SEC considers allowing startups to 'crowdfund'
SAN FRANCISCO (KGO) -- More and more inventors are using websites like Kickstarter to get their new products off the ground with great success. But soon, products won't be the only thing sold on those sites. A federal decision made Wednesday is paving the way for entrepreneurs to sell you a piece of their company over the internet.
"Four months ago, we started the pet products."
And that's when EJ Tanu's company took off. He'd been making household items and small furniture. But this high-end dog bowl was an overnight success. From selling a hundred items a month, he's now selling a thousand.
"We need to produce a lot more product within short of time, I need a lot more capital, so I've been asking friends and family to support it," Tanu said.
But soon, he could have a much wider audience of potential investors; and so could the makers of other specialty products like this folding kayak. Instead of just selling their products online, they'll also be able to sell a piece of their company.
"This is a very exciting time for both the investor, because they've never been able to invest in these kinds of companies. Local companies with stories that you care about," TechShop CEO Mark Hatch said.
The shared workspace full of tools that's now abuzz over a unanimous decision by the Securities and Exchange Commission.
It moves forward a law that would let entrepreneurs raise money by offering the public a stake in their startups. The head of the investment site EquityNet explained via Skype.
"Pretty much anybody in America who has a retirement portfolio and wants to invest a portion of that in what they think may be the next Facebook at a very early stage will be able to do so," Judd Hollas said.
The new regulations mean it could be a lot easier for entrepreneurs to bring specialized products like this to market. But it also means they'll have to deal with something they may never have dealt with before: investor relations.
"Once you take equity, you now have partners, and you have to figure out how to keep your partner whole. So managing that part becomes an important task," Hatch said.
The investors get no guarantee, they could lose everything. That's why the law limits each person's investment to $10,000.
Hatch believes that's just enough to bring more cool products to market.
"You'll see an explosion of these small specialized companies that are doing really remarkable and interesting things," he said.
After a comment period, the SEC could finalize the new law by January, to take effect in the spring.
SEC, fundraiser, websites, internet, technology, jonathan bloom
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