Update: That was fast. They have already met their goal. As crowdfunding swings into the mainstream, the folks at betaworks are dreaming up new and creative ways to leverage the power of the masses. A new venture called Alphaworks takes the traditional crowd-funding model, as made famous by Kickstarter and Indiegogo, and offers equity to backers instead of a product.
Here’s how it works:
Alphaworks will start out with three “sponsors,” (betaworks, SV Angel, and Lerer Ventures) who will structure venture deals as they normally would. But instead of gobbling up all those shares on their own, a chunk of the round will be left open.
This is where it gets interesting.
Let’s use See.Me, the pilot venture deal for Alphaworks, as an example. See.Me has an active user base of designers, photographers, filmmakers and creators who can share their work and earn money from it on See.Me’s platform. For now, See.Me generates revenue by taking a 5 percent transaction fee on tips and donations made from user to user, but eventually the company will get into postcard creation and distribution. After that, See.Me’s printing efforts will extend into T-shirts. (Wearables, FTW!)
The company is raising a $1.25 million Series A from betaworks, Founder Collective, OATV, Box Group, and potentially accredited investors on the brand new Alphaworks platform.
Of the $1.25 million, $1.1M has already been committed by the above investors, while $150K worth of shares has been left open to Alphaworks backers purchasing equity. A small number of shares will be reserved for non-investor types who are active on the See.Me platform, and will be offered in the form of a grant.
See.Me is using the Alphaworks site, the betaworks site, and its own website to promote the initiative.
For community-based products, like marketplaces, games, and social networks, this is the first time crowdfunding has been a viable way to raise capital.
“What excites me most is the potential for Alphaworks to be used by non-tech companies,” said See.Me founder William Etundi Jr. “The local coffee shop or book store or band can stay alive and grow because they’re owned by their community and fans, and that’s something really special.”
Of course, there are obstacles.
“We’ll have the same challenge that a lot of platforms and services have in the earliest stage which is tracking your most passionate and best users, because they’re the basis of a community,” said SVAngel’s David Lee.
Though the JOBS act has opened up lanes for this type of financing, the law still requires that only accredited investors can purchase equity. To give you some perspective, Nick Chirls (who heads up investments at betaworks) has been closing deals for a few years now, but isn’t technically an accredited investor.
But betaworks expects legislation to change very soon, opening up the opportunity to purchase equity to even more people.
“It actually makes sense that only accredited investors would be allowed to by securities,” said Ken Lerer. “When it comes to investments, people should only move forward with both eyes wide open, and be able to afford the possibility that they might lose their money. As a person, and not as a professional investor, I would never want to have people invest in something when they can’t afford to lose the money.”
Alphaworks was built to simplify the legalese and complexities of trading securities officially, so that investors don’t need to worry about the fine print. They simply choose the number of shares they’re interested in, and pay through ACH.
betaworks, Lerer Ventures and SVAngel have invested $1.5 million in Alphaworks.
“Philosophically this is so consistent with what we do at betaworks,” said John Borthwick. “We are all users, and we love the businesses we build and invest in. With Alphaworks, we can open other users up to being owners.”