For example, Boulder-based fruit leather company The Naked Edge LLC raised $13,000 on the Kickstarter.com, website. Co-founders John and Lisa McHugh bought equipment with the money to make their organic fruit and vegetable Veggie-Go’s snacks. Now that the McHughs can make more Veggie Go’s, the company is growing quickly, with the snacks getting picked up in about 10 new stores per week around the nation, John McHugh said.
Crowdfunding is a relatively new online funding mechanism in which consumers can give money directly to individuals and companies looking for money. The JOBS Act, or Jumpstart Our Business Startups, which was passed by Congress and signed by President Obama in April, has generated even more interest in the idea and given it the regulatory framework it needs to gain currency with investors, many in the industry said.
The JOBS Act formally goes into effect in 2013. It will allow startup company fundraising campaigns of up to $1 million each to be done online.
Officials at the U.S. Securities and Exchange Commission are making additional rules about how the JOBS Act will work.
In the meantime, Kickstarter.com and other online funding companies have their own rules. In the Kickstarter case, anyone can apply to the website with a creative “project,” an amount of money to be raised and a fundraising timeline. Any donor can pledge money; the total amount, minus Kickstarter’s 5 percent fee, goes to the company if the fundraising goal is reached.
Kickstarter employees decide whether each project application meets the company’s rules. For example, projects for charity and “fund my life” projects are not accepted. If the total amount of money sought is not raised, a project is not funded, according to information on the Kickstarter website.
Since Kickstarter was launched in New York City in 2009, more than 2.5 million people have pledged more than $350 million to fund more than 30,000 projects, according to website statistics. About 60 percent of Kickstarter campaigns reach pledge goals, according to the website. Other crowdfunding websites such as IndieGoGo.com allow individuals and companies to keep whatever amount of money is pledged, whether or not a goal amount is reached.
With Kickstarter “projects,” investors generally receive something in return for their investment, although there are disclaimers on the site saying that a person who invests does so at his or her own risk.
In the Naked Edge case, online investors making smaller donations received a certain number of Veggie-Go’s snacks, McHugh said. Larger donors could have a specific flavor of Veggie Go’s created for them.
Boulder-based Ubooly Inc., which makes plush toys controlled by iPhones, raised $28,487 on the Kickstarter website. Seamless Toy Co. Inc. in Boulder has raised more than $54,000 halfway through its campaign for $100,000 to start manufacturing its Atoms electronic building-block toys, said Michael Rosenblatt, founder of the company.
Even more important than raising money in an online campaign is the exposure to potential new customers, Rosenblatt said. Seamless also has angel investors, he said.
“It’s the market validation,” Rosenblatt said. “In the long run, that’s more valuable than the funding.”
For The Naked Edge, online exposure led to a bigger investor. Mister Goody Inc. (OTCBB:MSGO), based in Boynton Beach, Florida, offered the company a $65,000 investment with an option to invest another $85,000 after seeing the Kickstarter campaign online, McHugh said.
Louisville-based White Girl Salsa recently raised $18,063 on the IndieGoGo.com online funding website. Founder Julie Nirvelli said she chose IndieGoGo rather than Kickstarter because she wanted to have the option to use the pledged money, whether or not she was able to raise the total amount she asked for.
Nirvelli plans to use the money to market salsas made by her 3 1/2-year-old company. She also has received a low-interest loan from Austin, Texas-based Whole Foods Market Inc. (Nasdaq: WFMI) in the past and partnered with Fresca Foods Co. LLC in Louisville to get funds to grow.
SparkFun Electronics Inc. in Boulder is another company doing a campaign to raise money on Kickstarter. The fast-growing online electronics retailer wants to get $150,000 in pledges to do an educational tour across the United States to promote electronics projects to students.
“Our hope is to raise enough funding to reach teachers and educators in each state,” Boe said.
In a related online crowdfunding measure, new online local financing companies such as First Funder Inc. and Funding Launchpad in Boulder also are getting into the crowdfunding business, as are others across the country.
First Funder launched this fall in Boulder and has funded two companies so far: Flour Gal LLC in Boulder and Alkaline Clothing in Denver, said Jonathan Beninson, the company’s chief executive. First Funder bills itself as “partner-based crowdfunding,” on its website: www.FirstFunder.com. It is privately held and backed by angel investors such as Joseph Zell, a general partner with the venture capital fund Grotech Ventures in Maryland and Virginia.
First Funder is looking forward to new Securities and Exchange Commission rules that may be rolled out after the first of the year, Beninson said. In the meantime, the company looks for startups and nonprofit groups to promote, he said.
For any fledgling company, raising an initial $50,000 to $100,000 is the make-or-break period, so that’s where First Funder expects to do most of its work, Beninson said. But as the company grows, First Funder expects to work in the $2 million to $3 million funding level over time, whereas Kickstarter.com has an average funding range of $4,000 to $5,000, Beninson said.