Introduction
Welcome to the innovative world of PIN — Power In Numbers. It’s a company founded by Steph Mui out of New York.
This cutting-edge company is revolutionizing the field of community investing groups, providing an efficient and scalable solution for collective investment. While traditional models often involve complex cost structures and high fees, PIN harnesses the power of technology to streamline the process, enabling the creation of these groups with low minimums. The result is an accessible platform for community investing, making it easier than ever for individuals to pool their resources and invest together.
As you know, I’ve spent my entire career (including some of college) building programs and systems/frameworks to support people with ideas. To me, the most significant barrier to more people succeeding in entrepreneurship is simply knowledge. If you have the proper knowledge, you can spin up a company in a couple of weeks and generate revenues in a few months…all while maintaining your full-time employment.
My work with KnowCap, an organization that helps people turn ideas into fast-growing companies, has centered on what happens when you do two things:
- Give more people with ideas access to resources that will turn them into sustainable businesses
- Give more people access to wealth creation, since the SEC won’t let them invest in startups
For years, I wasn’t sure if anyone else was willing to step outside of the main solution to this problem #1…accelerators. And let’s not get started on the purported solution for #2…crowdfunding.
In the last 24–36 months I’ve seen more and more concepts being spun up to address both and I couldn’t be more excited.
Why Investing Rules Prevent Wealth Creation
The SEC has determined that the only people who are able to invest in private enterprises (ex: startups) are accredited investors. Accreditation rules are set up to protect people who may not understand the risk associated with investing in startup companies.
On the other hand, this rule does not allow people who don’t have a large net worth or income to participate in the wealth creation that comes along with investing in startups. This means that many individuals are excluded from participating in one of the most lucrative sources.
You are not accredited if:
- you make less than $200k per year, or
- you have a net worth of less than $1 million (not counting your primary residence).
Which if you didn’t know, rules out about 94–96% of the U.S. adult population. It’s like the credit system, you can’t get credit if you don’t have it. Ironically the people who have credit thrown at them are the people who need it the least.
The same applies to investing in startups (one of the easiest ways to create generational wealth in the last two decades). If only upper-class earners can invest, then they would simply get richer over time. It completely rules out everyone else.
Sure the new ruling from the SEC allows people who have passed the Series 65 examination exam to have an exception.
However, you need a firm to “house” your Series 65 or it will lapse — as mine did when I switched from the financial services industry to the tech industry six years ago. I launched an RIA when I was 25 years old, one of the youngest in the country, and needed to hold a Series 65 to manage the money of other individuals. But when I went to work at a startup that helped RIAs launch at scale, my 65 lapsed.
Now the only reason I can invest in startups is because my company is worth over $1M…not because I spent almost a decade in wealth/investment management.
Seem weird right?
What about Crowdfunding?
Regulation CF was an Obama-era legislative tool to unlock investing in startups for Main Street and bypass the SEC’s accreditation standard. It was a valiant effort as part of the 2012 JOBS act (check my math on that, writing from memory) and has been a success in some ways…but had unintended consequences in others.
The goal was to align regular people to invest in some of the more promising investments before all of the alpha is arbitraged out during the IPO (initial public offering) process. However, the top deals won’t go the REG CF route because of the signal it sends to Silicon Valley investors.
I know that’s the dumbest thing you’ve ever heard, but it’s true.
VCs see that when you allow the community to invest in your company, then that means you weren’t able to raise through the traditional way of Sand Hill Road. And if you couldn’t raise the traditional way — then you simply aren’t a good investment.
Again, it’s like the credit scenario. In order to raise VC funding, you need to know other people who have raised VC funding. The problem is 40% of VCs are hired from two schools and 80% of VC Is controlled by four states (CA, NY, MA, TX). I’ll let you take a guess as to where those two schools are located…
That’s why some entrepreneurs will turn to crowdfunding, even if it rules them out of the tight circles of VC. Mount Olympus of startups, if you will. Their Dreams will be dead in the water.
Unfortunately, all of the AirBnBs, Ripples, Ubers, etc…will rarely list on crowdfunding websites. Those that do list on crowdfunding sites have only had outstanding investor returns once in a blue moon. I still don’t think one has IPO’d with meaningful returns for the crowdfund investors.
(I won’t get into the discussion of why startups who do succeed offer their crowdfunding campaigns terrible terms compared to their VC investors)
Which begs the question is that causation or correlation? Is the fact that VCs won’t back a crowdfunded startup, mean that they are essentially out of the running to IPO at multiple-billion dollar outcomes?
Who knows. But the scoreboard says that VCs are kingmakers.
Why PIN can win
That covers the history Of the space and sets up the conversation of why PIN could be so important.
PIN offers the ability for communities to spin up investment clubs or investment groups the best part is that it can mix both accredited and unaccredited dollars.
When you think about the idea of angel investors being accredited, but crowdfunding participants being non-accredited — this concept of combining both into one fund means that VCs can’t decipher which have a “bad” signal.
If Georgia Tech sets up an alumni investment group with PIN, VCs will see the name of the group on a cap table and believe that it’s the best startup from that community. The industry is less likely to think a startup can’t raise funding via traditional VC, because investment groups are essentially angel groups, which is part of the traditional venture capital process.
Right now PIN focuses on high-quality alums like Y Combinator, Harvard, and some other (read: upper-class and exclusive) alumni groups….but eventually I can envision where every community can have their own investment group which will allow them to invest in their own local start-ups.
I can see a world where chambers of commerce can set up their own investment clubs and invest in the top new companies that come in the door. When these companies gain traction and secure investment from Silicon Valley or an accelerator, the entire community benefits.
The success of one startup fuels the success of others, creating a chain reaction of achievement. This incredible outcome inspires and opens up exciting possibilities for the future, bringing a sense of inspiration and hope to everyone involved in the community.
Economic Development Implications
It’s not just about the financial benefits of that one investment group, it’s about what the members of that investment group will do in the community.
If a bakery owner is in the investment group and receives a check for $25,000, they may be able to buy an additional oven which then allows them to hire another person, which then allows them to ship cross-country orders, which then allows them to open more bakeries, which then allows them to hire more people.
When I look at PIN, I see a catalyst for economic mobility and growth that can have generational implications for the future of startup building.
Job creation in that community is on the table in a meaningful way. The returns from that investment can be distributed in the form of scholarships at the local high school.
There is simply no telling what the country will look like if PIN gets to scale.
Closing it out
If you’re interested in signing up to launch your own investment group, click here 👉 join PIN. We’ve thought about allowing KnowCap contributors to invest in each other’s companies so it’s likely something we’ll incorporate for the community in Q1 2024.
Oh and I got nothing from writing this article. I just really believe in the company and what Steph Mui is building.
