Why I Stopped CrowdFunding.
Last night I got an email from one of the investors in Boost (www.boost.vc) informing me I was mentioned in the Sunday NYT. I looked it up:
The article is actually an interesting story about the progress and concept behind CircleUp a great crowd funding site for equity in retail products, using the successful example of “Duck Organics” to illustrate the potential uses of crowd funding.
I launched a crowd funding site back in June called BoostFunder helping to bridge the gap between investors and startups. The site verified accredited investors and then would allow for an investor to “pledge” money toward a startup company, this was a way of expressing interest in a company after viewing their profile. In the first month we had 200 companies signed up, 80 investors, and we had more than $400k pledged over the platform.
I thought that we were on the right track toward creating something special. After getting the data back and speaking to our customers, we decided that we wanted to move in the direction of helping incubator graduate companies raise capital online.
After establishing this directional change, I took a step back to look at the road to be traveled:
The rules regarding Crowdfunding were in a constant state of flux, the law had been passed in April by the House, the Senate and the President, and they set the rules to be established by the SEC for crowd funding 270 days out. Companies like CrowdFunder, WeFunder and Angel List were waiting on these rules to be able to operate the true potential of their companies.
I took a different route; now that I have changed my company focus, I can openly say that I was going in the direction of “Ask for forgiveness, not permission”, there was a legal grey area where my company was operating. I wasn’t taking money on the transactions so technically I wasn’t breaking any rules, however I was dealing with facilitating transactions in private securities, which is a vaguely regulated space, and if the government had looked, they would have probably penalized me. However I didn’t feel guilty of anything. The uncertainty of the SEC rules made it awkward and difficult to operate a business in the space with the dark cloud of the undefined law hanging over our heads.
However, as I was looking at this, I also was researching the incubator space, and without going into a long boring diatribe. about how awesome the space is, and the huge opportunity I see in what I am doing, basically I found myself weighing the pros and cons of two paths. One direction, I would be helping each company with one specific purpose, to raise capital. In the other direction, I had the opportunity of helping the startups from inception and beyond.
The reasons I switched to an incubator model (not conventional incubator model) was more out of personal preference than regulatory environment, however when I looked at CrowdFunding this is what I saw, which definitely played into my decision:
- Regulation: The SEC had already missed their deadline for implementing new rules for Dodd-Frank, General Solicitation, and now they have missed their deadline for CrowdFunding. So many companies are holding their breath for rules that would largely establish the business direction of their companies, which is just wasted waiting time. My guess is that the SEC is going to be 2 years late on the rules and at that point you will have to apply to be a Broker dealer or something that resembles a broker dealer anyway.
- My Background: My whole career up to this point had been in reference to helping people raise money rather than assisting in the entire process of building a business, which is where I believe my true value add is.
- Crowded Crowdfunding Space: FundersClub, WeFunder, CrowdFunder, Angellist, MicroVentures, Seed-Change and additional ones were popping up, crowding this market place. All of them approaching the space with small differences. I should reveal that I ended up investing in FundersClub because they approached the problem in a direction that I wished I had thought of.
These things lead to my decision to change business. As of now I am 10 weeks into my first incubator session at Boost.VC and I couldn’t be more proud of what we have accomplished. I was put on this earth to help people find what they are passionate about and assist in making that into a company vision… That and to build an Iron Man suit… baby steps.