our feet dirty. That was our pitch in the seed round. In this round, our projections, of course, projections always change. In tech, everything takes much longer than you think it will. But we also tell them that. I tell every single person, whether they’re accredited or not, that this is a huge risk and it’s a little step above going to Vegas.
Are you trying to get people to use Digitzs instead of PayPal? Is it like Uber versus Lyft? Can you give us a sense of what the pitch is?
We do not sell to individual merchants. If you drew three circles, left or right, on a piece of paper, on the left is where cards are swiped; liquor store, grocery store. On the far right is the experience you might have checking out of an Amazon shopping cart online. In the middle is everything else. In the middle is about five years old. In the middle are three buckets, since I’m from Texas. The first one is mobile apps like Uber. The second one is market places like Etsy. Third one are what we call platforms.
If you drew ten more circles at the very bottom, those would be the ten largest payment processors in the US. This whole page is about $5 trillion a year. In the US, $5 trillion a year is processed at just three card types: Visa, Mastercard and AmEx. It’s growing at 15% per year. It’s a massive, massive market. The middle is a trillion, the right side is a trillion, and the far left where cards are swiped is $3 trillion. We are sitting squarely in a middle market that’s less than five years old, that very few companies can compete in, just due to all kinds of legacy.
Our competitors are companies like Stripe, Vantiv and WePay. They’ve aligned with one of those ten. We’ve used up half of the ten that could even play in this market on the back-end. That’s one of the reasons why it’s so difficult. That’s my pitch. That’s literally the first minute or two of my pitch, to set the stage.
You painted a picture, which is what I tell people all the time.
I’m very visual.
Having people draw those three circles and they can instantly understand, “I know where I am.”
You’re also getting them kinetically. There’s an old saying, “Tell me and I hear you. Show me and I see you. Involve me and I understand you.” Involving them is drawing the circles. Get a piece of paper out, draw the circles. It’s a small thing but it works.
Do you get questions or is one of your questions, what’s the exit strategy? Or is that too soon?
Always. They don’t invest unless they feel like there is a viable exit. Our exit strategy is actually to sell back to our processor or one of those ten processors at some point. 47% of the M&A transactions last year in the US were niche FinTech companies being swallowed up. Because companies like Digitzs have created new technology, are serving brand-new niches that are hard to serve based on legacy technology underneath them, it’s almost like we’re the electric cars and everybody else is the old gas model cars. But the gas model car factories have a lot of money and they’re going to want to buy the electric car companies.
Can you talk about your marketing strategy, the business model? People sometimes, “If we only get 1%, we’re going to be rich.” Clearly, that’s not what investors want to hear. They want to hear a bottom up strategy. What is your model? You have your first dollar. Are you targeting certain industries? Are you going after the middle circle Uber?
Platforms are what we target. Are you based in LA?
If you get a parking ticket today in the City of LA, you’re going to go to CityOfLA.com. You’re going to hit a button that says “Pay Your Ticket Now.” It’s going to take you to another page inside the website. The company that hosts that page is what we call a third party platform. It’s no longer the City of LA. It’s a third-party that the City of LA has contracted with to take a payment on their behalf. It’s those platform that Accenture says are a top five trend for 2016. What happens is the platform guy goes to the City of LA guy, and he says, “Hey, City of LA guy, don’t build an elaborate website where you could take parking ticket payments. We’ve got all that software in the Cloud and we can make it look just like your website by tomorrow morning. By the way, we also charge the person using it $2, so it’s free to the City of LA.” The City of LA guy says, “That’s too good to be true. Where do I sign?” The platform guy says, “I just need you, City of LA, to go get a Visa, Mastercard and Amex account so we can connect all the dots for you, so when somebody pays the parking ticket, they see your name in their bank statement.” Unfortunately, half the time, the platform guy loses that sale.
With our API, when it gets to the point in that sale and the guy says it sounds too good to be true, he says, “Just come to our site, the platform site, enter a few piece of information and you’re ready to go in a second.” We make the platform look like a payment processor, so we eliminate the noise of the customer or the merchant having to go get a merchant account, which it’s never one place you have to go. It’s three places you have to go. Three different contracts they have to sign, a week or two of work. It’s a pretty big problem.
You’re solving a big time problem which also causes sales to be lost. By saving not only time, you’re increasing revenue for the platform, is that right?
We increase revenue a couple of ways. That $2 fee for instance. When the City of LA guys, before Digitzs, they would go and get a merchant account and come back to the platform. The platform would connect all the dots. Somebody pays their ticket for $100 and agrees to a $2 fee. $102 goes on that cardholder’s card and all $102 goes to the City of LA. The platform has to send the City of LA an invoice every month that says, “You did a thousand transactions. You owe us $2,000.” With our API, that $2 gets split off and paid directly to the platform next day. The $100 goes to the City of LA. We’ve eliminated their invoicing, which saves them money, clearly. The other thing is we also pay them a commission on the $2.93 that we charge the City of LA to process cards.
As part of your use of funds that you’re raising, is it all going to tech or are you going to be hiring a sales force?
No sales force. We have a brilliant cofounder on board, Ben Way. Ben has helped to launch 200 different companies. He’s advised the White House when he was a kid from the UK. He’s brilliant. Ben is an artificial intelligence internet marketing expert. We have an in-house expert that generates tremendous leads directly for me to have conversations with CEOs of these platforms.
That’s fantastic because a lot of people need sales people, and you’re doing a B2B play so you don’t.
Ultimately, we may have one person super seasoned out having very high level conversations. At this stage, we’re just still in the middle of product market fit. Hiring a sales person, what a waste of money. I’ve managed and hired sales people my whole life. I can tell you, usually in today’s day and age, not at all worth it. It’s much more important to have leads coming into you. Just like we have Kraft and their leads coming into us for investors. If you don’t have somebody replying to an email, showing there’s a need for what you’ve got, it’s a long road.
What’s your biggest surprise so far? I know we all have obstacles in our startups. What would you say is one of your biggest surprises that you didn’t anticipate that you could share with us that people could be like, “Maybe I should think about that?”
We pitched 50 CEOs of these platforms. They all said, “Sounds fantastic.” 27 of them said, “We’re going to do this. It’s amazing. How did you put this together?” When push came to shove, we found out 26 of them were not PCI-compliant, which is a security level that you need when you’re processing Visa, Mastercard and Amex on behalf of other merchants. We had to quickly regroup and build some tools to help non-compliant platforms use Digitzs. That was not something we expected. It was a big kick in the stomach, if you will. You just get over it and do what you got to do.
Let’s talk a little bit about you’re on the Board of a non-profit, A Sense of Home. How did you pick that charity? How does that relate to what you’re doing, if at all, with Digitzs?
It picked me. About a year ago, I was trying to get rid of a couch in my office, and just literally could not find a place for it. Stacey, my technical cofounder, said, “Why don’t you give it to A Sense of Home?” I had no idea who it was. I called them. They picked up my couch. The next day, I get an email with a family and about twenty people sitting around my couch in a house with a celebration. I was so impressed, I just called them back and I said, “What do you do?” They said, “We make first homes for aged out foster kids in Los Angeles.”
I didn’t know anything about the foster care system at that time, but families get paid to take in foster kids. When they turn eighteen, they usually kick them to a curb because they’re no longer compensated for keeping them in their house. A good majority of these kids end up on the street or about a third of them end up getting what they call Section 8 Housing. A lot of them live on a mattress in an apartment for a year, until A Sense of Home comes along. What we do every Sunday here in LA is we literally, we did one yesterday, we go in with a truck and usually twenty volunteers and put in all donated furniture; everything from flowers to pictures on the wall, to everything in the bathroom and kitchen. Our goal, by the time we leave, is to give them a sense of home.
A lot of people will say, “How do you find the time to do that and launch this huge startup?” Most people will go, “I can either do one or the other. Or I will do that after my company’s sold.” You’re doing it concurrently, so it’s obviously inspirational. I think that’s the big question people have is, how do you find the time?
It doesn’t take a lot of time. It’s actually what I do for fun. You have to have some break from your work. These days, we’re all so cooped up in our homes or our offices with our computers. We don’t connect with people face-to-face. For me, it’s become a really nice way to hug a bunch of people all at one time on the weekend. It takes a couple of hours. I don’t do it every weekend. They asked me to join the Board, which I was so honored, because, Georgie, who founded A Sense of Home, just was honored to be a top ten CNN Hero just a few months ago. It’s a massive honor. They had a big gala that CNN does and she was on there. Richard Gere actually introduced her. Now, they’re getting tremendous traction. The idea is to duplicate it in multiple markets. It’s really been super amazing to watch.
How can someone follow Digitzs and you on social media? What’s the best way for them to keep track of what you’re doing?
Do you have any books or book that you would like to recommend to a founder or someone who’s thinking about getting into equity crowdfunding?
Certainly, your book. I am going to write a book on our experience in equity crowdfunding just to help founders, because there’s a real formula to success. It’s not a complex formula. I think it’s one that people need to be aware of before they go down this road. It’s not for the faint-hearted.
Laura, thank you so much for sharing your expertise and time. We look forward to watching Digitzs change the way we pay for things.
You rock, John. Thanks a bunch.
Have a good one.
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