Why do people give money on Kickstarter and other similar crowdfunding sites? According to Crowdfund Insider, people give to:
- Receive a unique reward; this could be something as simple as an acknowledgement as a funder, or include some sort of premium available only to funders.
- Share a connection with people who share similar interests in the project.
- Support something they identify and believe in.
Crowdfunding has become a successful money-raising platform despite the fact that, unlike traditional investing, no equity is offered. The advantage is that it allows anyone to write a check to support a venture, not just accredited investors, a Securities Exchange Commission (SEC) requirement known as Regulation A, which was instituted in reaction to the “creative” investments that led to the stock market crash of the 1920s.
Related Article: Does Crowdfunding for Startups Actually Work
There’s a lot of talk about how a law almost a century old might warrant changing. In the meantime, Quire (formerly known as Alphaworks) aims to combine today’s crowdfunding platform with yesterday’s investment rules (while also hoping the rules will change soon.)
Quire’s Hybrid Approach
Quire offers a handful of private companies for potential investors. These include such start-ups as Kano, maker of a coding and computer kit for kids; podcast producer Gimlet Media; and Giphy, builder of a search engine specifically for GIFs (bitmap images).
According to Quire, all investment opportunities are “hand-picked by top-notch sponsors.” Sponsors also help market the investment and establish investment terms.
You can invest anywhere from $1,000 to $5,000, depending on the company’s minimum investment requirements; unlike other crowdfunding platforms, your money gets you equity in the company.
However, just like “regular” VC investing, you need to be an accredited investor, defined by the SEC as someone with an individual or joint net worth of at least $1 million (excluding the value of a primary residence) or who has an individual annual income of $200,000 (or joint annual income of $300,000) for the past two years, with reasonable expectations of the same income level continuing. Quire also accepts investments from accredited entities such as LLCs/LPs (Limited Liability Companies/Limited Partnerships) and trusts.
Investors are not buying shares directly in the company. Rather, you hold shares in an LLC managed by Quire and created specifically for the company you are investing in. Investors hold all the rights of an LLC, including voting.
There is no fee to invest, though there is a carried interest charge that is calculated at the time the investment is redeemed and goes to the sponsor. Investments close when the company’s fundraising goals are met, typically within two months.
Much like on other crowdfunding sites, Quire investors receive regular company updates, “sneak-peaks” of product development and other such exclusives not available to the general public. Moreover, you can collaborate with a company to test products or offer advice.
The Democratization of Investing
Quire is also trying to develop interest in relaxing antiquated investment rules: one example is a survey intended to present the argument that there is a widespread interest among less affluent Americans to invest in start-ups and small businesses. (About 97 percent of American households are not eligible for accreditation.) As Quire CEO Erin Glenn puts it, “The mission we have is to democratize investing.”
Someday Quire may be a choice destination for anyone who isn’t a venture capitalist looking to get a little piece of the action. It also stands to benefit small start-ups that aren’t big enough to get VC attention, but are looking to score larger investments without having to offer a lot reward levels otherwise required for crowdfunding.
Quire Case Study: Jewelbots
Jewelbots are specialized wearable technology, friendship bracelets for teen and pre-teen girls that are programmable to send messages or light up when a friend enters the room.
Co-founders Sara Chipps and Brooke Moreland raised more than $30,000 on Kickstarter in less than a day, and went on to raise over five times their original goal from 1820 donors. There was no minimum donation; the smallest pledge to earn a thank you gift was three dollars.
Despite this success, Jewelbots is a registered Quire company, looking to raise $300,000. Why? According to Chipps:
We have great investors that are available for feedback when we need it and truly care about our success. They’re an invaluable part of this company. We think that platforms like Quire give our community a chance to be a part of our company and to grow with us. We want to give people that care about Jewelbots and our mission the chance to become owners. We’re excited to be able to share our success with this new group of investors.
Related Article: Gone Too Soon? Why Crowdfunding Could Die Within the Next Decade
The Future of Crowdfunding?
Currently, Quire appeals to a limited audience with a limited number of companies. Whether it will ever truly to stand out in the crowd and reach beyond a niche depends remains to be seen. While Title III of the 2012 JOBS Act was supposed to relax Regulation A restrictions, something called Regulation A+ was introduced to provide smaller companies with greater access to capital. CEO Glenn fears, however, that Regulation A+ is a “Trojan Horse” to defer Title III and continue to “protect” small investors from themselves.
In the meantime, accredited investors can have their crowdfunding and get their equity stake in one package with Quire. And small companies with perhaps limited VC appeal have an alternate funding source beyond Kickstarter.