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Andrew Warner: Hey there Freedom Fighters. My name is Andrew Warner. I’m the founder of Mixergy where I interview entrepreneurs about how they built their businesses. Joining me is someone who built a company I’ve been a customer of, and I’ve been in big admiration of the company. I thought, what an easy idea and it’s a natural success.
Of course, it’s going to do well. As I dug into this interview, I realized, ooh, there’s a lot of up and downs in Well and this is painful. Um, the company I’m talking about is Art. com. I remember when I needed to get art on my wall because I always had a functional house and people said, Get some art on the wall.
I went to Art. com. I picked out whatever art I wanted and It clearly had come from a service that they were licensing before they printed it up, and framed it for me. I picked out my frame. I had my art. It was up on the wall. What a beautiful experience. It made a lot of sense. They didn’t have to pay anything until I paid them.
I like that kind of a business. And still, the founder who’s here, I, I’d see had gone through a lot of challenges. Joshua Chadic is the founder of art.com, and I will hear about that story in addition to the story of his latest company, which is called Fundify. And I love by the way, that Josh, you got the domain fundify.com.
it’s all about how to make startup investing easy. Apparently you could even get in as easy as just $1 to invest in startups. You don’t have to do what I did. I, dude, Josh, I gotta tell you, here’s the thing that I, that no one tell that no one told me until I got into it. I thought 20, 000 is not that much, so I would put 20, 000, 25, 000 into these startups.
And then I finally started looking at the different contracts that were going around, and I realized even the wealthiest people were putting in like 5, so I thought I was being a 000. It turns out I was high rolling it for no reason.
Joshua Chodniewicz: That’s right. Yeah, the diversification hadn’t kicked in, right? As far as how they’re, how investors are thinking about putting their money to work,
Andrew Warner: But why is it, for example, I want to get into the art. com story. That’s the reason I’m here and I should say my sponsor is Gusto, which is a phenomenal service for paying your people, handling benefits and so much else. I’ll tell you later on, guys, why you should go to gusto. com. But Josh, here’s the thing I can’t figure out.
I don’t know if I should reveal people’s names, but one of the freaking founders of YouTube had invested in the same company as I did. For less than me, I think I put in 20, I’m pretty sure he put in 10, 000. I go, what does he care about a 10, 000 investment? What’s the logic behind that?
Joshua Chodniewicz: the logic there. And I don’t know anything about that individual and how they made that
Andrew Warner: But this type of investment.
Joshua Chodniewicz: the idea is that startup investing is highly risky. Everyone understands that, right? Everyone knows that. many investments in the startup world go to nothing. however, what most people don’t truly understand is that with a large enough basket of startup investments, you could have a portfolio that’s hitting the middle of the bell curve.
the middle of the bell curve being 25 to 30 percent a year, which most people would say, hey, that’s an incredible asset class to be in. there are negatives. This is an, this is still an illiquid asset class. But if you’re investing in 40 to 50 startups, You’re going to get in that middle of that bell curve if you do it correctly and 25 to 35, 20 to 25 to 30 percent returns are phenomenal or greater even.
So when someone’s thinking about putting in 10, 000 or 25, 000, that’s how they should be thinking about it. I too, like you, maybe, Andrew, when I got started, I’m making, a 25, 000 or 50, 000 investment into a startup. I did not think about making 50 of them, because if I was thinking about making 50 at the time, I might have put 5, 000 in, and I might have thought about it differently.
But also, I think I went into it originally thinking, ah, 5, 000, no one would take that check, right? And the world has changed also in the last 10 years. with the likes of angel list and syndicates and the way that accredited investors can get into investments. But, you realize as you’re thinking about this more of investment, over the longterm, not trying to hit home runs and not going after rifle shots that I’m saying, Oh, I’m gonna take one shot here.
I’m going to put 25, into a deal, which I’ve done. And you’re taking rifle shots. If you’re not thinking about that, like a portfolio. 50 or more startups over the long haul. If you’re thinking about a 50 or more, come up with an amount that thinks that would be the way I would advise people to invest in startups.
Cause when you do that one, you won’t care as much about any one particular startup because when I, when I put a large amount into one now, I’m like, Hey. I’m like living and breathing by every update that I get, right? anyhow, that’s kind of the thinking. Most angel investors do it incorrectly.
Most, the average angel, this would be an accredited, wealthy individual, most of them are investing in one to two startups a year. And they’re might be investing 25, 000 to 50, 000. And that is incorrect from the perspective of if your goal was to Get 25 to 30 percent returns like the asset class as a whole, then you’re not doing it correctly because it’s going to take you way to today, 30 years to get 50 startups at that pace.
to kind of see that. And most people don’t end up, going at it that long,
Andrew Warner: All right, fair point. I think what I was doing was going in with friends who I believed in and then I would put in the numbers I was talking about and it wasn’t until later on that I realized They’re really, for me, not looking for someone who’s going to fund their whole business. They’re looking for somebody who’s got skin in the game and is on board their mission.
And this is more of a friendly support. And if I get an upside, great. They would be happy with the 5, 000 for me and others like me. And I, I just didn’t realize that that was, that’s where to be. On the other hand, I also don’t have the patience for going to, to, Meet 50 different friends a year who I’m gonna back or 50 different companies a year that I’m gonna get to know him back All right.
I want to come back to this. let’s Reverse things a bit and go to art. com. It started out as what? Yeah
Joshua Chodniewicz: but what we, when it started, It was 94, 1994 95 when the internet was being birthed and, I started with a phone call from a buddy of mine who I knew from first grade, Mike Marston, who called me up and said he was at Virginia Tech getting his computer science degree and he said, this internet’s gonna be huge and I said, what, what’s the internet?
Like, how does that work? And, we were on 300 baud modems and, And thinking about the magnitude of what this would become as it grew, right? As connected computering, you know, happened across the globe. And, what could be done, via an internet connection that connected everyone versus the way the world was working at that day and age.
And when we thought about, that, that aspect and we were, I mean, we were on mosaic browsers at the time, monochromatic browsers. So it wasn’t, we weren’t even color at the time. We’re thinking. One of the problems that was happening was that if people were looking for something for their wall, let’s just say you were a Yankee fan, but you lived in Dripping Springs.
Right in, in Texas, maybe you could find a few of those Yankee posters at the Walmart if you went in there, but if you were looking for something specific, a particular year they won the championship or a particular player, it’d be very difficult to find that. And so. The internet as a channel allowing, and building superior selection that couldn’t be held in a small store or frame shop, let’s say, for example, we could build that superior selection of what turned out to be millions of SKUs eventually.
through an internet browser, right? Through an internet store where you could search for the Yankees and you’d see hundreds of prints and posters that were not available anywhere. You could, we, and what we did is we had hundreds of vendors that we amalgamated into one source that people could then, search, click on, buy, all stored.
It’s, in our facilities and, and then going from there. So we started at those stages in the 90s. we actually started, the first name of our company was pokers. com. We just thought of, it’s poker with an S. And we thought, hey, that would be kind of a cool name to go build something.
This was also the days of MySpace where it had 12 colors on a page, and everything was shining and blinking, and, and we just had a different name. we quickly changed that to allwall. com. and then started building the company from there. so for a few years, our, the name of our company was Allwall.
before we ended up, getting to the art. com piece,
Andrew Warner: So from what I remember, Jeff Bezos has had a similar understanding. He said, look, the bookstores can only hold so many books. Here’s an opportunity to send something that people can see online and get into their hands and we can offer a broader selection than the stores could offer. Made sense. The thing that, that posters or art didn’t have was, repeat sales, right?
And so you had to keep figuring out how do I get another customer and another customer? Right,
Joshua Chodniewicz: one of the negatives to our industry was that, By the nature of what we did, when you had a, we were solving for a problem, which is a white wall, and then we put something on that wall, and now you didn’t need anything else. we saw ourselves having very high NPS scores, customer satisfaction scores were on the very high end, because we were delivering product that they wanted, we fulfilled the need.
At the same time, we had low repeat rates. Why? Because people don’t move that often, or even when they move. They take things with them and they hang those up. And so it’s redecorating and things of that nature that would have to come about. it’s just not an industry in which people repeat incredibly well.
So that is definitely, that definitely was a negative in the space and the space that we were at. Whereas, books, he touched on Amazon, but books, you read through them and now you want another one. So that becomes a really great sort of, product to get through. You’re not buying that same book necessarily, but you are
Andrew Warner: buying another and another and if you have a good experience, you’re
Joshua Chodniewicz: you are buying other books to consume.
Andrew Warner: And so you probably noticed that fairly early on. How did you handle that?
Joshua Chodniewicz: we had to change our, our model had to be different than others, right? It’s like the opposite of a SAS model, right? We love the SAS model that you can charge every month or every annually or whatnot and satisfy customers. We did a very good job of satisfying customers, but unfortunately just the model sat there.
So what that meant is lifetime value of those customers was lower, which means we had to, we had to live a life where it was more about making money on the front. and sustaining rather than, hey, paying again, you know, acquiring customers at a lifetime value where you lost money up front and then maybe down the road at some point when they made their second, third, fourth purchases, we’d start making money.
And so we, that, that is an adjustment we had to make. I think many e commerce companies needed to make that and never did. so they had some challenges on that front, right? Now, the benefit of that for us. Is it cause us to be more cash flow sensitive and more interested in making sure that we were making money as we went, right?
So we’re a little bit old school in that method. I said, Hey, listen, we got to make money. We got to, we have to build a business. And we also had difficulty raising capital in the beginning. So for us, we had to do it that way because we were bootstrapped.
Andrew Warner: It was Bootstrap, then I think Angel, then you raised money from pretty serious investors.
So then what about the dot com crash? Right? Everyone had all these high hopes for internet companies. Everything went online, including pet food before it was ready. And then suddenly nobody wanted to be online.
Everything crashed. What happened to your business at that time?
Joshua Chodniewicz: So we lived through the dot com boom of 99 and also the crash of 2001, right? And we saw that in, in 99, we had some offers for capital raises. the challenge that we saw is, they came with contingencies often. Hey, you had to use this money in this capacity in this way. which we weren’t willing to do because we didn’t believe in the model and how we would acquire customers that way.
However, at the same time. We were building a strong business and trying to make a go of it in 2001, is when the crash came about, right? Everyone sort of realized, you can’t sell gumballs and be worth a billion dollars. And, frankly, that is exactly the moment in time when we acquired our largest competitor, ART.
com. So we were all wall. com until May of 2001. We used the internet crash. We were kind of, we were, we were positioning ourselves for years to be in a position to take advantage of certain situations. And we were fortunate that when that came about, that was a good thing for us. We ended up acquiring that.
the domain name and some of the assets there and started continuing to build our business there.
Andrew Warner: And this is the acquisition from
Getty or before? I think I I’ve done so much research, but I was a little confused about at what point you came in. It looks like it. Well, yeah, it looks like it was 2001. I’ve got the wall street journal article,
Okay, so then what happened was, Getty acquired, actually maybe you can take me through the whole Getty part of the story, I’ve got it here in front of me, but I, I, it’s a lot of different things. Tell me about the Getty part of the story.
Joshua Chodniewicz: Yeah, it’s a it’s press doesn’t always get the stories correct either. So it’s hard to fully understand exactly what happened there. But Art. com, before Getty owned them, Art. com was owned by another gentleman and they ran, they actually raised I think 15 or $17 million in Venture. they built that business to a whopping $1 million of revenue and sold it in 99, right at the internet craze when everything was going at 135 x multiple to Getty Images.
So Getty paid 135 million for the business, in 99, and then went on over the next couple of years to invest a couple hundred million more. into trying to make that, you know, what Art. com could be. And, and then in 2001, having built the business from 1 million to about 2 million in revenue, we acquired that business, from Getty in May of 20 of 2001.
Um, so that’s the story of what happened there and how they got it.
Andrew Warner: So the article that I saw was, uh, from the wall street journal and it said art. com generated revenue of about 20 million in the year 2000, according to getty images, but was never profitable. And you’re saying,
look, it didn’t even do 20 million in revenue and it was definitely not profitable.
Joshua Chodniewicz: it did about two and it was losing about 2 million a week at the time. That was our
Andrew Warner: And so,
Joshua Chodniewicz: of it.
Andrew Warner: So then they shuttered it. You come in, you buy it. You use the domain, essentially, and your model. Why did your model work for Allwall when their model at Art. com didn’t work even with all of Getty’s firepower?
Joshua Chodniewicz: Well, and that’s a question we had to regularly try to answer against venture that was trying to invest money and saying, and listen, how would you. How are you going to compete with Getty that has all the capital in the world and frankly, many, many smart people also running the business and the answer that I would always give would be, listen, if they do the exact same things that we do, we can’t compete because they’ll have more money.
However, in five minutes, they’ll already have done something different than us. And so, and then those increments keep growing, right? And the business are different. So it becomes strategy and execution and what’s there. ultimately they ran a business that was not profitable, day in, day out. They overspent, they did the traditional things that I think were incorrect.
Andrew Warner: What do they spend money on?
Joshua Chodniewicz: Mark, mostly marketing. So a lot of bad marketing spend that did not convert tracking was very tracking. 20 years later, 2023 is difficult to track attribution. How you think about where did the customer actually come from? First click last click all the middle attributions that you can kind of think through.
22 years ago in 2001, it was all that much more difficult, frankly, because not having the tools that were out there. People were not, attributing traffic and, frankly, revenue accordingly and appropriately. And therefore, you’re, you’re making these bets on brand investments in marketing, right? We’re, we’re going to put money in here and we’re kind of, it’s like the field of dreams.
We’re going to build it and they will come, right? And people had really latched onto that and thought, Listen, if we spend over the long haul, people will buy from us. And, and yes, people will buy from you. And that’s not a, an incorrect statement, but there’s still Some sort of balances you have to put into that, right?
Spending, a hundred million dollars in a year to get two million in revenue is, is unlikely. Well, I mean, yeah, it’s a big bet. So if you think you can make that up over the years of the future, then that’s great. And, and the business had the ability to do that, but there’s also user adoption that takes time, right?
No matter what industry you’re in, if you’re in something new. It takes time for people to adopt. Look, 25 years later, there’s still people that don’t use the internet regularly. Right. And they’re like, I don’t know about this. And, and of course, that’s becoming less and less, but, um, anyhow, that’s.
Andrew Warner: The, I, I remember one of the things that I saw them do was if I would do a search for some celebrity or something. I think they then had a Getty ad there that with the photo of the person in a frame saying, do you want buy them? And for me, it was, I’m doing a search for the person, there’s no natural next step.
But I guess, I got what they were going for. Maybe I was looking to buy them and put, buy a photo of them and put it up on my wall. Or maybe I could understand that if I wanted to, I could basically find anybody and get their photo and print it. And I think that’s what they were doing. Made sense in theory, but the mechanics meant that it didn’t work.
That’s what you’re saying.
Joshua Chodniewicz: Yeah, partially. One of the challenges that you have with the Getty example and, from where I’m coming from is it, that was a 5 billion publicly traded firm that made its money on a B2B business selling licensing of photography. Okay. That was their core business. Then they got into art. com for a 2 percent of their market cap.
They got in and they tried to get to the business to consumer side of things. And they’re thinking about that. It’s a, it’s a different customer, right? And they’re thinking about it. yeah. Partially correctly and partially incorrectly. They went after, there’s a couple things that are wrong and in the way that they’re doing it there, many people are searching just for photos to look at the pictures of people.
They’re not looking to buy things. Photos of celebrities are one of the lowest converting items for people to buy because they’re looking for photos. They’re looking to see, how this person or that person looks or what their current They’re You know, what are they doing now? That sort of thing.
They’re looking for news. which is different than, than looking for a photo of the Eiffel Tower, right? Or, or if you specifically looked for an Elvis Presley poster. You were probably looking for a poster of them, right? Additionally, I’ll add that one of the problems of that model is pre frame, pre framed items.
So they were going after an item, they wanted a higher average order size, right? So they didn’t want to just sell you the print for 20. They wanted to charge with the frame 100 or 200, right? And so they were going after something and that’s not how consumers buy. They’re not buying, generally speaking, they’re not buying the framed piece.
They want what’s inside the frame. And then they add on, what matches.
Andrew Warner: So then what were you doing that worked? Why did you beat them?
Joshua Chodniewicz: one, we, we just thought about every dollar that we were spending. And I’m sure I would, I’d venture to think that they thought about the dollars they spent as well, but, you know, we were just at the end of the day, looking for appropriate ways to leverage our dollars to make more. We were building an affiliate program back when in 99, when that was.
Not something that was very popular. Most people didn’t know what that was or, or how that was built. Frankly, it was called an associate’s program at the time, before the world started kind of coining this affiliate term. We ended up with 750, 000 websites linking on a commission based basis to our posters and prints.
That is a model that works. Why? Because when we make 60 cents on every dollar that we sell, and we’re going to pay out half of that to our affiliates. Every time we sell something, we make money, right? And that’s a model that works really well for us as opposed to, spending an enormous amount of money on, let’s just say on the Yahoo ad that’s on the Yahoo front page and hoping and praying that the 100, 000 or the 4 million contract that you spend, turns into, you know, 40 million worth of revenue or some significant amount of revenue, which those things weren’t converting even close to those types of numbers.
Andrew Warner: So how did you discover that? Why did you know that would work out?
Joshua Chodniewicz: Well,
Andrew Warner: about your process?
Joshua Chodniewicz: I don’t think we knew initially. I think we just simply, when Yahoo came to us and said, here’s a 50, 000 package. You said, can we test it with 100? And they said, 100? They would laugh in our face. And we would tell them, well, I mean, what’s your lowest value? And they’d say, well, it’s 50, 000. Maybe we can get you, maybe we’ll do you a huge favor and get you in for 25, 000.
And we’d just say, well, we’re not going to do that. Right? We’ll find. A way to test it for a very small amount of money. Can I spend 100 and can I get five customers, right? And, and, or can I get 10 customers? How can I do that? Right. And how do you use the power of leverage? Cause I’ll, I’ll spend more immediately if that works for us.
Right. But we were again, thinking about making money or breaking even on the first customer sale, right. It, as opposed to saying, Hey, listen, we’ll spend anything. we just got to get customer, got to build at all costs, which. There is a place for that in the world, right, that you certainly see that now happening more so than it was in the past and, but it’s a way of thinking, right?
And so we looked for channels that were not leveraged. In 99 and 2000, we sold and listed more product on eBay, for example, than anybody. And the reason for that is because we were able to negotiate a deal with no listing charges, but to fill their pages. So we solved the problem for eBay. In giving them a lot of volume to fill out their pages and we pay them commission.
We pay them commission on every sale, but we’re not going to pay you a nickel. Just to list every product when you don’t have the buyers is what kind of the story happened there. But, you know, that was, so we kind of, we saw the opportunities in the different spaces to leverage them. And, and for every story I tell you, that’s a good one.
There’s 10 or more that failed. and we lost a hundred dollars on, right. And,
Andrew Warner: Before we get to the ones that failed, the process for finding this It was someone, I’m assuming, saying, let’s look and see where we can only pay if there is an upside. Maybe eBay makes sense. And then, did you have connections to eBay to suggest this, to brainstorm this? How did you get in there?
That idea came simply from living, breathing, everything in business at the time, meaning we talked, we had breakfast, me and my founder had breakfast, lunch, dinner every day together. Right? So we, all we did was talk about the business and how to make it better.
Joshua Chodniewicz: And where would the great ideas come from? What if we did this? This is what somebody else was doing. I can’t particularly remember exactly, What we saw or what was going on at that particular moment, but what we did see is you see things winning and other channels or other industries or another business and you say, how could that might apply?
To what we’re building, how could we leverage that sort of idea inside of our space? What kind of tools are available? What might that look like? We might have to make a change here or there to that to make it actually apply and so that’s the process that it starts with just ideas talking about really that one in particular eBay Came out of saying, hey, listen, eBay is getting some traction.
We’re also seeing some problems with their model. we’d like to be on there, but it doesn’t work for us if we do it this way. Well, what might that look like? And then, we’ve got a ref that we’re talking to via email. Maybe we should get on the phone with them and maybe we should brainstorm an idea that says, hey, we could and sell them on the fact that we can fill your content, right?
We’ve got something that they want, but it’s. Yeah. They’re going to have to do something differently to make that happen. And so it’s just, it’s, it’s having an idea and then also on the execution front. many of these ideas don’t ever happen. That doesn’t mean you didn’t try. You actually try and attempt and go after it.
Either the company wasn’t willing to do it. In this case, eBay was very innovative and willing to think about all kinds of different things. we also had another company, it’s kind of this conglomeration. We also. I’m an investor in a company called, or I was an investor in a company called channel advisor through a fund.
and they were helping companies list product on eBay and other platforms. And so you start seeing the dynamics of what the real problems are. Anyhow, I get into that, just saying that you see the problems, but you’re looking for an advantage for your own industry and how can you leverage what somebody else has, whether it’s traffic, whether it’s users, whether it’s.
targeted users, whatever it might be that we can actually go after and, it starts with an ideation process that starts with picking up, you know, sending emails, picking up the phone, thinking through strategy and just trying and executing on it.
Andrew Warner: you’ve mentioned also that there were a lot of ideas that didn’t work. Can you give me an example of one or two of them?
Joshua Chodniewicz: Oh, there’s so many, I mean, things that didn’t work are that feels like another Tuesday afternoon to me, right? Meaning like, we’re constantly going after things that don’t work because we want to see. Hey, might that work? What’s the reason for that? Ideas that don’t work often are, messaging for our customers or what we think our customers might want.
We don’t really know what they might want, so we’re testing certain things that, you know, they come back with, like, or it’s not resonating, right? For us,we knew customers at one point wanted, and I’m not sure if we talked about this, but we knew at one point that customers certainly were taking their posters and getting in their prints and getting them framed.
and we thought, oh, we’re going to get all these. These experts to tell us how they, how we could frame this piece perfectly, beautifully with the right matting combinations with the right colors, the right wood or metal frames. And we took thousands and thousands of pieces and ran through this process and then launched the business and nobody bought it.
And, it was it all. How come nobody’s bought it? This is literally the product that they’ve asked for. They said, listen, we knew that. I think, I think one of the stats was over 50 percent of the people that were buying the prints from us were going somewhere else to get them framed. Well, then why wouldn’t they buy them from us?
We weren’t, we weren’t charging any extra prices. We were like, we were trying to be, all flat out. And it turns out that the customer really wanted to choose those things themselves or be a part of that process. So we, Made an assumption that was incorrect initially, right? Offering what would be called a prefab frame, around an item.
And so we had to retract that, change how we’re doing this, completely build a new platform and system for, users to be able to pick and choose what they wanted. And, and almost instantly we saw the sales come from that, but there, there are all kinds of channels and different ways that we went about things to partnerships that we tried, right?
We’ve tried. Partnerships with other parties where we’d share our email lists and that did not work very well for us, right? We, oh, you’ll send to your 10, 000 people. We’ll send to our 10, 000 people. Let’s sales we get. And we’re not sure if we got 3 sales, right? Kind of thing. Like, there’s nothing happened in all this work.
And so you’re looking for places where you can leverage and things can go up. We tried package inserts. How could we get a package inserts? We found that. Yeah. Sending people from an offline world and bringing them into our online world was a very high hurdle and, and often not cost effective. We tried television that we thought, you know, for lots of reasons people will tell you and sell you on why that might work well, and I’m sure that works for some companies that did not work for us.
Andrew Warner: Ultimately, what was the revenue at its height
Joshua Chodniewicz: We, the business at the site was almost 200Million. That’s on an
Andrew Warner: and what about profits? Where, where did that end up at its height
Joshua Chodniewicz: I don’t recall exactly, but it was 20, 30Million in that range.
Andrew Warner: and you had investors and then you sold to Walmart and I don’t know how much you can say at this point. It’s been years, but what happened in that sale?
Joshua Chodniewicz: so, yeah, so the, we did have investors, so we raised, our initial round was 30 million. At the same time we had, our leading competitor was all posters and they raised 28 million. We ended up putting our two companies together. And a lot of cash there. We used cash to repurchase shares, things of that nature, also to build the business and, and raised additional funds, through the years.
and yes, we, at one point we had an offer from Michael’s that almost went through, and that was, that was almost half a billion dollars. And then, and then we had a Walmart transaction that, Ended up happening, against my wishes, but it ended up happening. And, uh, it was, basically giving the company to them.
So as it was, the end of life for, for
Andrew Warner: Why I saw the lawsuit. Um, I’d read what I could about it. What was it with the investors? Were they just actually, I don’t fully understand their motivation.
Joshua Chodniewicz: Yeah. It’s hard to understand, everyone’s motivation.
is, and of course I can’t speak to what they, you know, exactly why they did what they did. the reality was they made a decision, and I’m sure you can understand this is still an ongoing lawsuit, actually.
And so it’s, it’s an ongoing, thing that’s coming to the end here. But, So some I can’t speak about, but what you can read in the filings, what you’d see is that. they made a decision that was guaranteed nothing for the shareholders and, when there was another option on the table. And that’s where I think fiduciary duties are broken and you didn’t make a decision for the fiduciary duties of your own shareholders.
And that’s a problem. And that’s, that’s ultimately where things go really bad. Now this was a long company for, for many investors, they were in for a long time and perhaps they were tired and not willing to continue to stick the ride there.
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So how did you do personally from this? It feels like it’s years of hard work and going through your background. It feels like this, this wasn’t worthwhile for you financially. Am I wrong? Especially compared to the other ventures.
Joshua Chodniewicz: Art was great. Art was a, it was a great experience. So we had, we built a wonderful business that, did almost 3 billion in lifetime sales, right? So we satisfied a lot of customers. It’s been a wonderful learning experience. At the same time, I learned a lot of things that I didn’t like, things that, you know, worked, incorrectly.
We were fortunate that we also repurchased quite a bit of shares over the years. So not only did I have a salary and, you know, kind of, well, not in the beginning days, but eventually, you know, I, I remember, you know, increasing my salary from 16, 000 a year to 25, 000 a year once and thinking I was, you know, really wealthy at that point.
at the same time, we also were able to repurchase shares and, and, and bring out quite a bit for the, for the founders and shareholders of the company. So there were events that were really still significant, but we made quite a bit of money in the company. So, so there was, there were times for that, but clearly it was not nearly the outcome that this could have been
Andrew Warner: I see. You’re saying like you’ve sold some shares early on, you made. You made a salary, you learned a lot, but ultimately the exit where the big payoff could have been is where things didn’t work out. And that’s still ongoing. All right. Um, there’s a lot here in your background. We can talk about the thing I’m most fascinated by is FundFi.
Where did the original idea come from?
Joshua Chodniewicz: originally that started from the, um, well, if I go way back. I’ve been making investments in startups, small writing, small checks here and there, through the years. And I had taken a look at the same time that equity crowdfunding was coming about. I had, I’m looking at my investments and they’re going relatively well and thinking about, I hadn’t done anything particularly special with investing.
I just thought about, I was trying to be prudent. Trying to be smart about what I’m doing. And we saw good results from that. And then the realization of the fact that non accredited individuals are not allowed, they’re precluded from investing in startups in that asset class, because they’re not accredited, right?
So they’re not making at least 200, 000 a year. They’re not worth a million dollars when you’re in that state, which is 90 percent of America, you’re not allowed to invest in startups when, and then you start realizing The situation of kind of in a macro level, wealthy individuals are moving their money out of the public markets and putting it into the private markets.
Why? Because of higher returns. And, yes, there’s illiquid illiquidity that comes from?
that, but the returns are substantially higher. So the what’s happening is the wealthier getting wealthier and the, you know, those that don’t have wealth aren’t don’t even have access or the ability to get into.
Startup investing. So that’s, that was the precipitous of what happened where we saw, started seeing equity crowdfunding laws, regulation, crowdfunding come out, allowing for individuals to invest, whatever they wanted into a, you know, through a regulated crowdfunding platform, and allow them to get actual equity.
In these startups. And so that’s where we interjected ourselves to say, Hey, how could we be the best at actually getting people, that access to that asset class?
Andrew Warner: there were a few companies that at that point came out and said that they were going to make that, that make startup investing more accessible. A lot of them just weren’t able to make it work. What happened in, what happened to that space?
Joshua Chodniewicz: Well, the space is still relatively strong, but they’re just like in any company, any space?
there’s going to be, you know, companies that don’t succeed and fail and don’t see the results that they were hoping for. ultimately I think crowdfunding as it sits today has some issues in that the everyday person.
As much as one thing, I think everybody agrees is that everyone should have access to the, this investment class. what I think is perhaps not working well is the fact that what individuals don’t have access to is they don’t have access to managers to actually manage and invest that money professionally for them, mainly because of the amounts that they’re investing in.
And because they’re, they have smaller amounts to invest in order to get a diversified. Portfolio of startups. They need to have even more money than those minimums that there are required. And so it becomes more and more difficult to actually get the end product to the consumer, which is a diversified startup portfolio that returns results that are in the middle of the bell curve that they can see those types of 25 to 30 percent returns that come from this asset class,
Andrew Warner: I see, you’re saying that a lot of them became kind of like Kickstarter where a consumer can look and say, I like this company. I like their product. I believe in them. And then put in some money, maybe thousands of dollars. And that goes against what you and I were talking about earlier, where one is not going to be enough.
Five is not going to be enough. It’s going to be 50, you said, and we know that it’s going to take a long time for any of this to pay off. And so the combination of they need to make a lot of investments and wait a long time was. The part that wasn’t working for, for many of them.
Joshua Chodniewicz: right? I mean, you always had to wait a long time. That was always the case, but having to make a lot of investments and then. If you think about you’ve got to, you’ve got to review sometimes dozens and dozens, sometimes 50 startups to find the one that you want to invest in. Well, now how much time and effort do you have to actually make a, 20 investment, a hundred dollar, a thousand dollar investment, right?
How much time I fought with that, sometimes making a 25, 000 investment in a startup, for example. He’s like, how much time and effort am I putting in? before I’m, I could have spent that time to make this story. You know what I mean? At some point it becomes a massive effort, to make that happen.
And so that, so if you think about the wealthy. The wealthy are hiring venture capital firms, they’re hiring and trusting managers to manage their capital and make the investments on their behalf. It doesn’t mean that they couldn’t pick startups on their own and they could, and they still might, but many of them.
what they do is they, they generally will allow the venture firms, the managers of those firms to make those decisions for them, right?
And that’s essentially, that’s the challenge that people come. I need to invest in 50 companies. I need to review 500 or more companies. How are you going to find the time to do that? And are you even qualified to start with, you might be qualified in one or two aspects of your profession or your expertise, but you know, how do we do this, on an ongoing basis?
How do you, equity crowdfunding as it sits today also has an issue in that it’s not, it’s a, not a negotiated product. So when you’re investing, you’re saying yes or no to the option of investing in this company at those terms. That’s not what it looks like when Fundify goes and talks, to startups and decides, is this an opportunity that we would like?
For our people to be a part of right. And so we look at that and review those opportunities just like a venture capital firm might do. Right. We look at, oh, the price is too high. Well, I’m not going to buy it. That right might be a great company, but if the price is wrong or the terms are incorrect, then we’re not going to make that bet.
Right. And not put the capital to work there.
Andrew Warner: Okay. So this, the company’s been going on for four years, right?
Joshua Chodniewicz: Yeah, it’s been a few years. Yes, that we’ve, uh, so we started off right. Uh, kind of exploring the space, Fundify then got our crowdfunding license. So we are a registered FINRA registered funding portal. And so we’re offering the same, we were offering the same types of things that other platforms were offering.
And then, and then realized that our product at the end of the day lacked, came up short, for the consumer in that. It was that same sort of private listing, dozens of companies, you could come in, choose what you wanted, and yet you weren’t able to find the best ones the way you would like. So we’ve, uh, more recently, gotten the appropriate approvals to build a product that offers a subscription based, um, no minimum. Investment product where anybody can come in for a dollar or more and invest X amount per month. We, we essentially, we take all those funds. we take the dollar from everybody and then make that a million dollars to then invest in the best startups that we find on everyone’s
Andrew Warner: So basically like a venture firm that is open to the public.
Joshua Chodniewicz: It’s like a venture firm with no carry, so we’re not, we’re not charging a carried interest that on the, you know, when you, when you get this. We are however, you know, building a model that, finds the best startups and gets you invested into them.
Andrew Warner: Okay. I still see some, like investment documents for some of the companies on your site. Activa Therapeutics. I don’t know if you all know that this is public on your site, but these PDFs are available. Does that mean that as of, it looks like a lot of them end at 2022. Does that mean that as that in 2022, you are still offering individual companies and now you’ve switched this year?
Okay.
Joshua Chodniewicz: That might be something from, what we were doing in the past. Yes. That where we were offering companies that were listed for sale that people could, invest in. Yes.
Andrew Warner: And so now how are you getting, investors onto the platform? What’s working for you?
Joshua Chodniewicz: yeah, we haven’t quite launched the business yet. So we’re getting close to launching here. I’m not sure by the time you go live with this, if
we’ll be out there, but the idea is that we’re launching an invite only product where we can limit the number of investors so that we could make sure we find the best startups And and make sure that our investors are getting into great companies.
Right. we, we have, 11, 000 or so investors that have been part of the Fundify ecosystem in the past, and. We have nobody subscribed yet because we haven’t launched our product, but we will, and then we’re building a waitlist product where people can join and then eventually be part of this, by getting invites from us or getting invites from other members.
And, and so how are we going to, we’re going to, we’re going to go after that after we actually get the product out the door and it’s ready and SEC approved and, to
Andrew Warner: And you’re going directly after individual investors. It’s not going to be in partnership with like a wealth front or something.
Joshua Chodniewicz: That’s right. Initially, we’re going after individuals, straight up. There are already partners that are reaching out to us that are talking about, Hey, could we get our user base, into your product and, maybe in a mass way. And so we’re thinking through the dynamics behind that, while also at the same time, making sure that we have the best startup quality that we can invest in and enough volume to invest in the best startups that we find.
Andrew Warner: You know, I’ve got a very close friend here who I’d interviewed years ago, who did really well for himself, who’s now on a new company. And privately, he’s telling me he he’s on the new company, but he doesn’t have the same motivation. He doesn’t need the money. He’s not going to be homeless if things don’t work out for him.
And the, I could be homeless and destroyed, uh, risk was a big driving force for him. And now he doesn’t have it. He doesn’t feel the same, the same pull. Do you feel like any less now than you did before? Any less motivation, any less work, any less hunger? What’s changed for you?
Joshua Chodniewicz: Is it interesting? And I certainly can’t speak to your friend. I
mean, for me, yeah, for me, I’ve always had a passion for building business, and I’ve always been really excited and in my sweet spot when I’m building something, and, I feel like I’m playing every day and get to have fun and execute, and I’m working endless hours when I don’t need to, But I just love it.
And I also love being an example to my kids. I have three boys that I’m an example to and what, you know, work ethic and things that we’re doing. And I like doing innovative things and conquering mountains and putting flags on top of them and making something, you know, with what we’re doing with Fundify, we’re looking to change the way the world works and actually bring a better product.
To the end user, which is something similar to at our. com, where we had tens of millions of customers. This is the same sort of thing. This is open to tens of millions. Coinbase is over a hundred million people on the platform. This could be a product that’s like that hundreds of millions of people where they can now invest in a good way into startups, right?
But they need a product that allows them to do that and does. The work that they can’t do. Right. So that gets me really passionate, really excited. And, um, yeah, I’m frankly, I’m thrilled about it.
Andrew Warner: get that. I know as a kid, I kept starting companies and as an adult, it feels very similar to that. Were you somebody who as a kid would start these little businesses?
Joshua Chodniewicz: I was, yeah, I definitely, I, I started when I was seven, I started my first business selling eggs, chicken eggs to, to, uh, the neighbors and, and, you know, made a little bit of money doing that and then kind of continued was always trying to do something. I don’t know if it was selling candy or baseball cards or, or trying to, you know, find something, some arbitrage and something, eventually.
Building homes with my dad and saying, Hey, how can we make this work? Or how it could make that work or at a retail store. My, my parents had a retail store that we kind of, you watch the dynamics of supply and demand and something always was intrigued. I’m the kind of guy that stands in line at the coffee store and thinking, how can this be better?
Right. That this process is broken. they should have done this like this. And, and it’s just, that’s just a natural sort of way of living life. I can’t do anything about it. It’s who I am. My kids are like that probably because they see me do it, which means I
was probably like that because that’s what my dad did
Andrew Warner: mean, you’ll go to a restaurant with your kids and like that old Jackie Mason joke, you’ll walk around and a good restaurant is not a restaurant. It’s a gold mine. And you’re like, kids, look, what do you think they’re doing? How much, how much do you think they’re doing in sales? Yeah.
Joshua Chodniewicz: all Yeah.
all the time. We’re thinking about you know We’re thinking like how big is this business? What could it be? Like Do you think it’s what do you think the problems are? Right. Well, how could we make this? How could it be better? Wait, you’re confused reading this Well, you might not be the only one right?
How could we make it better? and it just makes for great fodder, great discussion, and it gets your minds kind of constantly
Andrew Warner: any now that as you’re looking around, you go, I think I would do that, or somebody’s got to do that, but I can’t.
Joshua Chodniewicz: Oh, there’s, you know, there’s, uh, there are so many million dollar ideas out there that, uh, it’s almost ridiculous. It’s, it really is all what separates those from idea and actually coming about are the entrepreneurs and their, their execution of those, of those ideas and making them happen. So we see them You know, wherever we go there,
Andrew Warner: Is there something that’s sticking out to you now that you’ve, that you’re looking at and you think somebody should do this?
Joshua Chodniewicz: Okay. Yesterday I was talking to my engineer and we were talking about credit card fraud and fraud. And I’m thinking, how could you, somebody should build a repository of all the fraud that comes in from all the different processors in the world in 1 place. And then share that fraud information with everybody on an anonymous basis, you know, via an API, for example, to allow for people to, make more informed decisions on who they’re charging, how so they don’t get, you know, so the fraudsters are not taking advantage, right?
Of those. That’s came up because. In our discussions with our, with one of our banks, they were telling us how they were, they were experiencing more ACH fraud. And we were saying, well, you know, how do you go about fixing that? And what does Plaid have to offer here versus this? And it’s just a natural progression.
Somebody needs to build that, right? Somebody, and that came because we searched for it and we couldn’t find it, at least at cursory glance, it might be out. Often great ideas, if you dig a little deeper, you find five companies that are already doing it, right? but, you know, you look at an idea, you just start unpacking it, and you start thinking, Okay, if somebody built that, that would be of value to a consumer, whether it’s a business, a customer, whatever, whoever your customer is.
Then you leverage and build on that,
Andrew Warner: That’s a great one because ACH in general now is replacing credit cards for business to business transactions. It used to be the thing you would spend 50, a hundred thousand dollars or more you’d used instead of a credit card. Now I’m seeing it for a thousand dollar, uh, sale. Frankly, my kids are in a piano class here in Austin.
The 280 payment has to go with, an ACH payment because they don’t want to pay any credit card fees on that too, which I get. I feel like somebody needs to make that a lot easier, a little bit more protected for me so that I can maybe even create a different account for each one of these types of transactions. with credit cards, I can give my team credit card numbers, but I can’t give my team ACH numbers. We’ve been with Mercury Bank to be able to give them these numbers, but cap how much goes out is really helpful. All that stuff, that infrastructure that turns ACH into credit cards. I guess we’re essentially talking about debit cards, but, nobody wants to even accept debit cards.
They don’t want to pay the points on those.
Joshua Chodniewicz: we have a, we have Mercury as well. So we use that bank and, they’ve now have this new Mercury, merchant card. So you can create a Mercury credit card or debit card for a specific merchant. Now I don’t have to worry about these, onerous, cancellation policies from a subscription provider. I can just cancel the card if they don’t listen to me, right.
Or they don’t have an easy way to do it. And it’s a click of a button. Those are, like you said, that, that solves one problem, but it doesn’t solve the ACH issue, the cost issue of the high transactions. Right. And why people are using that. And you also have FedNow coming out now. Right. So FedNow is given the ability for instant transactions, right.
that’s outside of ACH. And so that’s another thing that somebody would need to think about in this space and how to, Accelerate and execute this in light of a new world and all the things that we
Andrew Warner: I didn’t know about FedNow. I just looked it up right now. FedNow is an instant payment service developed by the federal reserve for depository institutions. It allows individuals and businesses to send and receive money. so, this is essentially like the next step of, of direct payment, better than ACH.
Joshua Chodniewicz: yeah, it’s better than AC. It’s, instant transfers, I believe, um, a little more costly than ACH.
um, because they’re instant and they’re instantly guaranteed and things of that nature. And I don’t know enough about it yet, but that’s something that I’d be thinking about if I was. Looking to build, you know, this random idea that, uh, I spent five minutes with, you know, talking about over here at Fundify.
And I was like, okay, now we got to move on to this other product. And most of that’s great. Cause you think about it, you discuss it and you decide how does that apply to us? Do we need to make a change? Do we need to accept FedNow, for example. Okay. That’s a product that to the backlog right now, because our product is all ACH, what we’re launching.
And so, because won’t even be a credit card. one, we don’t think you should be putting, credit card capital investments from a credit card, making that sort of thing. You need to put your savings essentially and put a portion of your savings. I’ll be at that, into the startup asset class.
So. You know, it kind of fits with our models. We’re thinking through the different ways, but Yeah,
that’s so that’s just an idea. Like you said, going back to your original question, which is thinking about ideas and what might be better. And how could that, how could you execute on something or what might be a better?
Um, it was talking about restaurants. You mentioned like going to a restaurant and thinking about what could be better there. We often talked about, could you make something that makes it more interesting while you wait? right.
Cause you got this 20 minute wait and it’s exhausting and you’re like, why is that the case and why is everybody using a different system?
Somebody needs to fix that and, and solve it. You know, this ability to, for the people that are trusted to make a reservation and come on time and, uh, but solve it across the board, not a different system for every restaurant that you go to, and that’s the beauty of entrepreneurship, that’s why. You know, tens of thousands, if not hundreds of thousands of companies start every year.
And, uh, somebody has got every one of those started with. Somebody says I could do something that’s not currently there’s demand and there isn’t enough supply for it. Right.
Let me create something for that. I
Andrew Warner: All right. And for people who want to invest in all these without having to go and find all the different investments, the site is fund defy. com. Thanks for being on here.
Joshua Chodniewicz: appreciate that. Thank you, Andrew.