Plenty of startups are pitched as “Uber, but for dollhouses” or some other great disruption. But this one actually is Kickstarter, but for equity financing.
Taking advantage of new federal and state regulations, a few Minnesota companies are setting up online portals for businesses to raise capital — and for Minnesotans to buy a stake in small, local businesses.
“Having felt the struggle of raising money, we were interested in what crowdfunding could mean for startups in the community,” said Joel Stewart, one of the Twin Cities-based founders of MNstarter.com. “We looked at what was happening and looked at our skillsets and decided we can provide a pretty strong value, do it pretty cheaply or free and make it very approachable for entrepreneurs.”
MNstarter, along with VentureNear and Silicon Prairie, operate through MNvest, the name of the law that allows investment crowdfunding. That passed in 2015 and went into effect last summer on the heels of new federal rules on online equity campaigns.
“The intended benefits are manifold, but namely include the ability for issuers (those raising money) to advertise their need for capital, as well as providing a means for nonaccredited investors (about 97 per cent of the population) to meaningfully participate in private company securities offerings,” says MNvest.org, a nonprofit advocacy group in favour of “the democratization of investment.”
Because of securities law, equity can’t simply be sold or advertised via sites like Kickstarter or GoFundMe.
“If you want to pre-purchase (or pre-sell) a product, then Kickstarter is a great platform,” Stewart said. “It doesn’t replace Kickstarter, though it could complement it.”
So portals like MNstarter now exist to list businesses offering equity and connect them to investors. There are limits on the size of the companies that can participate, and only Minnesota residents can invest using the service, but that still leaves the door open to many businesses looking to start or grow.
Stewart said a brewery is a great example of how buying equity could support the business.
“You own a stake, so you’ll want the brewery to succeed,” he said. “You’ll always be dragging your friends down there.”
A few breweries are in fact raising capital through MNvest — Bluenose Gopher in Granite Falls being one.
MNstarter hasn’t launched yet and couldn’t set a firm date for its first listings, but it has a few companies just about ready to go live on the site. Since it doesn’t charge businesses for listings — there are still state fees and lawyers to pay for equity financing separately — MNstarter won’t be a moneymaker on its own. The team behind it will host events and find other sources of revenue to keep the lights on as they try to make waves in the startup world.
“I don’t think anyone is an expert at this point of what crowdfunding for equity is going to look like,” Stewart said, though he did offer some speculation. “It’s that organic, tight-knit community of cooperation built around building a company and a shared vision. That’s what we think will be successful.”Risk Warning:
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