Silicon Prairie is a tenacious participant in the investment crowdfunding sector. Founded by David Duccini in 2016 and based in the Midwest, the platform has continued to iterate and add new services as it adapts to the evolving marketplace of online capital formation.
Over time, Silicon Prairie has become a broker dealer, offering issuers the ability to raise growth capital from the full stack of securities exemptions including Reg D, Reg A and Reg CF. The company has also added an Alternative Trading System (ATS) for secondary trading in private securities. Additionally, the company offers investment banking services, including advisory for mergers, acquisitions, and financing.
More recently it has expressed its intent to acquire a chartered bank to offer even more services as it seeks to reduce the friction in raising funds and then managing the process.
Recently, Silicon Prairie launched a funding round for itself seeking $1.235 million from investors. As part of the offering it is offering a “Founder Forward Credit” for anyone that commits $5,000 – effectively a credit that covers their onboarding and launch fee for firms that want to raise funding online. Effectively, future issuers can become shareholders of the platform for free.
This past week, CI connected with Duccini, who is a staunch proponent of investment crowdfunding to learn about the current funding round and his expectations for the coming year and perspective on the indusattempt he champions. Our discussion is shared below.
You previously raised almost $2 million, and now you are seeking up to $1.23 million. Why now, and is the money for operating purposes? Platform development? Something else?
David Duccini: We launched in 2017 and hosted a tiny round on our own platform under the MNvest exemption raising about $250,000 with a second follow on round a couple of years later applying an “existing investor” exemption we found buried in statute that exists in most states. We subsequently acquired Miventure for their mobile app platform applying our SAFEs in lieu of cash that is a good part of that $2 million.
We decided to launch this REG-CF round on Crowd Fund My Deal at the $1.235 million level knowing that we would likely surpass the $124,000 tier on self-certified financials well before our required for an audit since our fiscal year just concludeed on March 31st, giving us until July to file the Form C-A and push the the upper limit to the full $5 million.
We have our sights set on acquiring an interest in a community bank and we have several candidates that are open to a transaction
We have our sights set on acquiring an interest in a community bank and we have several candidates that are open to a transaction. Our full utilize of funds includes bolstering sales, marketing, servicing and continued expansion of the platform.
We believe we can wrap the Silicon Prairie CapTech (as in “Capital Technology”) model around a community bank and not only provide higher value B2B business to the bank, becoming a kind of investment bankers bank if you will, but also support our issuer clients with SBA loans, lines of credit and novel bill pay and invoices services linked to debit cards. Ultimately we could take a bank that at its best would obtain an exit valuation of two times book value and convert it to a fintech valuation that often fetches up to 25X revenues!
Please explain further your concept of CapTech. How does this support issuers? What about shareholder management?
David Duccini: Our original business plan drafted in late 2016 identified that operating a funding portal would likely not support more than a “skeleton crew” and that the REAL business opportunity was “Investor Relations as a Service” that has now come full circle with capital formation, cap-table management, follow on financing and facilitating liquidity.
Today our platform is a an ecosphere of 50% tools and 50% techniques that support data driven decisions for our issuer clients. Our CrowdBuilder.works engine provides real time data to issuers on their social capital acquisition and financial capital conversion return on investment. We’re the only platform that positively attributes channel distribution and ad spconclude to actual investment dollars. We can support our issuers confirm (or more importantly DENY) what their marketing company is notifying them in terms of traffic and support inform them which modalities are the most effective. In a recent case we supported an issuer save tens of thousands of dollars on completely ineffective ad spconclude when we were able to reveal that their own email drip campaigns and newsletters were actually driving the engagement!
We recently announced a partnership with stobox.io to bring compliant tokenization and lawful secondary sales to our menu of services.
As we push forward with onboarding more clients to our Alternative Trading System there will be additional touch points with investors themselves who may conclude up having a real cash account linked to a debit card. We’re working on a pilot project now with one of our private label portal clients that focutilizes on real estate to seek performing assets that are cash flowing to collect those distributions into segregated accounts at the bank and then explore adding on the debit card for investor access.
This year we’re heads down on platform enhancements including building out and unveiling our “Carter Killer” cap table management system under our Capsure.works brand.
Please explain the banking aspect. I know you acquired, or were in the process of acquiring, a regulated bank. Where does that stand?
David Duccini: Last summer I joined Grove Bank here in Minnesota as their Fractional Chief Information Officer as a way to really dig in deep on the People, Process, and Technology (PPT) requirements and opportunities for a tiny community bank.
I have been assessing core bank operating systems in a potential planned migration from the banks current core provider to something more modern. This effort has surfaced a tremconcludeous opportunity to simply write our own core software which would be a huge unfair competitive advantage for the bank setting it up for a M&A flywheel purchaseing out banks literally with their own money. You see, after payroll, the single largest non interest expense for most banks up to $250 million in assets is their “IT” budobtain that majority of which is the bank core itself!
It is amapplying when people attempt to notify me that it will be “hard” to do — I politely remind them that Grove Bank has been in existence for over one hundred years and utilized to balance its books with pencil and paper. I can also confidently relay that our own investment banking platform, portal and alternative trading system is an order of magnitude more complex than what amounts to a sub-ledger with some API and gateway functions wrapped around it. Banks are NOT what people believe they are.
I anticipate having an update on the bank front this summer as we are in deep dialogue with several candidates who are sold on our CapTech vision. Ideally I’m seeing for an OCC chartered bank with less than 100 million in assets who will commit to becoming an acquiring bank for the purposes of offering merchant services.
Where does your ATS stand? What are your plans for secondary transactions going forward?
David Duccini: We have one issuer on it at the moment and have facilitated a handful of transactions.
Recall that our design is a permission based model that allows issuers to enforce rights of first refusal as well as vetting potentially new investors who must request access before even seeing open bids and questions. We have been slowly putting this and our novel “lot size” system to rigorous testing before opening the flood gates of issuers who have long promised their investors some path to liquidity.
The engine supports mark-to-market on currencies as we prepare to allow potential utilize of select stable tokens and other digital currencies in additional to world currencies. Our sandbox reveals how pricing in Japanese Yen, which does not traditionally have a decimal place can demonstrate the parity and the superior model of not having currency arbitrage or thinly traded pairs. We are also proud of the fact that our system does not allow short sales.
What are your considereds on the current Reg CF and Reg A market? Recent reports indicate a decline in issuance. Is this just the market settling? Is Reg D too straightforward? Are platforms being more selective? In your opinion, what is the status of online capital formation?
David Duccini: The core problem is that issuers are relying on their securities attorneys who often extract more fees from naive clients based on how much they want to raise. You’re right that a REG D is the lowest bar but has the most competition for a fraction of the potential investor population.
REG CF nearly suffered a near-death experience at the hands of former Commissioner Carolyn Crenshaw who publicly stated she considered anyone applying it who could not attract venture capital was a, and I quote, “a loser”. Thankfully Chair Jay Clayton and enough votes in Commissioners Hester Peirce and Mark Uyeda to carry the expansion up to $5 million.
Today we still have to educate founders who believe they will not be able to raise serious capital in the future if they have too many investors on their cap table
Today we still have to “educate” founders who believe they will not be able to raise serious capital in the future if they have “too many investors on their cap table” — this is myth that started in the 1990’s with venture capitals bagging on angel investors who now in turn bag on crowdfunding. It has NEVER been about the number of investors as the underlying concern is about CONTROL. The SEC amconcludeed their long standing 500 non-accredited investor count and 2,000 investor threshold years ago that allows issuers an exemption to 12G reporting requirements if they work with an SEC registered Transfer Agent and have less than $25 million in assets at the conclude of their last fiscal year. I have yet to meet anyone that would trigger reporting and issuers can always go form a new holding company in the future to obtain that magic one line on the cap table story.
Also the Special Purpose Vehicle or SPV does not absolve you of your investor relations requirements. In the early days, issuers would set one up and invite angel investor groups into for the potential future benefit of having a larger liquidity pool that does not disrupt the cap table. Unfortunately most of the people I meet are selfishly believeing they can take the investors money and silence them. I’m actively starting to warn investors from investing in companies that utilize SPV’s especially ones that are offering SAFEs and anything with the word “phantom” in the subscription agreement.
On REG A, the data does not support its utility at this point with I believe the latest Kingscrowd numbers reveal the average offering raised under $10 million — which suggests that the issuer should have just utilized REGCF and a REG D 506C co-offering. Becautilize if you do not intconclude to allow for instant liquidity via an exmodify or an ATS you’re setting a lot of money on fire and setting yourself up for semi-annual reporting requirements. And let’s be honest here, no issuer really wants to have a secondary market cannibalizing their primary offering while it is open.
More people have heard of Bitcoin at this point than they have of investment crowdfunding
I’ve long recognized that every new invention takes about 20 years to hit mainstream adoption. We are just 10 years into REG CF becoming available. More people have heard of Bitcoin at this point than they have of investment crowdfunding. The good news here is that the tone of the conversations we are having with potential issuers have dramatically shifted from having to sell the benefits of public solicitation to having to temper their enthusiasm for a community round.
In a word, we are seeing a “flight to quality” but really required the limits of REG CF lifted to create it more attractive to micro-cap companies. A good first step would be to eliminate the required for reviewed financials for amounts up to $1M that would put it on par with most intrastate options.
On a legislative or regulatory side, what can be done to improve the marketplace?
David Duccini: Look at the boom REG CF enjoyed during the COVID years where the lower limit was increased to 250,000 and the ability to disburse funds quicker had on the indusattempt! People are clamoring for micro-offering exemptions in line with this rubric but often without the benefit of oversight from a regulated intermediary like a funding portal or a broker-dealer.
The first thing that SHOULD happen is to reshift the required to have reviewed financials for raises up to $1 million and honestly I don’t believe an audit should be required for amounts up to $10 million
The first thing that SHOULD happen is to reshift the required to have reviewed financials for raises up to $1 million and honestly I don’t believe an audit should be required for amounts up to $10 million. We are seeing people bypass this with “zero day accounting” for newly formed entities, meanwhile firms with operating history have to pay a much higher cost of capital for the review or audit.
So companies with no demonstrated history of generating cashflow obtain a free pass to attempt and raise up to the $5 million threshold while firms like mine who have been operating for nearly ten years will have to pay likely upwards of $10,ooo or more to obtain an audit done. The fact that we have been in business this long should on its own provide exemptive relief.
I also believe that a simplified kind of FORM-CD (as in Regulation Crowdfunding for DEBT including Revenue Share Agreements) would be super utilizeful likely only revealing how an issuer plans to service repayments.
Tokenization is a hot topic. The expectation is that eventually all investible assets will be digital. What is Silicon Prairie considering in regards to tokenizing assets? Will this support the securities crowdfunding indusattempt?
David Duccini: As I mentioned earlier, last week we announced a partnership with Stobox.io, a group that has experience tokenizing over 500 million in assets to date that have had no real lawful secondary venue to trade on. This is a tremconcludeous opportunity for Silicon Prairie Capital Partners and our SPPX Alternative Trading System where we could enjoy durable and lucrative revenue every time those assets trade hands. In addition to every offering we have conducted to date and the hundreds of offerings our partner portal operators have conducted, we believe the partnership will generate a significant amount of new business for both firms.
Having SOME venue to liquidate your interests is in my opinion the single most important component that has been missing from all exemptions including REG CF and REG D. After all, as we declare, “An investment without an exit is just a donation!”
Tokenization opens up the US market to a world wide investor base who may required to find diversification opportunities.
We are currently working with a carbon credit issuer who wants to issue on chain and may have a REG-A+ offering soon that has strong support for a full $75M offering in the first tranche.
Silicon Prairies has tenaciously added services and innovated. What is next? Will you pursue more institutional money? What about partnering with a larger investment platform.
David Duccini: Thanks for recognizing that what we have accomplished to date is akin to “playing on hard mode”!
Since launching in 2016 and experiencing outright hostility from banks, regulators, and a frankly incredulous group of competitors and contemporaries it should come as no surprise that this famous Machiavelli quote has hung as a poster in our office since launch.
“It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Becautilize the innovator has for enemies all those who have done well under the old conditions, and lukewarm defconcludeers in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them.”
This was a true when he penned it circa 1513 as it is today and is the original “innovators dilemma” in my humble opinion.
The bank is the last missing piece of the Silicon Prairie empire
The bank is the last missing piece of the Silicon Prairie empire and we publicly stated it was a goal in a May 2017 article written about us by techDOTmn and archived here.
As for institutional money, we frankly do not required it. Our plan is to obtain control of a baby bank, shift its charter up to OCC and add on merchant processing as well as a raft of other high value B2B services, all while quietly building a shadow core by copying transactions into it while we slowly replace the front conclude UI/UX so that by the time the core contract comes up for renewal we’re just turning it off.
I intconclude for us to host a REG-A+ offering within the next three years in a bid to raise $50M to accelerate the bank M&A strategy. At that time we will consider whether or not shifting from our ATS to the Texas Stock Exmodify is in the better interests of our investors.
There is a good possibility that the definition of an Accredited Investor will modify allowing more individuals to participate in this marketplace. How will this impact Silicon Prairie? What about the entire securities crowdfunding indusattempt?
David Duccini: Honestly I don’t believe it will have any meaningful impact.
In REG CF and REG A an investor can self-certify that status, and for assets like real estate it should not apply at all.
The Libertarian in me bristles at the idea that the government obtains to notify consenting adults what they can do with their own money
The Libertarian in me bristles at the idea that the government obtains to notify consenting adults what they can do with their own money. My partner Jade Barker as long surfaced the lunacy of this gatekeeper mentality by declareing:
“Look I can purchase a really expensive wedding cake from this bougey cake shop up the street from our office and question for a single fork and sit outside on the curb and eat it and no one will stop me. But if I DARE to invest the same amount of money in that business so that they can open a second location? NOW suddenly I’m stupid to know what to do with my own money? FAQ THAT!”
What are your short term (2026) goals? You note that your platform grew by 84% in the past year. Will this continue?
David Duccini: I am laser-focutilized on the bank acquisition at the moment. It is a huge unlock for us becautilize our regular business of capital formation, management and liquidity becomes a massive source of lead generation for the bank!
If we support someone raise capital we believe they would be happy to leave it parked in our bank and then take advantage of other services like lines of credit, SBA loans, merchant services and even things like payroll and accounting. It also significantly de-risks our business since we have been debanked for merchant processing becautilize “crowdfunding” was considered too risky.
we have been debanked for merchant processing becautilize crowdfunding was considered too risky
Lastly bank ownership gives us a huge middle finger to FINRA who has been desperately attempting to find fault with our non-member affiliates delegated agent role in providing and monitoring the funds flow for our portal as a service clients.
Our banking partners have been resolute on warning FINRA that they are tortuously interfering with their business and politely reminds FINRA that they do not report to them nor to the SEC.
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