News / Economy

Crowdfunding Could Democratize Startup Investment by Selling Shares to Donors

Tom Banse
Crowdfunding websites have grown rapidly as a way to raise money for creative ventures, everything from movies to scientific research to clever inventions.  People with an idea for a project invite supporters to pool their money via online platforms with names such as Kickstarter, Indiegogo or Rockethub.

Using those same platforms to sell shares in a startup is illegal in the United States, but that might not be the case for long.

Pillow party

Here's a story of small business in the Internet Age.  Five years ago, Roberto Hoyos of Seattle founded a company to make what he describes as "geeky" pillows.

"The whole thing really kind of started to impress a girl," Hoyos said. "I actually made a gift of throw pillows that looked like computer icons."
Throwboy founder Roberto Hoyos makes one of his pillows, which looks like a computer icon. (VOA/T. Banse)Throwboy founder Roberto Hoyos makes one of his pillows, which looks like a computer icon. (VOA/T. Banse)
x
Throwboy founder Roberto Hoyos makes one of his pillows, which looks like a computer icon. (VOA/T. Banse)
Throwboy founder Roberto Hoyos makes one of his pillows, which looks like a computer icon. (VOA/T. Banse)

Hoyos' grandmother, a Peruvian immigrant, was a seamstress who taught him to sew at a young age and he inherited her vintage 1954 sewing machine. On this particular day, he puts it to work in his living room, assembling colorful pillows in the shape of chat bubbles.

Now, Hoyos is ready to take his business, named Throwboy, to the next level.  

"Where we're able, you know, to get into stores and be on every couch," he said.

He wants to finance a production run in China, but this is where Hoyos bumps into a familiar hurdle for budding entrepreneurs. He has a promising product, but no collateral and no big investors to finance expansion.

"When the business types find out that behind the scenes it's really just one guy doing this, they stop taking it seriously," Hoyos said.

Crowdfunding

So he turned to the Internet, recording a video pitch to raise money from the public on the Kickstarter website.

"With your support," he said on the video, "I know Throwboy can grow into something bigger."

In the crowd-funding arena, supporters who pledge money are, technically speaking, backers not investors.  Hoyos promises to reward his backers with pillows.  If the business tanks, at least they’ve got a few pillows. If Throwboy becomes wildly successful, they’ve got...a few pillows.

"For my money, I'd like to get a piece of the upside if the company does well," said attorney Cyrus Habib, who advises startups and also serves in the Washington state legislature.

In April, he introduced a bill to expand crowdfunding by allowing local companies to offer equity in an enterprise to potential local shareholders. Just a couple of other U.S. states--Kansas and Georgia--and a few European countries, allow the practice now. What Habib envisions is entrepreneurs collecting small amounts of money, no more than $1,000 or $2,000 at a time, from a large number of people.  

Democratizing investment

He sees this as "democratizing" startup investment.

"You know we all wonder, 'Geez, I wish I could have gotten involved with Facebook when it was a start up.' Well, good luck with that," Habib said. "You've really got to be a multi-millionaire to have those kinds of opportunities. What this does is it just opens that sort of thing up to the average Joe."

The U.S. Congress has already directed federal regulators to legalize equity crowdfunding.  But rulemaking at the Securities and Exchange Commission has fallen way behind schedule. That's partly why Habib wants to proceed with a state exemption to the usual hoops and hurdles for selling shares.

Bill Beatty is all for moving ahead with caution. He's in charge of securities oversight at the state level at Washington's Department of Financial Institutions.

Beatty worries crooks could use online share offers to cheat people, pointing to some of the come-ons already crowding e-mail in-boxes.

He says the challenge is to strike the right balance between simplicity, oversight and sufficient disclosure of risks to protect investors.

"We want to keep it simple," Beatty said. "The entrepreneur probably doesn't have the resources to know how to write some kind of document that fairly puts the investor on notice about what the risks are. How do we accomplish that?"

Regulators in Sweden, Finland, Germany and the United Kingdom have allowed a handful of equity crowdfunding platforms to launch and solicit investors. Initial ventures to get funded include an online flea market, a distillery in London, and several renewable energy companies.

American entrepreneurs must wait to take advantage.  But, even when it's legal in the U.S., pillow company founder Hoyos says he's not sure he'd sell stock to raise money. He says he's happy to reward backers with pillows, but isn't sure he wants to answer to hundreds of small shareholders.

You May Like

Photogallery Americans Celebrate Thanksgiving With Feasts, Festivities

Holiday traditions include turkey dinners, 'turkey trots,' American-style football and New York parade with giant balloons More

Video For Obama, Ferguson Violence is a Personal Issue

With two years left in term, analysts say, president has less to lose by taking conversation on race further More

Video Italian Espresso Expands Into Space

When Italian astronaut Samantha Cristoforetti headed for the ISS, her countrymen worried how she would survive six months drinking only instant coffee More

This forum has been closed.
Comment Sorting
Comments
     
by: Alex Feldman from: New York
June 22, 2013 10:20 PM
KickStarter, Indiegogo and RocketHub are three top reward crowdfunding websites. To read user reviews about each one, take a look at http://crowdsunite.com

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
South Africa Sees Male Circumcision as Way to Reduce HIV Infectionsi
X
November 28, 2014 3:31 PM
South Africa remains plagued by AIDS despite massive government and NGO efforts on prevention and life-sustaining Anti-Retro-Viral programs. But the country has opened up another front to reduce new HIV infections: promoting circumcision. Emilie Iob reports for VOA News from a pioneering circumcision center in Orange Farm, Johannesburg.
Video

Video South Africa Sees Male Circumcision as Way to Reduce HIV Infections

South Africa remains plagued by AIDS despite massive government and NGO efforts on prevention and life-sustaining Anti-Retro-Viral programs. But the country has opened up another front to reduce new HIV infections: promoting circumcision. Emilie Iob reports for VOA News from a pioneering circumcision center in Orange Farm, Johannesburg.
Video

Video To Make A Living, Nairobi Street Vendors Face Legal Hurdles, Physical Violence

The Nairobi City Council has been accused of brutality in dealing with hawkers in the Central Business District - in order to stop them from illegally selling their wares on the streets. Lenny Ruvaga has more for VOA News from the Kenyan capital.
Video

Video For Obama, Ferguson Violence is a Personal Issue

Throughout the crisis in Ferguson, Missouri, President Barack Obama has urged calm, restraint and respect for the rule of law. But the events in Ferguson have prompted him to call — more openly than he has before — for profound changes to end the racism and distrust that he believes still exists between whites and blacks in the United States. VOA White House correspondent Luis Ramirez reports.
Video

Video Online Magazine Gets Kids Discussing Big Questions

Teen culture in America is often criticized for being superficial. But an online magazine has been encouraging some teenagers to explore deeper issues, and rewarding their efforts. VOA religion reporter Jerome Socolovsky went to this year’s Kidspirit awards ceremony in New York.
Video

Video US Community Kicks Off Thanksgiving With Parade

Thursday is Thanksgiving in the United States, a holiday whose roots go back to the country's earliest days as a British colony. One way Americans celebrate the occasion is with parades. Anush Avetisyan takes us to one such event on the day before Thanksgiving near Washington, where a community's diversity is on display. Joy Wagner narrates
Video

Video Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Change

Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Mali Attempts to Shut Down Ebola Transmission Chain

Senegal and Nigeria were able to stop small Ebola outbreaks by closely monitoring those who had contact with the sick person and quickly isolating anyone with symptoms. Mali is now scrambling to do the same. VOA’s Anne Look reports from Mali on what the country is doing to shut down the chain of transmission.
Video

Video Ukraine Marks Anniversary of Deadly 1930s Famine

During a commemoration for millions who died of starvation in Ukraine in the early 1930s, President Petro Poroshenko lashed out at Soviet-era totalitarianism for causing the deaths and accused today’s Russian-backed rebels in the east of using similar tactics. VOA’s Daniel Shearf reports from Kyiv.
Video

Video Hong Kong Protests at a Crossroads

New public opinion polls in Hong Kong indicate declining support for pro-democracy demonstrations after weeks of street protests. VOA’s Bill Ide in Guangzhou and Pros Laput in Hong Kong spoke with protesters and observers about whether demonstrators have been too aggressive in pushing for change.
Video

Video US Immigration Relief Imminent for Mixed-Status Families

Tens of thousands of undocumented immigrants in the Washington, D.C., area may benefit from a controversial presidential order announced this week. It's not a path to citizenship, as some activists hoped. But it will allow more immigrants who arrived as children or who have citizen children, to avoid deportation and work legally. VOA's Victoria Macchi talks with one young man who benefited from an earlier presidential order, and whose parents may now benefit after years of living in fear.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8010
JPY
USD
118.31
GBP
USD
0.6371
CAD
USD
1.1397
INR
USD
62.122

Rates may not be current.