The U.S. Platform Development Group has a pitch for companies looking for growth capital and the investment bankers that love them. The group launched OfferBoard, its new growth capital crowdfunding platform, onstage this afternoon at TechCrunch Disrupt NY.
“Because raising money sucks,” according to the founders.
Using the Princeton, NJ-based company’s services, bankers and businesses can more easily reach a broader base of potential investors, says company co-founder Chris Tyrrell. Meaning entrepreneurs could cut the time they spend raising growth capital to take their companies’ products from the corner store to the world market.
One of the innovations that the company has added to its service is a fundability score, which looks at a company’s data and compares it with companies that have successfully and unsuccessfully raised funding in the past. The fundability score can change as entrepreneurs adapt their companies to make them more attractive to investors.
“We took the largest data set of small private offerings in the world and we layered in data from other U.S. databases both public and private,” says Tyrrell. “Our model is simple. For investors and issuers on the site, signup is free.” OfferBoard takes a 2 percent fee for any successfully completed transaction using its service and also offers its own investment banking services for companies that would prefer not to manage the process themselves. Already companies are seeking to raise at least $250 million through the service.
Several companies already leverage the Internet to harness the wisdom (and wallets) of crowds in ways that have transformed so many aspects of so many different businesses that it’s hard to think of a single industry unaffected by the phenomenon.
Crowds are now financing everything — from movies to egg timers to home loans to startup companies; OfferBoard sees itself as another step in the evolution of these crowd-based tools for business development.
There’s a continuum of these crowdfunding platforms, according to Tyrrell. Kickstarter and Indiegogo can fund projects and the development of new products — a service that Quirky also provides (albeit in a different way); while AngelList, Seedrs, SeedList, and CircleUp all have crowdfunding services to finance new technologies, brands, and companies.
Now former Lending Club executive John Donovan and Tyrrell, a former lawyer and serial startup entrepreneur, are launching OfferBoard after a year in stealth mode to bring this movement to the lower middle market companies and boutique investment and merchant banks that service them.
The idea for OfferBoard came to Tyrrell soon after President Barack Obama signed the JOBS Act in May 2012. At the time he was working as a manager for Nehemiah Investments — a family office interested in “double bottom line investing,” according to Tyrell.
“One of the things they were interested in was capital liberation,” say Tyrrell. “We started working on a model that looked like the early city stock market model. Before the 1929 stock market crash every city had their own local stock market. We wanted to try to build a system that could build intra-state transaction.”
The idea was to enable local investors to back local companies through a marketplace or exchange in much the same way investors had done in the pre-Depression era of financial speculation.
As soon as the JOBS Act passed, the firm shifted its focus to crowdfunding. “The minute that law passed I started to get interested in crowd funding,” says Tyrrell. “Two weeks after the President signed the JOBS Act I was looking for who was doing this and who had done this before… The only place where this has been done for a long time is Australia and they’ve been doing this kind of thing since 1997.”
Hopping on a plane to Australia, Tyrrell went to meet a publicly traded Australian company that had developed the first crowdsourced platform for accredited investors — the Australia Small Scale Offerings Board Ltd. Through Nehemiah, Tyrell scored the exclusive license to use and develop technology based on the Australian company’s intellectual property as the U.S. Platform Group, Tyrell says.
“The value is that they’ve been executing these transactions in a fraud-free way for a long time,” says Tyrrell.
Unlike other programs targeting smaller investments, OfferBoard is looking at deals in the $2 million to $25 million range and expects the average capital raised through its service to fall between $8 million to $10 million raised.
Furthermore, while OfferBoard is happy to serve the tech community, the company expects the meat of its growth-capital deals to come from more traditional lower-middle-market deals, according to Tyrell. Currently, tech companies represent only one-quarter of the offerings raising capital through the OfferBoard’s service.
With the company’s Lending Club connections, it’s not hard to imagine how the platform could grow to be an all-in-one crowdsourced financing shop for lower middle market deals. OfferBoard could serve up the equity financing from investors while a crowdsourced lending platform like Lending Club could serve up the debt portion of a buyout deal — providing the leveraged capital that a company can use in lieu of more equity at the smaller end of the buyout market.
“What we’re doing is facilitating a combination of institutional and retail capital that are going into a different point on the value chain,” says Tyrrell. “This is not an equity-formation business; it is a capital formation business. I’m looking at a couple of different partnerships to leverage these transactions to create the greatest value for our clients.”
Photo via Flickr user Simon Cunningham