By Jamie Garuti
This past May, a new world of possibilities opened up for social entrepreneurs around the country. The Securities & Exchange Commission (SEC) approved Title III, the final part of the 2012 JOBS Act. The new regulation allows for equity crowdfunding, a mechanism that ordinary people can use to become stakeholders of startups.
Prior to Title III, entrepreneurs have used platforms like Kickstarter and Indiegogo to crowdfund seed capital, launching campaigns with business plans, product demos and videos. They then invite family, friends and others in their network to contribute in return for early access to products.
Although successful, the single-product focus didn’t work for many startups launching businesses with broader missions. What’s unique about Title III is that, instead of receiving perks, supporters get a real stake in a company through stock, options or interest repaid on loans. Should they succeed, investors stand to benefit from growth which to date has only been available to angel investors and VCs.
It’s a pretty simple idea that allows entrepreneurs to raise needed money in a fraction of the time traditional methods take. Yet people have been slow to jump on the equity crowdfunding train.
Since the approval of Title III, only 186 companies have launched campaigns. Seventy-nine of them succeeded in hitting their minimum target – the minimum amount in financial commitments a company must reach in order to receive the pledged money.
All in all, the companies that did reach the target threshold received a total of $17.9 million from investors since May. This cash gave companies huge boosts, allowing many to scale up operations and hire new employees. The benefiting companies plan to create about 175 new jobs over the next 90 days, averaging out to 2.2 jobs each.
Already, equity crowdfunding is proving to be an effective tool to spur the economy and create jobs. It’s an open question whether this will also accelerate the efforts of social entrepreneurs seeking to connect with impact investors.
The tactic grabbed the attention of Climate Action Business Association (CABA), a Boston-based organization that helps local businesses take targeted action on climate change.
“We work with small businesses across Massachusetts, many of them consisting of one or two people just starting out, whose business could be transformed by equity crowdfunding,” said CABA Executive Director Michael Green. The group hopes to get the word out to its members about equity crowdfunding.
ClimateStore, a CABA member, is among the small number of social impact companies that have launched an equity crowdfunding campaign. The company seeks to build a retail brand for consumers looking to take personal action on climate. They curate products based on carbon impact and integrate climate education with steps for low-carbon living. A much-needed channel for sustainable product manufacturers, ClimateStore has strong plans to expand.
The company was launched in 2014 by Steve Bushnell. A scientist by training, he was frustrated by the lack of integrated information on climate-friendly living. Leveraging the potential of digital marketing, ClimateStore has been steadily adding products and growing its online community.
When Bushnell heard about equity crowdfunding, he saw it as an opportunity to connect with people who could become both investors and advocates. He explained: “We’re excited about Title III because it will not only accelerate our offerings, it will also allow us to connect with people who are passionate about the climate and that can help the brand grow.”
From the 21 fundraising platforms now registered with the SEC for equity crowdfunding use, ClimateStore chose WeFunder. To date, Wefunder has the largest number of Title III companies and allows campaign-level filtering based on social impact and even climate change. Similar to other companies, the ClimateStore campaign page displays a compelling video, states the company’s overarching mission, and lists the deliverables it will provide with investor funding.
With tools like this, impact investors can find and support early-stage companies in just a few clicks. The campaign began with a soft launch in December and is ramping up as the company works toward its goal. Although it’s looking to raise a minimum of $100,000, ClimateStore can raise up to a maximum of $1 million over 12 months.
With clear benefits of this fundraising model, it is surprising that so few companies have taken advantage of this potentially game-changing tool. This may largely be due to lack of awareness and the need for education with both startups and investors. Even when it does come onto people’s radar, many are skeptical. This is especially true in the case of new investors, who may receive fundraising requests but incorrectly dismiss them as scams.
As the early adopters of equity crowdfunding demonstrate the legitimacy of this fundraising tool, it could be the case that it catches on in 2017. And although it comes with more risk, equity crowdfunding allows investors far more than early access to products. Whether it will accelerates social impact or not has yet to be seen.
Image credit: http://401kcalculator.org
Jamie Garuti is the Communications Manager at Climate Action Business Association. She graduated from Tulane University with a degree in Environmental Studies. Previously, she led a fossil fuel divestment campaign, worked with the leadership development program Climate Summer, and organized in local movements and campaigns for climate justice.
This post was originally published on TriplePundit.com
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