Published September 20th, 12:13 PM
Companies don't need to wait until the beginning of next year and new federal rules to start raising money over the Internet. And they don't have to offer perks or products to supporters.
A handful of upstarts are working to make crowdfunding a reality—now. They're creating platforms using existing rules that give businesses the chance to raise money online, and offer investors a chance to roll the dice on private companies, no matter what the Securities and Exchange Commission does as it writes new national rules for companies to sell shares socially. These entrepreneurs are aiming at niche markets opened by technology rather than regulation.
The SEC is writing rules expected to go into effect in early 2013 that will allow private companies to sell shares worth up to $1 million over the Internet. Already, sites like Kickstarter and Indiegogo have opened the way for individuals and companies to raise money by offering rewards such as a signed edition of a book or an early version of a product.
But there are other ways for small businesses to raise money, and startups are rolling them out.
"If you look at the sources of capital that are going into small businesses these days, around 80 percent…is already coming from friends and family," says Larry Baker of Bolstr, the New York startup he co-founded with Charlie Tribbett.
Tribbett, Baker and their team have put together a platform that allows main street businesses to raise money from friends, family and neighbors in return for a percentage of revenue the business generates. They presented their business in New York at last week's Finovate event for financial technology firms and are testing the idea in Florida and Illinois. So far, they aren't making any money, but Baker and Tribbett said there are a couple of ways they could turn on the revenue tap, either by charging a percentage of funds raised, as does Kickstarter, or through a flat fee.
Bolstr allows entrepreneurs to tap networks of people they already know, who are in their community, to raise money. They pay their investors a percentage of the revenue they generate. That's already legal.
The two, who met while interning at JP Morgan, said their business is a response to the tight credit environment businesses have faced since the 2008 Lehman Brothers collapse and ensuing bank bailouts.
Baker grew up in Maine, selling his lobster catch to an aunt who ran a lobster shack, while Tribbett was raised in Chicago where he had sympathy for local merchants who faced tough times as the economy soured.
"I really wanted to get back to helping those types of businesses," Baker said.
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