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

    Video As Refugees Perish, Greek Graveyards Fill

    Before burial at overflowing cemeteries, unidentified dead being swapped for DNA, in case some day relatives come to learn their fate

    Russian Opposition Leader Sues Putin for Conflict of Interest

    Alexei Navalny tells VOA in exclusive interview why transfer of $2 billion from country’s wealth fund to company with ties to President Putin’s son-in-law triggered lawsuit

    Clinton, Sanders Fight for African American Votes

    Some African American lawmakers lining up to support Clinton in face of perceived surge by Sanders in race for Democratic nomination in presidential campaign

    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.
    As Refugees Perish, Greek Graveyards Filli
    X
    Hamada Elsaram
    February 11, 2016 8:01 PM
    Aid workers on the Greek island of Lesbos say they are struggling to bury the increasing number of bodies of refugees that have been recovered or washed up ashore in recent months.  The graveyards are all full, they say, yet as tens of thousands of people clamor to get out of Syria, it is clear refugees will still be coming in record numbers. For VOA, Hamada Elrasam reports from Lesbos, Greece.
    Video

    Video As Refugees Perish, Greek Graveyards Fill

    Aid workers on the Greek island of Lesbos say they are struggling to bury the increasing number of bodies of refugees that have been recovered or washed up ashore in recent months.  The graveyards are all full, they say, yet as tens of thousands of people clamor to get out of Syria, it is clear refugees will still be coming in record numbers. For VOA, Hamada Elrasam reports from Lesbos, Greece.
    Video

    Video To Fight Zika, Scientists Target Mosquitoes

    Mosquitoes strike again. The Zika virus outbreak is just the latest headline-grabbing epidemic carried by these biting pests, but researchers are fighting back with new ways to control them. VOA's Steve Baragona takes a look.
    Video

    Video Mosul Refugees Talk About Life Under IS

    A top U.S. intelligence official told Congress this week that a planned Iraqi-led operation to re-take the city of Mosul from Islamic State militants is unlikely to take place this year. IS took over the city in June 2014, and for the past year and a half, Mosul residents have been held captive under its rule. VOA's Zana Omar talked to some families who managed to escape. Bronwyn Benito narrates his report.
    Video

    Video Scientists Make Progress Toward Better Diabetes Treatment, Cure

    Scientists at two of the top U.S. universities say they have made significant advances in their quest to find a more efficient treatment for diabetes and eventually a cure. According to the International Diabetes Federation, the disease affects more than 370 million people worldwide. VOA’s George Putic reports.
    Video

    Video NATO to Target Migrant Smugglers

    NATO has announced plans to send warships to the Aegean Sea to target migrant smugglers in the alliance's most direct intervention so far since a wave of people began trying to reach European shores.
    Video

    Video Russia's Catholics, Orthodox Hopeful on Historic Pope-Patriarch Meeting

    Russia's Catholic minority has welcomed an historic first meeting Friday in Cuba between the Pope and the Patriarch of Russia's dominant Orthodox Church. The Orthodox Church split with Rome in 1054 and analysts say politics, both church and state, have been driving the relationship in the centuries since. VOA's Daniel Schearf reports from Moscow.
    Video

    Video Used Books Get a New Life on the Streets of Lagos

    Used booksellers are importing books from abroad and selling them on the streets of Africa's largest city. What‘s popular with readers may surprise you. Chris Stein reports from Lagos.
    Video

    Video After NH Primaries All Eyes on South Carolina

    After Tuesday's primary in New Hampshire, US presidential candidates swiftly turned to the next election coming up in South Carolina. The so-called “first-in-the-South” poll may help further narrow down the field of candidates. Zlatica Hoke reports.
    Video

    Video US Co-ed Selective Service Plan Stirs Controversy

    Young women may soon be required to register with the U.S. Selective Service System, the U.S. government agency charged with implementing a draft in a national emergency. Top Army and Marine Corps commanders told the Senate Armed Services Committee recently that women should register, and a bill has been introduced in Congress requiring eligible women to sign up for the military draft. The issue is stirring some controversy, as VOA’s Bernard Shusman reports from New York.
    Video

    Video Lessons Learned From Ebola Might Help Fight Zika

    Now that the Ebola epidemic has ended in West Africa, Zika has the world's focus. And, as Carol Pearson reports, health experts and governments are applying some of the lessons learned during the Ebola crisis in Africa to fight the Zika virus in Latin America and the Caribbean.
    Video

    Video Smartphone Helps Grow Vegetables

    One day, you may be using your smartphone to grow your vegetables. A Taipei-based company has developed a farm cube — a small, enclosed ecosystem designed to grow plants indoors. The environment inside is automatically adjusted by the cube, but it can also be controlled through an app. VOA's Deborah Block has more on the gardening system.
    Video

    Video Illinois Voters Have Mixed Emotions on Obama’s Return to Springfield

    On the ninth anniversary of the launch of his quest for national office, President Barack Obama returned to Springfield, Illinois, to speak to the Illinois General Assembly, where he once served as state senator. His visit was met with mixed emotions by those with a front-row seat on his journey to the White House. VOA's Kane Farabaugh reports.
    Video

    Video Exhibit Turns da Vinci’s Drawings Into Real Objects

    In addition to being a successful artist, Renaissance genius Leonardo da Vinci designed many practical machines, some of which are still in use today, although in different forms. But a number of his projects were never realized — until today. VOA’s George Putic reports.
    Video

    Video Heated Immigration Debate Limits Britain’s Refugee Response

    Compared to many other European states, Britain has agreed to accept a relatively small number of Syrian refugees. Just over a thousand have arrived so far -- and some are being resettled in remote corners of the country. Henry Ridgwell reports on why Britain’s response has lagged behind its neighbors.
    Video

    Video Russia's Car Sales Shrink Overall, But Luxury and Economy Models See Growth

    Car sales in Russia dropped by more than a third in 2015 because of the country's economic woes. But, at the extreme ends of the car market, luxury vehicles and some economy brands are actually experiencing growth. VOA's Daniel Schearf reports from Moscow.

    World Currencies

    EUR
    USD
    0.8812
    JPY
    USD
    112.18
    GBP
    USD
    0.6939
    CAD
    USD
    1.3961
    INR
    USD
    68.436

    Rates may not be current.