You, Too, Can Invest Like an Angel
It used to be that if you wanted in on the ground floor of a new breakthrough tech company, you either had to be a well-heeled investor or wait for the IPO like everyone else. If you were a startup tech company looking for funding, your options were similarly limited to venture capital and angel investors or going the traditional Wall Street route. But these days, as more people are venturing out on their own with shoestring budgets, investing rules are changing.
The Jumpstart our Business Startups Act passed in 2012, otherwise known as the JOBS Act, allowed companies to start raising money through online portals from non-accredited investors. While those portals have to meet certain SEC rules, the companies asking for money through them are relatively unregulated. But until recently, the only way those companies could entice investors was by offering them free stuff – if you give us $500, we’ll give you a prototype of our new espresso machine – or by playing to your goodwill.
That changed back in May when the third leg of the JOBS Act kicked in, known as Regulation CF, allowing non-accredited investors to buy ownership stakes in startups. Startups that use equity crowdfunding are required to meet much more rigorous reporting requirements, but they can tap into a much bigger investment pool so the benefits can really outweigh the extra work. Founders can also structure the share offerings so they can sell off part of their stake, yet maintain control of their company, since the shares often don’t have voting rights. If they go the traditional Wall Street or venture capital route, selling shares is an easy way to make someone else their boss.
Since the new rule came into effect on May 16th, the number of companies making Regulation CF offerings has jumped from just 25 to 144. Those crowdfunding campaigns aim to raise nearly $90 million and, so far, have raised more than $10 million according to CrowdFundingCapitalAdvisors.com. Not surprisingly, the lion’s share of that money has gone to tech companies, but even farmers, apparel outfits, and entertainment ventures are getting in on the action.
Estonia-based Wolfprint 3D is a great example of a company taking advantage of the new crowdfunding rules, building on a tech trend that’s already in place.
Virtual reality is becoming increasingly popular; between games and conferencing, some industry experts predcit it will become our primary method of interacting within a few years. A lot of users don’t care for generic avatars, or how they’re represented in a VR environment. Most are pretty basic frame constructs bearing no resemblance to the person they represent. Having an artist actually create a 3D representation of yourself is an expensive and time-consuming process, and often aren’t particularly accurate.
Wolfprint’s Luna Scanner booth makes that process both simpler and cheaper. Someone who wants an avatar just takes a seat in the booth, which then takes hundreds of scans so an avatar can be created in a fraction of the time. Since the booths are portable and reusable, the scans are incredibly cheap and the scanners operate essentially like vending machines.
Building those scanners, plus developing and marketing costs, is an expensive proposition. Even though the company is already testing upselling ideas and plans to launch its avatars-for-gaming platform next year, it has found itself with just a few months worth of cash on hand left. Instead of turning to a venture capital firm that might want change the company’s direction or jumping the gun with an IPO, it has turned to equity crowdfunding which could raise as much as $4.5 million in new money for the company. The folks investing that cash will also have an equity stake so, if the technology takes off, could see a lot of upside.
To be absolutely clear, I’m not suggesting that you invest in Wolfprint 3D. The equity positions that you buy aren’t traded on a traditional exchange like the NYSE, so finding another buyer could be tough. That said, I look for more startups to turn to crowdfunding to get themselves going. With the relatively small investments required, it wouldn’t be too tough to get a bit of your own venture capital fund started if you can afford to take the risk.