Michael: LOYAL3 is pretty differentiated. How would your describe your model?

Barry: We provide easy and affordable access for everyone to invest in the brands they love, fee-free.

And that includes IPOs at the same price as Wall Street. It’s pretty cool, people can invest as little as $100 in IPOs, and receive the same enrollment priority as those investing $10,000

M: Loyalty is clearly a part of your story. Can you explain its role?

B: Bain & Company did a landmark study around direct ownership and loyalty. They found that customers who are also shareholders spend 54% more, refer 2x more and visit 68% more often. Our platform makes it easy and low-cost for companies to scale individual ownership.

M: What does the “3” in LOYAL3 stand for?

B: The “3” represents the company, its shareholders and its customers – the unprecedented value creation when those three get aligned. Our role is connecting brands with people who care about them through easy and affordable stock ownership.

M: Why do some companies select LOYAL3 to be a co-manager for their IPOs?

B: To increase engagement, branding and loyalty. What CEO doesn’t want to say to his or her employees, customers and partners “you matter to us – we wouldn’t be here today if it weren’t for you; and as a way to say ‘thank you,’ we are offering you access to our IPO stock at the same price as Wall Street.” It is very powerful.

M: For some time, individuals could purchase stock directly from some companies commission fee. LOYAL3 made it easier and expanded access to IPO’s, right?

A: Exactly. We see ourselves playing a big part in the story of financial inclusion. We want to provide access to IPOs for everyone. That is an audacious goal. Less than half of U.S. families hold stock and even less have access to IPOs. We’d like to change that. We provide IPO access on a first-come, first-served basis, with three key features (1) minimums as low as $100; (2) an incredibly easy user experience; (3) no investor fees.

M: What are some of the results achieved by LOYAL3?

B: We’re a data-driven company, so I’ll share some metric-driven insights. First, we measure Net Promoter Score (NPS), a proxy for loyalty, for clients. In every case, NPS increases after a person buys stock, in aggregate an average increase of 20 points. This is remarkable.

Even companies whose stock decreased from issuance price experienced an increase in NPS. And companies who started with a negative NPS still saw a rise in NPS with ownership. Those are profound data sets. It supports the thesis that ownership creates loyalty – and the increased loyalty is causal, not just correlation.

Another interesting outcome is that our platform investors have proven not to “flip” IPO shares. To the contrary, 97% hold their IPO shares at end of the first trading day.

M: What were some of key lessons learned in building the company?

B: I was employee number three, so I’ve been here from the beginning. One of the big challenges in this industry, as a startup, is regulation. We worked for three and a half years directly with the SEC to obviate the barriers to making IPOs and follow-on offerings available at scale. It took a lot of work and capital to successfully collaborate, including making business model adjustments and re-coding broad parts of our platform.

We’re proud of our working relationship with the SEC

A key lesson learned is that it is much better to clear innovative products and features with regulators prior to execution. We’re proud of our working relationship with the SEC, and feel we’re the leader in crowdfunding IPOs because of those three and a half years of collaboration.

M: What about technology platform? I assume you’re pretty cutting-edge?

B: You know, it’s interesting. We have a very modern technology platform. I know from our SVP of Technology’s conversations with some of the biggest firms on the Street we have the most advanced technologies in the industry. LOYAL3 is a technology company first and foremost.

Built on micro service architecture, our flexible design enables LOYAL3 to deliver new products and services scalable with less effort, materially reducing costs and delivery time. The critical performance advantage is how we deploy a verticalized agile process for maximum flexibility and teamwork that permits us to push out new features and fixes.


M: What about culture? What do you look for when you hire?

B: Culture is very important to us. Look around the office here. It doesn’t look like financial services. It’s a tech company culture and the environment supports that.

Being smart is ante into the game – we expect that. We look for people who believe in our mission and who prioritize our “3 i’s” of integrity, innovation and interdependence.

M: Another topic I obsess over is User Experience (UX). You have a chief creative officer. That’s uncommon on Wall St., in my experience. Can you talk about that?

We aspire to deliver the very best UX, period.

B: Stephen Klein is our Chief Creative Officer, and Andres Davidovits is VP of Product. We obsess over products and user experience, testing everything. It’s hugely important. IphoneApp_invest_ammountsWe work closely with brands. One of our differentiators is taking the complex and making it simple. Take our iOS app: you can buy stock in literally less than 25 seconds.

Digital marketing led by Dan Garzia and his awesome team is crucial. They drive the efficacy of our platform, in a recent IPO we raised $6.2m in 41 minutes and then closed enrollment.

We challenge ourselves to deliver more than the best user experience in financial services; we aspire to deliver the very best UX, period.

M: You’ve partnered with the likes of GoPro, Virgin America, GoDaddy, and Kraft Foods. What were some big moments in getting those brands to work with you?

B: They are all great brands with really great people, so it’s hard to single one out. But I was particularly proud of our team winning a co-manager mandate for the Virgin America IPO, and in the end, distributing 34% of the retail portion of their entire IPO.

And we really enjoyed partnering with GoPro on its successful IPO, working closely with GoPro and its executive team to engage their customers, fans and employees.

What CEO doesn’t want to say to everyone important to his or her company “you matter so much that we’re providing you access to our IPO at the same price as Wall Street?”

That is why LOYAL3 exists.

(Barry Schneider is CEO of LOYAL3. Michael Halloran is the Founder of The FinTech Blog and former executive with Morgan Stanley. This Q&A is an edited version of a conversation at LOYAL3’s headquarters in San Francisco.)

IPO’s: I’ve Got Five on It


As I wrote last week in my first story on TheStreet.com, I’m bullish on the prospects of FinTech and wider tech industry’s recent and upcoming IPO’s, so I’ll shift focus my this week from marketplace lending to marketplaces for equity markets.

Etsy_logoLast week, well known New York startup – and yet another success story from Fred Wilson‘s Flatiron Ventures – Etsy, went public. Although not a FinTech company, my interest in Etsy’s IPO is due to equity crowdfunding aspect of its IPO.

You may think it was just another IPO – just as OnDeck, the fintech company, went public in Dec. 2015. But, while my former colleagues at investment bank Morgan Stanley took Etsy public, what was unusual was a portion of the offering was reserved for crowdfunding – in keeping with the company’s focus on individuals, and it’s story of empowering individual artists and designers.

Beyond the company’s desire to do something with its public offering to reinforce its brand, it was pretty surprising to me that Morgan Stanley allowed individual investors without a relationship with Morgan Stanley to get shares.

In my experience, high profile anticipated IPO’s, such as last year’s Nimble Storage, are very hard to get access to as a regular retail investor. In fact, this is often touted as one of the benefits of doing business with a full-service broker.

Marketplace for IPO’s

What’s going on? Why would a very traditional investment bank, especially Morgan Stanley – with its core strategic wealth management business – be open to equity crowdfunding that in some ways undermines its business model?

As part of broader development of crowdfunding – from new products (e.g. Kickstarter), stakes in startups (e.g. CircleUp, AngelList), loans (e.g. Prosper, Lending Club) – equity crowdfunding is finally growing in acceptance and importance.

lc logo newIn fact, the biggest FinTech IPO of 2014 offered an equity crowdfunding component: While underwritten by Morgan Stanley, LendingClub offered crowdfunding using Fidelity Investments (where I began my career).

In the case of Etsy, last week, however, Morgan Stanley used not the market leader, LOYAL3, nor Fidelity, but rather its own in-house global stock plan services (GSPS) capabilities, along with its platform partner, IPREO.


(Morgan Stanley is a leader in stock plan services from when Citi’s contributed GSPS to MSSB joint venture; Colbert Narcisse, the long-time leader of the unit is a well-known innovator).

Bottom line: From the conversations I’ve had with those who in this industry, what’s driving this change is increasing market validation of the role and value of equity crowdfunding.


Another recent success in the context of the IPO market is this month’s underwriting of GoDaddy, where LOYAL3 played the role of partner to enable retail investors to participate in IPO.

LOYAL3 is a great company that’s a “marketplace” for direct investing and getting access to IPO’s. Like many leaders in FinTech, it’s based here in San Francisco at border of the Financial District and SoMa, near Prosper and Lending Club. It’s the industry leader in its space.

LOYAL3 signs up companies – from tech companies like Amazon, Twitter, Yahoo, Facebook and Apple, to others ranging from Mattel, Hasbro, and McDonalds – so that individuals can buy their stock directly at low cost.

Direct investing in companies has been around for a while, however LOYAL3 brings innovations from its technology to make it easier to focusing on the “brand building” and relationship aspect of “investing in what you love,” its earlier tag line. It makes sense – an example of investor Peter Lynch’s rule to invest in what you know.

I expect to see LOYAL3 and others riding the wave of giving individuals access to low-cost investing and access to IPO’s in 2015 and beyond. Strategically, they might expand into the pre-IPO crowdfunding market (where CircleUp competes).

Regulation: Watch This Space

For those interested in this area, watch for the continued word on the final regulations and clarifications of rules for equity crowdfunding arising from the JOBS Act.  Recently, in fact, I tweeted a link to California’s draft crowdfunding framework:

Screen Shot 2015-04-20 at 5.26.12 PM

FinTech IPO’s to Watch in 2015

Although it’s really anyone’s guess as to which companies will go public, the legendary Morgan Stanley IPO team I saw at 2725 Sand Hill Road – including Andy Kearns, Dave Chen, Paul Kwan – will offer VC-backed tech firms advice on timing.

But based on public information I’ve read in the press, several of the big FinTech names are all considered strong contenders to go public in the next year, including Oportun (formerly Progresso Financiero), PayPal, Square and Stripe.


Others, such as Ant Financial (Alibaba’s finance arm) and Avalara, a cloud-based solution for taxes may follow: the pipeline for FinTech IPO’s will be interesting to watch.

Since today is 4/20, I’ll wrap up by saying when it comes to IPO’s:  I’ve Got Five on It. It’s not a lot of money, but the individual investor should be able to participate in this asset class, and hats off to those who make it happen.

Roll Video: Link