Webinar: Shareholder Questions

By: Robert Grosshandler | February 18, 2020

We received some great questions from Matt Clerc ahead of our February 19, 2020 Shareholder Webinar. They’re better addressed in writing.

It has become apparent that the transfer of shares from the transfer agent, Issuer Direct, to a viable/receptive brokerage firm has become a roadblock both domestically and especially internationally, as seen in the iConsumer facebook board.  I fear that this hurdle will become a reason to move away from iConsumer and towards competitors instead. 

What is iConsumer doing to overcome this challenge?  I know that you previously mentioned getting the stock price to $4 will allow us the opportunity to get listed, and thus more “accepted” by brokerage companies.  Are there any other avenues?

While I agree that transferring shares is a hurdle, I don’t agree that it’s a reason to move towards competitors. The basic thrust of iConsumer is to make people investors in a start up. We’re a long term play. The fact that you can trade our stock in the short term is an interesting consequence of making it possible for zillions of unaccredited investors to participate.

Said another way, if you’re in this for the quick buck, you’re probably not our target market. Those prospective members who are constantly seeking the absolute best cash back offer and have zero loyalty are definitely not our target market. Said even another way, even partially overcoming the regulatory hurdles like we have is a competitive moat. Long term investors like moats.

That doesn’t mean we can ignore the challenge, but it does mean that how much energy we spend on addressing it has to be measured against the probability of success, and the near term importance of any success. Much of addressing the challenge comes in proper messaging, in the successful setting of expectations.

The fundamental issue here is out of our hands and control (I hate that). Because we are issuing a security to ordinary people (“unaccredited investors”), we need to work within the heavily regulated public market system. As do all the participants who touch our stock (brokerage firms most particularly). The regulations come from two places – the SEC and FINRA. Those regulators are charged with protecting the investing public. But, it’s those same regulations and regulators that help us build the competitive moat.

So long as our fundamental proposition is to get people involved in owning securities, to #GetYourShare, we’re going to have to work within the system.

Addressing your points in detail:

  • Issuer Direct isn’t the challenge here. It’s the system. Any transfer agent needs to follow the rules. Some may be better or worse than others, but the fundamental issues will be common to them all. The cost of transfer agent services will eventually be an issue.
  • The potential roadblock is the lack of desire of stock brokerage firms to accept our shares for deposit. This is a problem shared by all OTC quoted companies. We’re actually better off than many. We’re aware of two brokerages (we only know if somebody reports this to us, positively or negatively) that are currently accepting our shares – Interactive Brokers and Fidelity. Since it costs nothing to set up a brokerage account (heck, they may bribe you to open an account) this doesn’t seem to be an issue, for the moment. But it will be better when more brokerages like our stock.
  • What we’re doing about this generally: The brokers are regulated by FINRA. FINRA will not talk to us. FINRA is sorta regulated by the SEC. FINRA has issued statements recently that have made brokers less interested in companies like iConsumer. We, the OTC, and others have made this problem known to the SEC. It’s a long game strategy. The SEC wants to encourage capital formation. These policies do just the opposite. The SEC moves slowly.
  • The answer to this challenge that is in our control is to be a fully-reporting company and be listed on an exchange. We’re currently too small for that (we can’t afford the cost). When I talk about being a $4 stock, that’s shorthand for becoming big enough to trade in the big leagues.
  • The deposit of shares by non U.S. citizens has only so far been a problem for one person that we’re aware of. His / her country appears to regulate trading in public company shares differently, more heavily than does the U.S. As far as we could tell, that person couldn’t even open a brokerage account. It wasn’t the transfer of our shares where the problem started. It does mean that investing in a public startup by folks in that country won’t be attractive.
  • An alternative to that might have been a cryptocurrency-based offer. But that would mean that in the current regulatory environment, U.S. citizens wouldn’t be offered the opportunity.

Matt also asked:

About Kevin Harrington

Can you provide us an update on his contributions, and effect, on iConsumer thus far?  Personally, I haven’t seen an increased presence of iConsumer or Kevin in social media marketing.  Perhaps his value is more evident behind the scenes.

I was expecting his presence to be influential in 3 ways:

Subscriber Growth acceleration – There has been no appreciable rate of growth increase.  We are adding 5-10 members a day, same as the past year.

Revenue/subscriber – Perhaps you can comment if existing members were “shopping like a shark” at a higher frequency or in larger spends than prior to his arrival.

Investor Introductions/Venture Capitalists – This is an area where we (the members) have no visibility.  Can you comment on whether iConsumer is getting more attention from institutional investors/venture capitalists etc. that could accelerate our growth strategy?

Overall, I too had hoped for more, but we approached this as an experiment that didn’t require us to spend cash or invest a terrible amount of time to negotiate a contract. It put Kevin and us on the exact same side of the opportunity. Lots of potential upside, not too much downside.

We pulled that experiment off, learned a bunch about working with a business oriented “influencer”, and didn’t make too many missteps. For me it goes in the win column. We got on base, didn’t hit a grand slam.

It’s hard to compare rate of growth merely on the number of new members. How much it costs us to recruit each member, and how much each member generates in net cash, both in the short term and the long term, are very important components to the acquisition strategy. For competitive reasons, we don’t share those numbers.

Further complicating the comparison pre and post Kevin is the fact that we refined our business model at almost exactly the same time. Offering a combination of cash and stock as a reward is very different than offering stock alone, as we do now.

We saw a bump in the number of investors who bought our stock because of his team’s involvement and we came up with the whole “shop like a shark” marketing campaign because of him (and that’s been very helpful in allowing us to crystallize our marketing message).

I am pleased we made the arrangement, and if we’re able to continue our relationship, I think it will continue to bear fruit.

To segue into your last question. Kevin’s presence didn’t help or hurt our fund raising challenge. From an investor perspective, we’re neither fish nor fowl. To people who are used to investing in venture type opportunities, we’re a public company (and therefore outside their mandate). To folks who typically invest in public companies, we’re too much a tiny startup. We have conversations with folks all the time, but nothing has clicked yet.

At the end of the day, we’re trying to crowdsource this company. Which means that it’ll be the crowd that makes it work, and the crowd that will win when it works.

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