Last January, entrepreneur Kent Oyler convened what has evolved into CommonWealth Crowdfunding, envisioned as the group that would make the region, including Lexington and Northern Kentucky, a crowdfunding hub ahead of regulatory changes under the JOBS Act.
Six months later, all the elements are coming together for CWC’s first fundraising forays for the moment the Securities and Exchange Commissions clears them to start pitching investors and lenders via the Internet’s global reach.
While waiting on the SEC to finalize its regs on Title III of the JOBS Act, the goal is to select four companies to help crowdfund under current regulations.
Through this exercise CWC members will learn the ins and outs of reward, debt and accredited crowdfunding, said Oyler, managing partner of of OPM Financial Services, a Louisville-based accounting and business services firm.
The goal is to prepare regional companies for the finalization of federal investment regulations for equity crowdfunding expected later this year or early 2014.
As we reported last month, CWC has selected Stacey Servo’s New2Lou for its first crowdfunding project. Servo is raising money for a Flugtag team, a zany flying competition in Chicago sponsored by Austrian energy drink maker Red Bull.
In Flugtag, teams from across the United States design contraptions that attempt to fly. New2Lou’s craft will be a Pegasus with six “comically tall” jockeys. (Here’s the direct link to Melissa Chipman’s story for Insider Louisville for quick reference.)
Servo said the team is trying to raise about $3,000 for the competition. Financing a victorious team would mean good pub for the CWC effort, she noted.
The Flugtag effort is just the beginning.
At the CWC meeting Wednesday at the Muhammad Ali Center, members revealed they’re looking for more candidates including small business looking for alternative lenders, as opposed to equity investors. These startups will get legal, financial and marketing services.
A second CWC crowdfunding project is funding a second edition of an existing book, “Gridiron Belles: Saturdays in Dixie,” by author Christie Leigh Mueller. Mueller splits her time between Louisville and Austin.
“Gridiron Belles” explains the Southern tailgating and football culture, said CWC executive member Bill Dawson, manager of University Commercialization with Greater Louisville Inc.’s EnterpriseCORP.
CWC will launch a pre-sale Kickstarter campaign, then ramp up social media chatter about the book, which already has a substantial fan base, Dawson said.
The group also discussed finding a candidate for an online gap debt effort in what is termed “peer-to-peer lending.” Rather than asking donors to give small amounts per the Kickstarter model, the effort would focus on finding individual lenders who can take the place of conventional banks, which are increasingly risk-averse.
Oyler said the model brings together a number of people willing to lend different amounts to existing businesses for different lengths of time at different interest rates.
Cincinnati–based SoMoLend is a leader in the field and would likely be tapped to coordinate the effort.
Oyler said he sees the best candidates as operating business that already have cult followings. “Would Taco Punk have had a successful campaign” had the company asked for gap debt rather than donations? Dawson said.
(Editor’s note: Earlier this year, a $20,000 Kickstarter campaign by the NuLu restaurant failed to reach its goal)
Dawson also suggested that CWC might seek out crowdfunding candidates in University of Louisville-related bio-medical startups, rather than waiting for those companies to come to the group for assistance.
These initial experiments will be important to “figuring out how this all works,” Oyler said.
But for it to work with “Regular Joe” investors, federal regulators still have to make public their proposals for rules regulating how startups wanting to advertise online add non-accredited investors to the mix. Those rules include what sort of certification requirements the SEC might put in place to determine who has sufficient wealth to speculate.
(Accredited investors generally are defined by the SEC and Financial Industry Regulatory Authority as people who’ve earned at least $250,000 in salary during the previous four years, and who have at least $1 million in net worth, excluding their homes.)
A big barrier to entrepreneurs fell last week when the SEC lifted the the ban on general solicitation. Plans are for FINRA to publish proposed rules for crowdfunding portals.
The Obama Administration and Securities and Exchange Commission officials are expected to issue final regulations by the end of 2013, eliminating some of the barriers prohibiting startup companies from soliciting the public for capital via Internet fundraising platforms. The changes likely will give early stage startups access to a virtual potential investor base that theoretically reaches 310 million Americans from the old friends and family model.
Vik Chadha, CWC executive member and executive vice president of Venture Development at Nucleus, said, as a test, he recently made a small personal investment through AngelList, a crowdfunding site that uses self-certification to match investors and startups. Chadha said the process was quick and straightforward. “It was super-efficient … amazing,” he said.
“This is a whole new world.”