Crowdfunder, the Los Angeles-based startup creating an online platform for the “crowdfunding” of startups and small businesses, has launched the first public beta version of its site this week. The launch comes on the heels of Crowdfunder closing on $400,000 in seed funding from a group of angel investors earlier this month, CEO Chance Barnett tells me.
The key difference between Crowdfunder and existing sites such as Kickstarter and IndieGoGo is that Crowdfunder wants to facilitate the kind of equity-based funding where investors get an actual stake in the company, rather than provide donations. For many years, only accredited investors have been allowed perform equity investing in private companies — and to receive accreditation, individuals must meet certain criteria such as having a net worth in excess of $1 million. The JOBS Act signed into law last month contains passages that remove that restriction, allowing virtually anyone to invest in private companies.
But: The crowdfunding portion of the JOBS Act has not taken effect yet — the Securities and Exchange Commission is still reviewing it — so the old standards requiring equity investors to be accredited still stand today. That means that Crowdfunder.com is not yet able to do what it aims to do.
Contests, Not Quite Crowdfunding
Despite this, Crowdfunder has had nearly 2,000 companies apply to raise funds with the site and over $17 million pledged to invest by crowdfunders signed up on the platform. So it decided to hold a “beta launch” that is actually a series of contests to be held in cities across the US, in which local startups and small businesses will compete for funding from judging panels of high-profile accredited investors.
The first of these events is being held in Los Angeles. Dubbed “Crowdstart LA,” the contest is now open to submissions from startups, who will compete to win a $25,000 prize that will be awarded in July. Similar events in Las Vegas, Silicon Valley, and New York City are on the horizon, Barnett says.
Waiting Out The SEC Ruling Period
Oonce the crowdfunding aspect of the JOBS Act gets the green light from the SEC, Crowdfunder plans to activate the ability for anyone to invest through its platform. In the meantime, Crowdfunder is optimistic about the process. Barnett wrote in an email:
“We are working with the SEC and other top players in crowdfunding to help determine how crowdfunding platforms are actually regulated. There are many companies who say they want to be in the crowdfund investment space. There are very very few companies who are actually at the table and engaged with the SEC, let alone have a real understanding of the significance of being a regulated platform for investment and securities-based offerings.”
Not everyone is jazzed about the JOBS Act and the advent of equity-based crowdfunding. Some worry that this could harm regular investors and have negative effects on companies and the larger startup ecosystem. We’re still the early days of crowdfunding in general, but it’s clear that there is definitely a sense of anticipation — both positive and negative — about the practice.
Here is an interview with Crowdfunder CEO Chance Barnett on TechCrunch TV from earlier this spring, discussing the JOBS Act and where Crowdfunder fits in: