It seems like you can use crowdfunding to pay for anything these days. A movie. A space capsule. A video in which a politician smokes crack. And so on. General-interest sites like KickStarter and Indiegogo have grown consistently over the past few years, but smaller, niche funding sites are also on the rise as a way for users to more easily reach their target audiences. And financing options are expanding as the Jumpstart Our Business Startups Act, known as the JOBS Act, is incrementally implemented.
“I had an opportunity to really work up close with people in the crowdfunding industry, people in the traditional financial services industry, and a number of staffers,” says Nathan Bennett-Fleming, a lawyer who worked on the JOBS Act. After his experience on the Hill, Bennett-Fleming saw a need for a site aimed at bringing crowdfunding to groups that might not otherwise have the option. In fact, he felt the need so urgently that he cofounded a crowdfunding platform called BlackStartup, which is predicated on the very bill he worked on—an auspicious sign for the potential of the bill.
“Just to be around that innovation, I guess [that’s] what got me into the entrepreneurial mind-set in thinking about how this regulatory shift could benefit the African-American community,” Bennett-Fleming says.
Up Close With New Legislation
Acts from 1933 and 1934 have limited who could invest in new businesses to friends and family or accredited investors—people and financial instruments with certain standing or wealth holdings. But the JOBS Act, which went partly into effect during April 2012 and will take full effect later this year, will allow small businesses to raise $1 million through crowdfunding and changes laws that once required businesses to go public if they had 500 investors or more, a number too easily achieved in crowdfunding to be relevant.
“Following law school, I was a fellow for the House Financial Services Committee and that’s when I started working on the crowdfunding legislation,” Bennett-Fleming says. “Having an opportunity to really work up close with the bill, make some amendments to the bill, try to think about all the elements in terms of fraud that could occur, and really put yourself in the shoes of the investor was a very big experience for me. For example, the limit on equity investments on crowdfunding is $1 million. I had a role to play in that debate. We could have set that number at $3 million. We could have set that number at $5 million. In fact, I wish we would have set that number a bit higher when I was working there.”
Bennett-Fleming and his cofounders, Olugbolahan Adewumi, Elgin Tucker, Kyle Yeldell, and Christopher Hollins, are positioning BlackStartup as a service that not only provides a crowdfunding platform, but also matches new projects with a mentor to give tailored advice on things like a reasonable target-funding amount and a campaign strategy.
“A number of the original crowdfunding sites offered some form of return on your investment until they got in trouble with their state regulatory agencies,” he says, but not everybody that needs funding for a good business idea is in the position to craft a compelling campaign on extant sites. “The big players are the one-size-fits-all crowdfunding platforms, but on a site like ours, we can provide support,” says Bennett-Fleming.
A (Really) Lean Startup Model
BlackStartup was able to go live quickly by building on a white label crowdfunding service called Launcht. By cutting out development time, BlackStartup could enter the market immediately and begin experimenting with the best way to deliver their service, rather than putting time and money into a customized platform up front.
“We actually experimented with a number of white-label platforms before settling with Launcht, but it was not very difficult to get set up,” Bennett-Fleming says. “What it shows is that it won’t be difficult for other people to enter this space. Our competitive advantage is going to be our people, our network, our community, and our ability to continue to innovate and not just stay at this white-label stage, but create a platform that’s designed specifically for our users. We wouldn’t have learned that as quickly if we hadn’t made the white-label decision.”
BlackStartup is generating interest by running business plan contests at colleges, including historically black colleges, around the country and working to partner with organizations like Washington, D.C., Social Innovation Organization to lay groundwork with the next generation of entrepreneurs.
“In terms of people who have great ideas and may not necessarily have access to more sophisticated funding mechanisms, that target demographic is probably college students and graduate students,” Bennett-Fleming says. “When we have a critical mass of African-American innovators, we want to be able to align ourselves with that critical mass.”
Bennett-Fleming says that at its core, BlackStartup is motivated by the African-American startup gap. Research indicates that African-Americans open businesses at higher rates than non-minority groups, but they produce projects with a lower overall success rate. Data also indicate that procuring startup funding is a major obstacle for African-American-owned businesses.
“The goal is to clearly market, target, and gear ourselves to the African-American community, but by no means do we have any restrictions,” Bennett-Fleming says. “We’ll let the people self-select what projects they place on the site.”
[Image: Flickr user Scott Wilcoxson]