Startups consider crowd funding

New rules to allow small firms to use Kickstarter, others

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To raise $15,000 for a new business venture, Sacramento, Calif., artist Danny Scheible went the route of many creative professionals: crowd funding. In a matter of weeks, his online appeal to launch a new line of quirky eyeglasses scooped up more than 200 interested donors.

In amounts ranging from $5 to $1,000, backers of his "Hacker Glasses" surpassed the initial goal, promising donations of more than $16,000.

For Tapigami, Scheible's masking-tape art venture that's moving into a new gallery space, raising money online was a natural.

"It's the best designed system to fund any sort of creative project," said Scheible, who has become a renowned young artist using a decidedly unconventional medium: masking tape. "There's no other place where you can publicly ask for money and people feel comfortable contributing. It's the best format out there for a creative person who doesn't have a business background to get started."

Crowd funding, on websites like IndieGoGo, Kickstarter and PeerBackers, has been around for several years, primarily as a low-key, grass-roots way for creative types -- musicians, artists, filmmakers, writers and such -- to gather donations for personal projects.

This year, crowd funding is poised to enter a new realm: small-business startups.

Under the federal Jumpstart Our Business Startups Act passed by Congress a year ago, crowd funding will be allowed by entrepreneurs who want to raise up to $1 million a year by selling shares to investors.

For startups and small businesses unable to find or afford conventional loans or stock offerings, it's intended to spur job growth and eliminate the costly regulatory hurdles typically required for issuing stock in a company.

The only hang-up: The Securities and Exchange Commission was supposed to issue the new "equity crowd funding" regulations by Dec. 31, but has yet to do so.

Until then, as new crowd funding websites are poised to jump in, regulators are urging caution.

In general, the crowd funding-for-small-business concept is "a good thing," encouraging job creation, economic growth and technology innovation, said California Department of Corporations spokesman Mark Leyes. "But we do have some cautions for folks on both sides: entrepreneurs and potential investors. There are risks and opportunities for abuse and fraud. People should be careful."

With little state or federal oversight of the crowd funding offers, Leyes said, investors should do their due diligence, the same as with any online investment.

In the investment community, Laura Good, program and operations director for the Sacramento Regional Technology Alliance noted in an email, there are differing opinions "on whether or not equity crowd funding will be a good thing." But, Good said, many of the technology entrepreneurs that her group works with consider it "a faster way to raise small amounts of capital from a larger pool of investors," as well as an opportunity "for 'average' people to support the potential success of a startup they believe in."

For anyone contemplating raising money through crowd funding, the National Federation of Independent Business has some tips:

• Spread the word: Reach out to your network of friends, family, patrons, existing clients and customers. Use social networking, as well as word of mouth.

• Make it personal:Tell why it's important or how it will benefit others. Backers want to be part of something that matters.

• Support your claims: Use videos, testimonials, examples of your work.