Crowdfunding has treated a number of Boston start-ups well: Supermechanical set new (short-lived) records when it raised $556,541 for Twine, and Formlabs Form 1 has raised more than $600,000 for a 3D printer just a day after launching (check out Scott Kirsner’s behind-the-scenes on FormLabs).
With rules about actually investing in companies about to become a bit more lax, the crowdfunding floodgates might open even wider, with new crowdinvesting site WeFunder, based in Cambridge, hoping to join the ranks of Kickstarter and IndieGoGo as a marquee crowdfunding platform. The fundamental difference with this new breed of sites is that, rather than receiving swag, warm feelings, and early products, crowdinvestors actually buy a (very small) piece of the company.
It’s an appealing prospect to those hoping to get an early piece of the next Google or Facebook, however remote that chance may be. Eager micro-investors can even get a head-start in Massachusetts — if they’re willing to bear the risk of losing their entire investments and to abide by a host of restrictions on early investments.
Crowdinvesting formally open up in early 2013, after the Securities and Exchange Commission has had a chance to study and investigate the issue. Until then, WeFunder is offering a compromise measure:
— Only up to 35 un-accredited investors may invest in a company, and only 10 per company can be from Massachusetts.
— The rest of the 35 can only invest from California and New York.
— No advertising or general solicitation is allowed (including no press interviews).
— The 10-investor cap in Massachusetts also includes accredited investors.
So you won’t see the hundreds or thousands of backers successful Kickstarter and IndiGoGo projects have, but WeFunder helps mitigate this by allowing those not investing to “follow”, and some projects seem poised to double dip: Cambridge-based Gotham Bicycle Defense Industries, for example, has a WeFunder profile with 126 followers and a note that they’re not currently fundraising, as well as a successful Kickstarter that raised $84,728 from 1,175 backers.
Other interesting Massachusetts WeFunder start-ups include Cambridge-based Mapkin, which is hoping to offer navigation with a personalized touch, and Boston’s AirVentions, which provides collision-avoidance for airplanes. Boston-based RaceMenu is also on the site, and has been making the rounds drumming up interest in its yet-to-be-launched crowdinvesting efforts.
RaceMenu offers event organization tools.
And, fittingly, WeFunder itself, which boasts 315 followers and 12 investors including Bill Warner and Timothy Rowe.
But will the coming of crowdinvesting make much of an impact for entrepreneurs and innovators trying to raise money?
It’s hard to say. Tom Szaky, the founder of TerraCyle, wrote that he’s been following the field closely, and wishes he’d been able to take advantage of the coming new regulations.
He wrote that he “would have been able to raise money faster, on better terms, and from a wider range of investors — all good things when it comes to financing a small business.”
Others who have traveled down the existing crowdfunding paths aren’t so sure. I e-mailed John Kestner, a co-founder of the aforementioned Supermechanical, for his thoughts (Kestner and Supermechanical were previous tenants of the Boston Globe Lab before heading to Austin).
He wrote that, whether crowdfunding or crowdinvesting, these are the early days with a lot to figure out.
“Start-ups and backers are still learning our responsibilities to each other, and how to work toward a good outcome together,” he wrote. “Communication and managing expectations is a job unto itself, and start-ups aren’t always prepared for that at an early stage, when focus on the product is needed.”
Having backers become investors — however small — makes things even more complicated.
“I love my backers, but I also want to select advisor-investors who can contribute their particular experience,” he wrote. “Less control would be given up when it’s split so many ways. But I can’t say how crowd-investing would be different from crowd-funding, other than legal obligations.”
Even without a tiny percentage of the company, Kestner said he found his backers to be very emotionally invested in projects already.
“Treating each as more of a long-term financial transaction would draw a different crowd,” he wrote. “But I don’t know if that would change the dynamic for the better or worse.”
If you’re one of the early entrepreneurs hoping to answer that question, email your story to Hive@Boston.com. I’d love to help share the most interesting, exciting, and promising campaigns with our readers.
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