Many entrepreneurs start their company with their own money, with credit cards, or with a loan from friends and family. One reason for this approach is that this is easier money to acquire than bank loans, angel investment, or venture capital. The other major reason is that the other major option (raising equity capital), is slightly thornier legally, and you risk overstepping state or federal securities law, no matter the size of the investment.
Besides incursions on the law, you may also face shareholder demands, lawsuits, public charges of fraud, and the like, all of which can really hamper your ability to raise money in the future. So what is an entrepreneur to do if they want to raise capital by selling equity? Two startups have developed crowdfunding technologies that can help entrepreneurs sidestep these hurdles. One is Profounder, co-founded by Dana Mauriello and Jessica Jackley. Jackley has been there: she co-founded microenterprise lender Kiva.org in San Francisco, which to date has loaned to over 400,000 people around the world with an average loan size under $250. Profounder is a fairly basic internet-based platform that allows you to set up the legalities, structure, and documentation for the equity sale you’re looking to make. In return for the investment, your company would then share a portion of revenues, set up in the agreement, with the investor. No equity actually changes hands. Profounder helps set up legal compliance, gives you guidance on your investor pitch, and provides a platform where you can send people who might be interested in investing.
A slightly different take on this approach is Thrust Fund. Thrust Fund allows you to sell a future share of your personal earnings. You don’t actually sell equity–just a promise of future earnings (should there be any). Thus, it is structured more like a loan, though with the caveat that there is little an investor can do, legally, if you fail to pay, which is very much unlike borrowing from your credit cards or even from Uncle Fred. As most Angel Investors will tell you, they usually put more emphasis on the person running the business than on the idea behind the business when they consider an investment. Thrust Fund is basically a service to this end–people invest in you, not so much in your company.
To learn more successful entrepreneurship strategies, Scott Cooney’s company GreenBusinessOwner.com offers 6 week workshops covering market research, capital raising, operations and startup HR (see Curricula here). To get a free taste of the workshop, register for a web class entitled “Introduction to Green Entrepreneurship”, with special guest Jeffrey Hollender, former CEO of Seventh Generation. The free class will be held January 25th, 6-8 PM EST, with the rest of the workshop every Tuesday thereafter for 5 more weeks. Register for the free class at GreenBusinessOwner.com.