Eight years ago, Jason Frishman was fully immersed in medical oncology research and neuroscience. A research assistant at the Dana-Farber Cancer Institute, Frishman spent his days working through the often-sluggish process of scientific research—and quickly found himself bogged down.
"I just got disillusioned," he said. "The time it took to have an impact on people's lives was too long."
Frishman, who at the time was still an undergraduate at the University of Miami, turned to an old friend, John Fanning Jr. Frishman and Fanning were each other's oldest college friends; the two met in an elevator on their first day on campus. Now, Fanning was going the entrepreneurial route, heading up a video game startup called Zelgor.
Frishman told his friend he wasn't sure if he wanted to spend his career in a lab. So Fanning hired him.
"Why don't you intern for me for a summer?" Fanning recalls saying. "See what it's like to work in a startup."
Zelgor was spending that summer raising a pre-seed round. The goal was to bring in $250,000 so Zelgor could build its prototype, a game that it would launch publicly in order to start building a user base. Fundraising at that level was everybody's job, so even though Frishman was technically an intern, he dived headfirst into the world of venture capital.
Frishman wasn't sure he liked what he saw in venture capital any more than in neuroscience research.
"It was so chaotic," Frishman said. "It was a really emotional experience, actually. It felt to me, as an outsider who knew very little about entrepreneurial finance, that the problem of 'how do you efficiently sell securities for cash' was solved by the public markets, and none of the solutions were being applied to the private markets."
In the fast-moving startup world, Frishman felt he had an opportunity to change that. Frishman launched Netcapital in 2014. It's an equity crowdfunding platform that allows anyone to invest small dollar amounts into a variety of companies. Netcapital's mission: to unlock an entire asset class and "make this portion of the capital market work for real people," as Frishman puts it.
In digitizing the fundraising process, Netcapital also streamlines it for companies that would otherwise sink time into sourcing, then meeting with investors who may or may not ultimately write checks. Plus, the digital approach has been a big advantage for Netcapital amid the pandemic.
"The way you raise capital is you go meet with people," Frishman said. "You're doing this in-person pitch and song and dance. In a world where you're not allowed to meet face to face with people, it makes sense that a digital alternative would provide a potential solution to that problem."
Although traditional venture capital firms and even angel investors were less keen on making new investments earlier this year, Netcapital—whose investors are mostly laypeople—saw two of its strongest months in May and June in terms of user growth, the number of investors transacting and the number of investments made, Frishman said. The actual dollar amounts of individual investments were smaller than usual, but for many companies on the Netcapital platform, investment size matters less than building a community of support around the product.
In fact, that's the case for Zelgor. Fanning and Frishman's entrepreneurial journeys came together when Fanning became one of the first founders to put his company on Netcapital. The gaming startup has raised about $75,000 as part of its current offering, in which the investment floor is just 50 cents.
"Some of the larger investors are like, 'Oh, we're not investing in anything at the moment.' But those smaller investors still came out and supported us," Fanning said. "As a game company, ultimately, what we care about is the size of the community."
Netcapital as a company has brought in outside funding from a variety of investors, including Techstars, Fidelity and DraftKings co-founder Jason Robins, who is also a member of Netcapital's advisory board. Then, this week, it announced a major business pivot: It would be merging with ValueSetters, an advisory firm that helps private companies raise capital online. The total consideration for Netcapital is approximately $20 million paid in shares of ValueSetters common stock.
With the transaction, the two companies essentially broaden their networks. Netcapital will be able to access ValueSetters’ digital marketing expertise and strategic advisory services, as well as ValueSetters' team of former investors. The merger is expected to close by the end of the quarter.
Netcapital and ValueSetters have partnered in the past. With the merger, Frishman expects accelerated growth for the combined teams.
"We exist to digitize the private capital markets," Frishman said. "Equity crowdfunding gets thrown a lot, which I think can be somewhat confusing. At our core, we're an efficiency tool. We are a platform that allows entrepreneurs and investors to transfer—safely and securely—stock and cash."
