Minimum Viable Podcast—Episode 2

Topics discussed: Dwolla & CME Group, American Eagle acquires Tailgate clothing, SEC's new crowdfunding rules

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Matt Patane, technology and innovation reporter for the Des Moines Register and Geoff Wood, community builder at Gravitate, sit down for an indepth discussion of the companies, events and ideas making news in the Iowa innovation community.

Feedback, thoughts or suggestions? Hit us up on Twitter, email the show at or leave a comment below.


Geoff Wood:    Hey there. This is the Minimum Viable Podcast, episode 2. I'm Geoff Wood, a community builder at Gravitate, and he is Matt Patane, the technology and innovation reporter at the Des Moines Register. Hi Matt.

Matt Patane:    Hey Geoff. 

Geoff Wood:    Each week we take an in depth look at the companies, events, and ideas that are making news in the Iowa innovation community, and discuss them here for your enjoyment. What's new with you this week, Matt?

Matt Patane:    Well, the main part of my week I spent looking into these new crowdfunding rules ...

Geoff Wood:    We'll get into that.

Matt Patane:    And catching up. That's an interesting development that took a couple years, but we'll talk more about that later. 

Geoff Wood:    Since today is Friday, did you enjoy ISA Launch Day last night? 

Matt Patane:    I ...

Geoff Wood:    We haven't talked about how we're going to handle this, so yeah.

Matt Patane:    Yeah. If we're okay saying this, we're recording this on the Thursday.

Geoff Wood:    We do record on Thursday.

Matt Patane:    As of right now I was really hoping to make it. I'm not sure if I'll be able to due to my schedule, but I remember last year, one reason I am going to really regret if I can't make it is because last year was one of the first events I covered actually on the technology beat. It was a lot of fun. There were a lot of people there. This week is not being as flexible as I would have liked, and I have some other work to do. I don't know. We'll see if I can actually make it, and then maybe we can talk about it next week.

Geoff Wood:    Yeah, we can do that. Yeah. I think we're supposed to have the illusion that when they're listening on Friday it's a live listen, so ... Daily Show used to do that all the time, too, where they would record early in the day and talk about events that happened that night as if they went in one direction or the other. We'll work on that. We'll work on that.

Matt Patane:    I'm a journalist. I'm straightforward.

Geoff Wood:    All right. Fair enough. Shall we get into the stories this week?

Matt Patane:    Sure.

Geoff Wood:    All right. Number one. Dwolla expands into Exchange Marketplace. This is a Register story that you wrote on October 28th, and thanks to Megan Bannister for writing a recap. Last week Dwolla from Des Moines gained a new business audience: the Exchange Marketplace. Through an agreement with Chicago-based CME group, in exchange for futures and derivatives trading, the company will use Dwolla's realtime network to transfer some of its payments, such as its broker payments, and give up payment system. This union group led Dwolla's 9.7 million dollar round of funding in September of 2014.

Well, I know very little about derivatives trading, but this looks like a big step fro Dwolla. What was your take on it? 

Matt Patane:    I think the take on it is, and I will readily admit derivatives is not something I report on day to day, but ...

Geoff Wood:    Not a big deal here in Iowa?

Matt Patane:    I would say no. I think some people are probably really involved with derivatives and futures trading, and options trading. It's just not something that comes up in my reporting day. I think it is a big step for Dwolla. I don't think it's necessarily a surprise that this happened, especially because of CME's investment last year. It was actually about a year ago that they did this. Ben Milne and Dwolla in general have been talking about, for a while now, the different markets that they could get into with their system, so not just banking or money transfers, but derivatives. Basically anything that involves the transfer of money as data, basically. I think it's a big move, or at least it's a stepping stone into this huge market of derivatives trading. 

For other reading, Bloomberg actually had a pretty good story that delved more into the Wall Street side of things a little bit. This kind of can also serve as maybe an introduction of Dwolla's system to the traditional Wall Street side of things instead of just the banking side of things. 

Geoff Wood:    Yeah, definitely. Yeah. I had this note from the Bloomberg story that said that payments would move over Dwolla's network immediately rather than the three to five days it can take now for funds to transfer via ACH. 

Matt Patane:    Right. 

Geoff Wood:    The current thing, which is the kind of embedded system that most financial institutions use.

Matt Patane:    Right, right.

Geoff Wood:    That can be a big step, and that's presumably why they put almost ten million into Dwolla last year, was to have access to this kind of ...

Matt Patane:    Yeah, CME basically gets a first stab at using Dwolla's system. If you go by Dwolla's comments saying that they're one of the few if not the only people doing real-time transfers, that can be a big step for CME. You quicken up clearing of payments, transfers of payments, you know settling of payments. All these methods that would usually take, maybe only a couple of hours now or traditionally a couple of days, happen instantly.

Geoff Wood:    I use, both the business and personal side, I use Veridian Credit Union which is one of the early investors in Dwolla. We talked about that last week, actually. The reason I moved to them was because with Gravitate, a lot of our members use Dwolla because they're supporting other startups in the community. It is immediate, and that's pretty cool. Like, if you're used to waiting for ... Even with Veridian, lets you do mobile check deposits, but it still takes til the end of the day or the next day to get those. That's just on a small level, obviously, what I'm doing. This is, what, thousands, hundreds of thousands of transactions, potentially?

Matt Patane:    I think it's worth noting that CME on their website touts that every year it's millions upon millions of transfers across their entire business worth ... I think their website has like a thousand trillion dollars, at least in volume. Dwolla, as of right now, they're only rolling it out to I think two divisions of CME's clearing section. It's not all of CME yet.

Geoff Wood:    They broker payments and give up payment system. 

Matt Patane:    Right.

Geoff Wood:    Don't exactly know what those mean.

Matt Patane:    Right. If you think about it, CME has access to all of this cash, basically, or money, or data that's flying through, and Dwolla has access to that. If it's not a big payday for Dwolla it could at least be a good way to get more customers, or at least people using the system. 

Geoff Wood:    Yeah.

Matt Patane:    Similar, maybe the easier way to explain to people is what Dwolla announced I think earlier this year when they signed on with BBVA, which is a pretty sizable bank on the US side, and then internationally it's even bigger. BBVA, after Veridian and a couple of smaller institutions is the biggest bank that has signed on with Dwolla. They transfer millions of dollars every year. It's just another form of getting Dwolla's network out there which I think for the company is a big deal. It's been, like I said, I don't think this is a super surprise for anybody that's been following Dwolla. 

Geoff Wood:    Especially since the investment ...

Matt Patane:    Especially since the investment last year, and also Dwolla I think has been on this kind of curve of evolving, for lack of a better term, into these new markets. They're trying to go after different business models so that they can compete in this space. They're not the only ones that's trying to simplify payments.

Geoff Wood:    Right, and I don't remember when they made the change but they went away from fee-based transactions. It's basically free for an individual or small company to use Dwolla.

Matt Patane:    Right. That was earlier this year too. Dwolla since they started had been operating on this partial marketing principle of twenty five cents for anything over ten dollars, which was pretty cheap at the time. They moved toward more of a tiered payment model, so depending on, if I'm explaining it correctly, depending on how much money you transfer, that's how much you pay. Not how much ... You pay based on that amount.

Geoff Wood:    Yeah. I've heard one of the Dwolla guys explain it as they've moved away from being a payments company, even though they're still in the payment space. They're not a payment-to-payment company, now they're a sas company. They're charging monthly recurring revenue. You have to think that CME is a sizeable client for them with this many transactions and obviously a strategic client because of the investment.

Matt Patane:    Right. Right.

Geoff Wood:    For those who don't know, CME group was created in 2007 but it goes back to like the 1800s. It was a merger of the Chicago Mercantile Exchange, or Mercantile, I don't know how you say that word. That's what CME stands for, I assume. The Chicago Mercantile Exchange and the Chicago Board of Trade, those two came together in 2007 to create the CME Group that we're talking about today.

Also you say Duh-wolla?

Matt Patane:    Am I saying it wrong?

Geoff Wood:    I think it's just "Dwolla."

Matt Patane:    That's probably correct. I tend to put the emphasis on wrong parts of words sometimes. 

Geoff Wood:    Yeah. I tend to notice that with people. That's just one of my weird idiosyncrasies. 

Matt Patane:    The important thing to me is that I spell it correctly. 

Geoff Wood:    That's true.

Matt Patane:    As long as I spell a company's name correctly I usually don't get in trouble. 

Geoff Wood:    Yeah. I was in a meeting the other day where people were talking about Workiva? 

Matt Patane:    Mm-hmm (affirmative).

Geoff Wood:    They kept saying Workeeveea. I was just like "Oh, that's not right. That's not right."

Matt Patane:    Right.

Geoff Wood:    All good. Anything else on Dwolla and CME Group?

Matt Patane:    Not right now. I think it's been an interesting year or past 12 months for Dwolla. They've made a lot of changes or again evolutions in their company's structure. I think every time I've asked Ben Milne and Jordan Lampe over there about how many employees they have over there it's usually around 70 and I think a couple of years ago it was around 40. They have definitely grown, and I do think the company is, partially because of what the insight, I'm assuming, from their investors is providing them, I think they're trying to position themselves to take advantage of not just banking payments or banking transfers but anything that has anything to do with money, basically.

Geoff Wood:    Absolutely. Very good. We'll move on to the second story this week: A new look and label for American Eagle Outfitters. Kind of a weird story for us to talk about, maybe. This comes from the New York Times. Speaking of saying peoples' names wrong, I apologize in advance to Hiroko Tabuchi who wrote this on November 2nd.

A clothing company that began in a Huxley, Iowa basement in 1997 was acquired this week for eleven million dollars in cash and stock by American Eagle Outfitters. According to the New York Times, label Todd Snyder's clothing brand has garnered a cult following with its hip takes on college fashion. While the brand sells licensed collegiate sports apparel, it's a brick and mortar store at the University of Iowa, also sells items relating to local figures or institutions. 

You guys covered this as well. Did Joel Aschbrenner write this story?

Matt Patane:    Yeah. I would encourage everyone to read the New York Times story, because it's got more of the top level down aspect on this for American Eagle and then my colleague, Joe Aschbrenner, wrote this story for the Register, which I think has again a general overview but also the local impact for the Iowa company, which has an Ankeny headquarters if I'm not mistaken.

Geoff Wood:    Correct.

Matt Patane:    And then a retail store in Iowa City.

Geoff Wood:    Yeah, I did not know they had a retail store. Tailgate's been around for years. I think it was '97. As Iowans, I think we're most familiar with Ray Gun, it's kind of the t-shirt company that represents Iowa. Tailgate is not ... It reps Iowa, but it doesn't have the snarky fun thing that RAYGUN has. It's more like, classic, Iowa, Iowa State logos.

Matt Patane:    It's more classic school clothing.

Geoff Wood:    Two hundred different, maybe, or something, that they're licensed to do. So this is cool, I guess kind of a lot of this like a breaking news, happened to know that ... As you said, the New York Times story talks about Todd Snyder. That's the name of the clothing line and the founder, who's from Huxley. He is a big kind of New York fashion guy. Todd Snyder's a very fancy clothing line out of New York. He also owns Tailgate, but apparently it's the same company. 

People used to buy Tailgate stuff at Badower's and places like that. It's interesting the New York Times talking about the high end fashion thing, and the Register was talking more about more the Tailgate local piece. It looks like even in the Times story that the value here was the Tailgate piece. They want to franchise it. Not franchise it ...

Matt Patane:    It sounds like, and I'm pulling this from Joel's story in the Register, that they eventually want to open up a couple of hundred Tailgate branded stores. Not necessarily the Todd Snyder stores, but you know, I think the Tailgate from the broad retail perspective, which I'll admit I don't have a bunch of expertise on, but you know, from the broad retail perspective, opening up a Tailgate store across the US in different college stores to rep the local teams sounds like a good model to try and go after. For Tailgate it works out because they could then say, All right, we have the capital now from American Eagle, at least the support from them to do this, and at the same time from the New York Times story, American Eagle can now say, All right, we have this high end designer, or this high end brand, plus this more accessible brand that they can work into their stores nationwide, or at least into their broader business model.

Geoff Wood:    Yeah, I think this is a quote from the Times story but American Eagle hopes to open at least 200 Tailgate stores at universities nationwide, starting with the SCC and Big 10 colleges and then sell their American Eagle jeans alongside Tailgate's retro tees. They would take the product from American Eagle and put it in the stores as it makes sense to do.

Matt Patane:    Right. It's not every day that you hear about, not that it doesn't actually happen, but it's not every day that you hear about an Iowa fashion ... born and raised fashion designer that started a company, has partners with other Iowans in the state for the company, and then it gets picked up for a few million from a bigger retailer.

Geoff Wood:    And a retailer that we all know, right? I mean, there's an American Eagle in every mall that you've ever been to, so that's pretty cool. We don't talk a lot about entrepreneurship led by maybe fashion people, maybe because we don't have as much of it here, but it is a cool story. I think Joel mentioned that Nate Kaeding of Iowa City, who is also a former Hawkeye football player, restaurateur, I think he's invested in several startups ... He's either an investor in Tailgate or just in the store, I couldn't quite tell.

Matt Patane:    Right. That's something that I would have to look at Joel's story again. It's something that I can't recall offhand. I know that Kaeding is connected to Tailgate and he also has a lot of I guess investments in Iowa City itself, in Iowa City restaurants. That's kind of what I think in that city he's known for. Kaeding is also working with the city on some other economic development initiatives, I think, if I'm not mistaken.

Geoff Wood:    Oh, yeah, he's like some sort of city representative for that. Yeah. I remember that vaguely.

Matt Patane:    Right. Trying to boost up that city's entrepreneurial community or support maybe.

Geoff Wood:    Yeah, and I didn't really prep to talk about what he's doing there, but I don't know that we have a lot of people like that in Des Moines that are kind of a face of the community but also putting money in and doing that type of thing, so that's an interesting ... That's a good story for you to write.

Matt Patane:    I'll look into it.

Geoff Wood:    Yeah. That would be one I'd enjoy reading, that we could talk about in the future. 

Matt Patane:    Yeah. I think, to talk briefly about again, not something that I've explored a lot but it is something I'm interested in looking at, is Iowa's fashion industry, which I admit are never words I thought I would say. You know?

Geoff Wood:    In this building where we are right now, right, Men's Style Lab, doing that. There was the fashion show at Entrefest that had a couple of different Iowans.

Matt Patane:    There was the Fashion Project, Men's Style Lab, Gentlemen Care, which I think is based out of either Iowa City or Cedar Rapids but I might be wrong about that. There are ...

Geoff Wood:    Which is kind of leather goods, right?

Matt Patane:    Right. So there are designers in the state, but I don't think Iowa is looked at as for that sector. Fashion isn't really something that I don't think a lot of people look at the state for. Maybe they should be.

Geoff Wood:    And of course RAYGUN as well. Maybe not as fashionable as some of these other things we've talked about, but certainly textile ... I don't know what the general industry is.

Matt Patane:    I think you can argue now that RAYGUN isn't just Iowa. RAYGUN is Midwest aesthetic. Critique or sarcasm. Whatever term you want to use for their style, because they're now in Kansas City as well, and their shirts represent jokes from around the Midwest and the region, so they're not just Iowa anymore.

Geoff Wood:    True. They're not just Iowa, but based here.

Matt Patane:    Right. They're still started from here, and I think it's still where a lot of their inspiration comes from.

Geoff Wood:    Yeah, I think a lot of the other shirts are kind of copied off the Iowa shirts originally, like ...

Matt Patane:    But they are all ... They all have local ... The Kansas City shirts, the style might be the same but it's still definitely focused on that city. They might sell those Kansas City shirts here, but it seems like those are definitely focused there. But yeah, you know, now with the Caucus is coming up, they've got Caucus tshirts, and a lot of the political reporters will mention RAYGUN. RAYGUN always comes up at economic development events. It's kind of like a signature move to give a guest to the city a RAYGUN shirt. It would be interesting to see if it becomes more than just RAYGUN that people think Iowa fashion for. Or just Iowa distinct fashion.

Geoff Wood:    I don't think they think, at least I don't think of RAYGUN so much as fashion as the meaning behind the shirts and that kind of critique and criticism that the shirts give in a abject and kind of positive way. By the way, Mike Draper from RAYGUN lives in my neighborhood and his kid had the best trick or treat beggar's night joke that I ever heard. If you want to know what that is you can contact me directly. I don't know if I should share Malcolm's joke here. But it was good. Anything else on American Eagle purchasing Todd Snyder and Tailgate? 

Matt Patane:    No, I think it will be interesting to see where Tailgate retail stores go next. Not just the merchandise, but whether there are actual retail stores popping up in Ames or other colleges around the US. 

Geoff Wood:    Yeah. It said Big 10 and SEC, so kind of throughout the Midwest and I guess now into New York where the Big 10 goes.

Matt Patane:    Right, because I have to imagine that every college has their own stores with their own products. Every other city I have to imagine already has their own store that sells some of that stuff. 

Geoff Wood:    Oh, absolutely. Especially university bookstore type things.

Matt Patane:    Right, or even an independent store in the city's downtown. 

Geoff Wood:    Right, and I think that even in the Iowa State bookstore, I'm pretty sure you can buy Tailgate Iowa State shirts that they've made, like they're a supplier to that store. So does it need its own store there? I don't know. I think those SEC Big Ten schools are probably bigger than some of the other ones, so maybe that's part of the idea. It did mention that Todd Snyder is actually a graduate of Iowa State. The individual, from Central Iowa, but opened the retail store in Iowa City, and now ... I guess I knew that Iowa State had a fashion program but I don't know much about it, but apparently they have pretty prestigious and successful alum to talk about there. Shall we go on to crowdfunding?

Matt Patane:    Sure.

Geoff Wood:    All right. Crowdfunding for business startups. Now it's legal. Did you come up with that headline? 

Matt Patane:    That was not a headline that I came up with but I think I like this one a little bit better than the one I did. 

Geoff Wood:    Okay.

Matt Patane:    This is last Friday. One of our first podcasts came out ...

Geoff Wood:    Do you want to read your recap?

Matt Patane:    You can read it if you want.

Geoff Wood:    Okay, then we'll talk about it? Okay. This story was written November 4th, I think, by Matt Patane of the Des Moines Register. Securities and Exchange Commission has finally approved rules that allow startups to raise money by crowdfunding. The rules give entrepreneurs another avenue to raise capital in exchange for equity. They also give non-accredited investors an opportunity to put money into startups. Still, some members of the Iowa startup community are approaching the new rules cautiously as the benefits may not outweigh the potential headaches for entrepreneurs. Excellent story and recap sir. 

Matt Patane:    Thank you. 

Geoff Wood:    Go ahead. 

Matt Patane:    In the recap, we said finally because these rules have kind of been out there for a long time, and from what I read to kind of prepare to write this story, it sounds like when the rules first came out a couple of years ago, the proposed rules at the time, there was some criticism of their potential impact or whether they would actually help, so the SCC went back and kind of re-drew them and then last Friday when our first podcast, or our first version of Minimum Viable Podcast aired, that same day the SCC finally adopted these rules. They don't go into effect until next year. They have to go through this whole federal process of approval, comments, stuff like that. Basically the rules open up crowdfunding for equity for startups. Instead of the traditional Kickstarter model where you would give out t-shirts or mementos as I put it in the story, a startup could raise up to a million dollars and then give out parts of their company. 

The rules also change the scene a little bit for investors because right now, typically investing just comes from accredited investors and you have to have a certain net worth, make a certain amount a year.

Geoff Wood:    Is that like two hundred thousand a year or a million dollars?

Matt Patane:    It's two hundred thousand a year or a million net worth. There are certain exemptions for friends and families or close people to the founder of the company, I guess, but traditionally if you didn't have that much money, you weren't allowed to. The thinking behind that, from what I was told and again, what I read, is the SCC wanted to protect people that don't have that much money. You can argue the merits of whether that's paternalistic or not, which is a term that I also talked about with someone this week. It opens up the angle for startups to have a new avenue for fundraising. Also it opens up the investment pool.

Steve Case had a blog post on his Revolution website about this. He was all about the crowdfunding rules. He said that they kind of finally leveled the playing field for investors. I do still think people are approaching this cautiously, because they're not exactly sure how it's going to work out. If you are a startup and you start raising money and giving out ownership to the masses, basically.

Geoff Wood:    Yeah. I didn't read Steve's blog post but I'll have to check that out. Certainly he's a champion of unconventional ways of kind of building entrepreneurial ...

Matt Patane:    Right. And one of the things he mentioned, because Steve Case, for those who don't know, came through Des Moines last year on his Rise of the Rest tour, and I think he's done three or four of those now, in different parts of the state, basically trying to highlight ...

Geoff Wood:    Parts of the country.

Matt Patane:    Parts of the country, sorry. Trying to highlight different cities that aren't in Silicon Valley or New York, basically.

Geoff Wood:    Yeah. He calls it the Rise of the Rest.

Matt Patane:    Yeah.

Geoff Wood:    One comment that I caught on this was Tej Dhawan in the Startup Iowa Facebook channel, which if you haven't checked it out ... Are you in that? 

Matt Patane:    I am, yeah.

Geoff Wood:    Are you in there under an assumed name?

Matt Patane:    No, I'm ...  On the Facebook page?

Geoff Wood:    Yeah.

Matt Patane:    No, I'm under my real name.

Geoff Wood:    Okay, I'm just curious. I don't think I ever see you comment in there.

Matt Patane:    I usually don't comment. I'm usually just there looking for story ideas.

Geoff Wood:    Okay. Very good. If you haven't gotten into that, I believe it's just or search under Groups for Startup Iowa. It's a good kind of channel for issues going on. Tej Dhawan posted this in there and his comment was, This is so tired and forgotten that it isn't even news anymore, because this has just been around so long, and people have kind of found ways around it, I think. 

Matt Patane:    Right. 

Geoff Wood:    It is interesting. I've never raised capital for any startup that I've been involved with certainly on this level. I have crowdfunded before. I did that actually with a different podcast and different things, so I'm familiar with it. The first thing I thought of is, does there need to be platforms that allow you to do this easily, and will Kickstarter or Indiegogo kind of pivot into this and away from, maybe, I don't know what Indiegogo is. Is that more non-profity things?

Matt Patane:    I think that's how they started. I think that was the premise behind how they started, but I think they've moved on to include other campaigns. The way the SCC rules are set up is, you can't just go and say, All right, I'm going to crowd fund. You have to go through a portal, and there are portals out there that are set up for this kind of equity crowdfunding, or they will be soon. You have to either go through a portal that handles a transaction or go through an approved broker dealer. You can't just all of a sudden say All right, I'm going to raise a hundred thousand dollars, I need fifty people to give me however much each, and then move on. It has to go through this process.

For startups there's a lot of disclosures they have to go by, they have to file annual reports with the SEC. None of that may be new for some companies that have raised money before, but I think it's different because instead of just working with one or two investors, or investment funds, you're now potentially dealing with twenty to a hundred, to however many people are signed on for your campaign, effectively.

Geoff Wood:    How do you think this affects Angel List and their syndicates? Is that equity crowd funding, or ... ?

Matt Patane:    I talked with Tej about this and I had him kind of explain to me how it works. I haven't done anything through Angel List besides look at it once in a while to see what startups are in Iowa. Tej was very positive about how Angel List works for Angel investors and ran me through it. There's this syndicate program that instead of the angel being on his or her own, they kind of put you into this syndicate and then that syndicate then invests in the company. I'm simplifying this completely.

Geoff Wood:    Yeah, I want to say like, usually it's a noted angel, like somebody like Brad Feld from Boulder, and people say, like, Brad's got a good track record, I want to attach on to the investment choices he makes. You can say, I will put X dollars in addition to your investment. So really, Feld is the one investing, but the syndicate comes along and you get some piece of it. Probably proportionate to however much you put in.

Matt Patane:    Right, so I don't know if this will change anything for Angel List, because they already have, I guess you could argue they already have their customers. They have the Angel investors. 

Geoff Wood:    Were they operating outside the ... Well no, because I think you had to be an accredited investor to participate in the syndicate. Yeah.

Matt Patane:    I guess this would be separate but connected, these crowdfunding rules. Yeah. Under the crowdfunding rules, you don't have to be an accredited investor. 

Geoff Wood:    But you have a limit how much ...

Matt Patane:    You have a limit on how much you can contribute, which is ... If you make under $100,000 a year, you can only contribute $2000 ...

Geoff Wood:    Per investment?

Matt Patane:    I think it's total. 

Geoff Wood:    Oh really?

Matt Patane:    Yeah. The SEC rules, this is one thing I was trying to figure out, but there are limits. You can only invest $2000 or 5% of your annual income or net worth, whichever of those two is less. Then if you make more than that, you can invest 10% of your annual income or net worth, whichever is less. Startups can only raise a million dollars in a twelve-month period. You can't just say, All right I'm going to invest all my money and everything I make in a hundred different campaigns. The SEC does have these limits. I think part of that's probably to protect some of these investors who may not know what they're getting into. Again, I think there's probably debates over whether we need those limits or not, or whether people are sophisticated enough to make those decisions for themselves.

Geoff Wood:    I would assume it's to protect people. It's more of a, like, deterring whatever the equity version of a Ponzi scheme. You know, something like that. Somebody misusing these rules to scan somebody out of money. At most you're going to lose your two thousand. 

Matt Patane:    We mentioned earlier that there might be some headaches for this. One of the common themes when I talked to people for the story that I wrote is startups that are pursuing this model or thinking about this model should be careful because depending on how it works out, if it works where people crowd fund, but they're represented to you as one investor, so they come to you through a syndicate or an organization or a fund, that might be fine because you're only dealing with one entity. But if they don't, you're potentially dealing with twenty, ten, thirty-five, however many investors there are who have crowdfunded to help you raise the five hundred thousand, million dollars. Once you get into having a bunch of investors, that's a lot more people you either have to answer to or ignore.

Geoff Wood:    Right. Drew Larson said something like that in her story. Drew Larson is an attorney at BrownWinick here in Des Moines. Having three hundred shareholders is not going to be something that is going to be very easy. It takes just a handful to make your life very difficult.

Matt Patane:    Right, and that was echoed by Joe Leo, who's another attorney at BrownWinick and another couple of people I talked to, where even if it's only five. Even if you only have five investors that helped you crowdfund, that's still five people now that you have to answer to instead of just maybe one or two funds that have done the process before and know what they're talking about, and you've worked with them ahead of time. At the same time, I think there's some positivity about the new avenue for funds. If you can't raise money the traditional way and you really have this great idea and you want traction this could be an avenue for you. The general consensus was just make sure you know what you're getting into, from both the startup side and the investor side. 

Geoff Wood:    We always have that complaint here in Iowa, that early stage capital is hard to get. Does this open that up? 

Matt Patane:    I think it goes both ways, because I've had conversations with both entrepreneurs and investors about this. Some of the entrepreneurs will say, It's really hard to get early stage capital, then some of the investors will say, Well it's not that the early stage capital isn't there, it's that the idea that we're being pitched isn't where we want to invest. There's either that disconnect there or it's both. Maybe there is enough early stage capital. Maybe the idea isn't formed well enough. This crowdfunding model could be a way for it to get some of those ideas off the ground. When I was talking with Joe about this at BrownWinick, I asked him, So how do you think this would work, what ideas? He said, You know, it might work kind of like how Kickstarter works. A lot of people turn to Kickstarter now, but I think when it started it was more, if you had this kind of crazy idea or this viral idea, and you couldn't get funding anywhere else, well, raise it this way.

Geoff Wood:    I think Kickstarter was originally intended to be a kind of arts and culture, like I want to do a movie, or I want to do something like that, and then it kind of got seized by the tech industry that saw that they could do it. Kickstarter got a little wishy-washy on it, because people were turning it into a store. The pedal wash was one that I backed, and it was like, an early buy-in was what you were getting. Then when it took forever to actually be delivered, people were upset about that and really no you're not investing in it, no you're not buying from them. You're just helping them with their idea. If they give you something that's great, but they're not really beholden to do that.

Matt Patane:    You could argue that with Kickstarter that's great, you shouldn't expect to have anything in return other than what they say, whether it's a t-shirt, movie pass, stickers or a free trial of a video game, there's all the video games that use Kickstarter now to get off the ground. Whereas with these crowdfunding rules, you could argue that if you invest this way, you have equity. You have a place in the game basically for that startup. The startup should answer to you, or you should be involved in the company, just like a traditional investor that invests a million dollars or more would. They might have a place at the table. 

Geoff Wood:    Yeah. If you're putting $2000 in ... 

Matt Patane:    Right, there's that. That might work well for the startup if they're at this really small stage, but then if they succeed and are raising five million dollars around, what does that mean for the early-stage crowdfunding investor. Do they get basically punted out or ignored? Do they have any real say? I think that will be ... I think it has to be still worked out.

Geoff Wood:    I think the interesting ... And I'm sorry, to go back to Drew's comment and I think Joe's comment about having all these investors, I can tell you from having 150 backers of Kickstarter, it's a lot of work to just deliver all those patron awards, I don't remember exactly what they call them, in there, so much less have to continue to answer to those people. That's just like sending them a sticker. That takes a lot of work and a lot of time, and something most people don't think about. There are actually companies now that have been created to deliver rewards for Kickstarter campaigns. So yeah, this takes it to a whole other level. What I'm interested, not being an accredited investor, what I think is interesting is would this open up [inaudible 00:33:53] syndicates to somebody like me. If I'm only going to put in $2000 this year, can I do that and can I follow Brad Feld's investment or somebody like that, and have a piece of it where I'm not really going to be involved in the governance of the company on a board level, but will there be a piece for that?

Matt Patane:    Right. Right.

Geoff Wood:    I think obviously people who aren't sophisticated or professional or accredited investors have to learn what that means. You're basically giving up that money, and maybe you'll get a return, but it's not ... Just like Kickstarter was not intended to be a store, investing is not intended necessarily to get the big return, although that's what you hope for.

Matt Patane:    Right.

Geoff Wood:    Cool. Obviously there will be a lot more to do with this story coming forward. It's weird, because as we said before this is coming very late. People have been talking about this a long time and they're just catching up to it, but it opens a whole new world of possibilities.

Matt Patane:    I would be interested to see if any Iowa companies, once these rules are in place, I guess that's something we should say ...

Geoff Wood:    April I thought I saw?

Matt Patane:    Yeah, it depends because they have to be put in the federal registry. It's similar to how the drone rules are being worked out right now, or the UAV rules from the FAA. They have to put it into this federal registry, and then there's a comment period, and then they go into effect after that. Maybe January, February, or sometime early next year they'll be officially on the books. I would be interested to see if any Iowa companies go after this fundraising model, because I think as we talked about briefly last week here, there are a lot of ideas but just because of the nature of the state they might take longer to get off the ground because they can't get funding or they're developing the idea but these founders also have other commitments, so does this open the door for people to get off the ground sooner because they can bring in cash sooner, or because we're Iowans do we stray away from it because we're not sure what the effect will be? 

Geoff Wood:    Yeah. If you are interested in, please contact Matt at the Register and tell him.

Matt Patane:    That would be fantastic. 

Geoff Wood:    That would be great. We did have one question this week. Are you ready to tackle this?

Matt Patane:    Yes.

Geoff Wood:    All right. Aaron Horn sent an email with this question, and he said, With the cost of housing in San Francisco going through the roof, do you think that it would be feasible to build a condo complex with a built-in multi lever co-working facility in Kansas City, where there is Google Fiber, and market it specifically to Silicon Valley companies as an affordable place for their employees to relocate to and be able to telecommute efficiently? That is a really long sentence, Aaron. Is anyone already doing something like this and what would the big hurdles be?

Matt Patane:    My first answer is I don't know. I'm going to say that a lot and I think I made that caveat last week, too. Is it possible? Sure. I think if you had a developer that had some commitments from companies that said Hey we're going to move staff out to Kansas City or Des Moines or Saint Louis or Madison or wherever, will you build this co-working office for us? I think then yeah it would work. I think having the fast Internet connection is obviously a must. Honestly, I don't know. I don't know that anyone is doing it. I do know that a lot of cities are looking at these innovation campuses and I use that term because Lincoln in Nebraska is trying to do that right now and they're kind of in this delay because of funding and what the business model looks like. That's not necessarily a co-working building, but it's kind of this campus to draw in companies. I just think it would be tough for a city to do that or a developer to build something like that if they don't have a commitment from a company. 

Geoff Wood:    Right. I would agree. There are co-working organizations building kind of live/work co-working spaces. We Work being kind of the biggest company doing co-working has a concept called We Live, which is the same thing. I think they're like 400 square foot flats, really, and there's one going in in the Crystal City area in Washington DC, and it has a We Work location within it. That's not for a company to come to. That's probably for an individual.

Matt Patane:    Right.

Geoff Wood:    You're young, out of school, not married, no kids. If you could live and work in the same place and have the benefits of co-working for what would be affordable in big cities, I think that makes a lot of sense for young independent entrepreneurs. 

Matt Patane:    Right.

Geoff Wood:    Not staff, necessarily. 

Matt Patane:    It would be interesting in terms of ... I think Aaron is asking about, is it possible, once you have the building, is it possible to market that to Google or Bunchball to use a local-slash-San Francisco example, or Microsoft, or Facebook. Would you be able to market it to those companies and say Hey, we have this space, why don't you move some people out here? 

I don't know how the companies would react to that. I feel like if you're big enough like Google and Microsoft, you're probably going to provide space for your employees already.

Geoff Wood:    To live, or to work?

Matt Patane:    Well, to work. Facebook has their data center fifteen minutes away from where we are right now in Altoona, and they have employees that work there, but they don't live in the data center. They live around the state.

Geoff Wood:    Maybe they do. That thing's huge.

Matt Patane:    It is huge. I didn't see any beds when I was there last November. Facebook set that up on their own. I don't know that a company would say, All right, we need a co-working space for these people. 

Geoff Wood:    Yeah, there's a couple of angles. I think it's an interesting idea to talk through. Why would a Silicon Valley company want to move their people to Kansas City. I don't know why he said Kansas City other than Google Fiber. You can get fiber speeds anywhere, it's just that they have a city related ... You can get fiber speeds in this building.

Matt Patane:    In any major city, yeah.

Geoff Wood:    Yeah, so say this is Des Moines. What are we going to convince a Silicon Valley company to come here? Cost of living is cheap, yes, but ... And I guess we've seen this with a company like Bunchball, that has been hiring people here in part because they can hire at the top end of the market here for less money than they can at the middle end of the market in Silicon Valley. Why not hire the best and the brightest?

Matt Patane:    That's an argument, that wage difference, is an argument that some economic development people have made. Why don't you come here? Because we have the talents, maybe not with the same skills but at least comparable skills. We can help you train them or you can train them here. They can live here, work here, we have good quality of life, plus it's cheap. It would be cheaper to pay them, not because they're worth less, but just because by the nature of where they live, things don't cost as much.

Geoff Wood:    Aaron says in the question, to relocate, so we're talking about moving employees from the Valley to the Midwest.

Matt Patane:    I think that might be the catch because if you're relocating employees, there's a connotation that comes with that. Are you laying off employees in San Francisco to move the jobs to Kansas City? How many of your employees are going to want to move to Kansas City or Des Moines or Saint Louis? Not that that doesn't happen, relocations, downsizing happens all the time, but there's also ... I have to imagine that there's a cost of them having two to three to four offices. You might be based in San Francisco, but then if all of a sudden you have teams in three other cities for non strategic reasons ... It's different if you have a sales team in three different cities, but if you just have an office because it's cheaper, does that really work out in your business model? 

Geoff Wood:    I think it's going to be tough to pitch the employees on like, Hey, it's really expensive out here in Silicon Valley, why don't you move to the Midwest? Still work for us, we'll take care of your housing ... That seems like that's ... Really what you're saying is, We want to cut your salary to move you there but you can live a richer life, the whole Today Show, America's Wealthiest City or whatever that weird thing. You can come here and you'll get more for your dollar, so we're going to cut your salary by 40% but your housing's going to be ... That type of thing. Just trying to sell that ... It's one thing if the person is from the Midwest and has gone there and said, I want to go home, can you accommodate this, and I'm willing to take less money ... But for a company to pitch that to their employees, I don't see that probably working very well.

Matt Patane:    Right. I think the way this ... And this is all hypothetical. The way this could work, if a company ... If a developer builds this co-working space, they have it set up to house two or three companies, let's say, so it's not just the one company in that space. It truly is co-working. They can then go to a company and say, Hey, if you're looking to expand, we already have this space, you don't have to build an office. Maybe that would work, but again I don't know that a lot of developers would go after that without having a firm commitment from at least one company to say All right, once you build it we'll move in.

Geoff Wood:    Yeah, unless it's maybe a government type of economic development thing, We'll build this and then attract people to it, but I don't know if you want to move into something managed by the government or the Chamber or something. That's kind of a weird relationship. I guess the co-working piece is also interesting. Are you talking about one or two employees? Then co-working makes sense. If you're moving a team of people, why don't you just have your own office at that point?

Matt Patane:    Right. Exactly.

Geoff Wood:    It's an interesting question, and thanks, Aaron, for submitting it, so that we had something like this to talk about. I don't really think ... The original question was, Is it feasible? I think you could do it, I don't know if it would be successful after you did it. 

Matt Patane:    Right.

Geoff Wood:    I can see people in the Midwest in the economic development marketing being excited over something like this, but it feels like one of those things that they would build it and then it would be empty. Because actually getting companies to ... 

Matt Patane:    Right, and on a grander scale, we see ... You can kind of see mixed results with business parks around the state. Business parks have a reason to exist, and cities build them so that if a company comes in they have, if not a lot or plot of land, they have a building already set up. The company doesn't have to worry about it. They can say, All right, we're going to move to Davenport or Dubuque or wherever and you have a building for us, great. There are instances where they're spec buildings, and they could be moved into, but if you don't get someone to go in there, they sit empty for a long time. 

Geoff Wood:    Yeah, it's unfortunate when you drive around rural Iowa and you see signs for business parks that have clearly been there twenty years, and there's nothing in the business park.

Matt Patane:    At the same time, though, we have the Iowa State University Research Park is undergoing an expansion right now, and they have a couple companies that are building in that park so it can go both ways, but at the same time, those are companies that have already committed to building there. 

Geoff Wood:    A little different there because they have the technology and manpower ...

Matt Patane:    Right, they have the university there so they have students that can work there. I don't know. I think it's an interesting idea. I'm not sure how it would play out if it actually happened. 

Geoff Wood:    Cool, well, great question. Certainly you can send us questions. . Or hit us up on Twitter. We appreciate that Aaron, and anyone who has one for next week, we'd love to talk about it. I understand you did not bring a trivia question this week.

Matt Patane:    I did not, because I was going to bring one last week and I forgot and then I gave it to you after we stopped recording and you answered it.

Geoff Wood:    Correctly. 

Matt Patane:    Correctly. Yes.

Geoff Wood:    We'll have to think about that for next week then. By we, I mean you.

Matt Patane:    So that people aren't left hanging, the question I asked Geoff after we stopped recording was, because he has this obsession with the Des Moines flag and Des Moines bridges ...

Geoff Wood:    I have an obsession with symbols of our community, and I believe we have a good one, and it is the Des Moines flag that is not used by the city anymore. 

Matt Patane:    Right. I think the question that I asked was ...

Geoff Wood:    But qualifies as our flag, still.

Matt Patane:    When did Des Moines first have a flag, or when did the bridges that go over the river, when did those show up on the flag? And the answer was ...

Geoff Wood:    '74? 

Matt Patane:    Yes. 

Geoff Wood:    Yeah. Yes. So if you haven't seen the Des Moines flag, you should certainly check it out. It is the, I believe, 17th best city flag in the country, according to the North American Vexillogical Society. If you're curious about flag design and why this is even a thing that we're talking about, Roman Mars is a podcaster out of San Francisco who has a great podcast called 99% Invisible. He did a whole episode on flag design. This past year he did it as a TED talk, the same episode, but did it live. Check that out, the TED talk is great. Unfortunately for our friends in Cedar Rapids he does show the Cedar Rapids flag as one of the worst designed flags out there. That's my hometown so I can bag on it a little bit. They have many great things, including the Iowa Startup Accelerator going on in Cedar Rapids, but their flag game is not strong. Here in Des Moines we have a great one, so we should fly it more or put laptop stickers, stickers on our laptops like we have here at Gravitate. 

Anything else for this week, Matt?

Matt Patane:    No, I think that covers it. I do want ...

Geoff Wood:    Preview one of your Sunday topics?

Matt Patane:    I'm not going to preview them yet because I'm still developing what will be on the Sunday tech page and this Sunday's Register. I did want to make kind of a pitch. I am interested in talking to folks, and I've talked to a couple of entrepreneurs already about ... And I think I've mentioned this to you, Geoff, about Iowa's pitch circuit. At least that's what I'm calling it, because I think it's interesting. We have Pitch and Grows, we now have Innovate Her contests, there's the Invest in She pitches.

Geoff Wood:    Startup Accelerator pitches.

Matt Patane:    Startup Accelerator pitches. So it seems like there's a lot of different pitch competitions. The venture school has pitch competitions at the University of Iowa around the state. 

Geoff Wood:    The colleges themselves have kind of student growth sessions.

Matt Patane:    Right. Dream Big Grow here, at Entrefest, you know, so I'm just kind of interested, because I see a lot of companies do all of those events, or a lot of them, so I'm kind of interested why people would put themselves through pitch after pitch after pitch. Whether it's to get cash to get their company off the ground, whether it's to get notice, whether it's to get practice ... If anybody has any thoughts, either email Geoff at or you can email me at

Geoff Wood:    Yeah, that's a good ... Actually I moderated a panel at Iowa State for the Startup Ames thing last week and student business plan competitions came up. Same thing, and I asked that kind of question, and I think ... I won't answer what I heard those students answer. We'll see what you come up with and then compare what they told me that day. I think for students, business plan circuits are the exact same thing that they do, so very interesting.

Matt Patane:    Right.

Geoff Wood:    Yeah, so email that to one of us and that would be great. Send us questions for next week. Send us ideas that you have for the show. This is the Minimum Viable Podcast, and as such there is no intro or outro music. If you have a way that we should start or sign off the show, let us know. And with that, we will be back next week. Sound good?

Matt Patane:    Yep. Thanks Geoff.

Geoff Wood:    Thanks everybody.