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

    Self-doubt, Cultural Barriers Hinder Cambodian Women in Tech

    Longtime Cambodian tech observer Sok Sikieng says that although more women have joined profession in recent years, there remain significant factors hindering women from reaching tech potential

    Trans-Adriatic Pipeline to Boost European Energy Security

    $4.5 billion-pipeline will become operational in 2020 and will deliver gas from Azerbaijan’s Shah Deniz II field to southern Italy

    Video California Celebration Showcases Local Wines, Balloons

    Annual festival showcases the region's harvested agriculture, fine wines and offers opportunities to experience the gentle breeze in a hot air balloon flight

    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.
    Vietnamese-American Youth Optimistic About Obama's Visit to Vietnami
    X
    Elizabeth Lee
    May 22, 2016 6:04 AM
    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video Vietnamese-American Youth Optimistic About Obama's Visit to Vietnam

    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video First-generation, Afghan-American Student Sets Sights on Basketball Glory

    Their parents are immigrants to the United States. They are kids who live between two worlds -- their parents' homeland and the U.S. For many of them, they feel most "American" at school. It can be tricky balancing both worlds. In this report, produced by Beth Mendelson, Arash Arabasadi tells us about one Afghan-American student who seems to be coping -- one shot at a time.
    Video

    Video Newest US Citizens, Writing the Next Great Chapter

    While universities across the United States honor their newest graduates this Friday, many immigrants in downtown Manhattan are celebrating, too. One hundred of them, representing 31 countries across four continents, graduated as U.S. citizens, joining the ranks of 680,000 others every year in New York and cities around the country.
    Video

    Video Vietnam Sees Strong Economic Growth Despite Incomplete Reforms

    Vietnam has transformed its communist economy to become one of the world's fastest-growing nations. While the reforms are incomplete, multinational corporations see a profitable future in Vietnam and have made major investments -- as VOA's Jim Randle reports.
    Video

    Video Qatar Denies World Cup Corruption

    The head of Qatar’s organizing committee for the 2022 World Cup insists his country's bid to host the soccer tournament was completely clean, despite the corruption scandals that have rocked the sport’s governing body, FIFA. Hassan Al-Thawadi also said new laws would offer protection to migrants working on World Cup construction projects. VOA's Henry Ridgwell reports.
    Video

    Video Infrastructure Funding Puts Cambodia on Front Line of International Politics

    When leaders of the world’s seven most developed economies meet in Japan next week, demands for infrastructure investment world wide will be high on the agenda. Japanese Prime Minister Shinzo Abe’s push for “quality infrastructure investment” throughout Asia has been widely viewed as a counter to the rise of Chinese investment flooding into region.
    Video

    Video Democrats Fear Party Unity a Casualty in Clinton-Sanders Battle

    Democratic presidential front-runner Hillary Clinton claimed a narrow victory in Tuesday's Kentucky primary even as rival Bernie Sanders won in Oregon. Tensions between the two campaigns are rising, prompting fears that the party will have a difficult time unifying to face the presumptive Republican nominee, Donald Trump. VOA national correspondent Jim Malone has more from Washington.
    Video

    Video Portrait of a Transgender Marriage: Husband and Wife Navigate New Roles

    As controversy continues in North Carolina over the use of public bathrooms by transgender individuals, personal struggles with gender identity that were once secret are now coming to light. VOA’s Tina Trinh explored the ramifications for one couple as part of trans.formation, a series of stories on transgender issues.
    Video

    Video Amerikan Hero Flips Stereotype of Middle Eastern Character

    An Iranian American comedian is hoping to connect with American audiences through a film that inverts some of Hollywood's stereotypes about Middle Eastern characters. Sama Dizayee reports.
    Video

    Video Budding Young Inventors Tackle City's Problems with 3-D Printing

    Every city has problems, and local officials and politicians are often frustrated by their inability to solve them. But surprising solutions can come from unexpected places. Students in Baltimore. Maryland, took up the challenge to solve problems they identified in their city, and came up with projects and products to make a difference. VOA's June Soh has more on a digital fabrication competition primarily focused on 3-D design and printing. Carol Pearson narrates.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.8954
    JPY
    USD
    109.74
    GBP
    USD
    0.6851
    CAD
    USD
    1.3148
    INR
    USD
    67.673

    Rates may not be current.