Crowdfunding site RockThePost has pivoted away from charity-based funding for startups, and has launched a new version of its platform where investors get equity in a company for contributing to their funding. In the first four days after launching the new platform last week, RockThePost had 500 startups apply to raise funding for their projects, and has registered more than 322 angel investors.
Through the NYC-based platform accredited investors (they do background checks on all the investors and startups when they sign up) get a percentage of a company in exchange for minimum investments of $1,000-$5,000, based on the startup’s own terms. RockThePost has partnered with Bendigo Securities to help ensure they are operating in compliance with the securities market, since startups can raise between $100,000 and $5 million on the platform.
Since launching the original version of RockThePost in November 2011, which gave rewards and gifts to people who offered donations to startups on the site, similar to Kickstarter but focused on startups vs. creative projects, the company has helped over 6,000 companies raise on average between $5,000 and $25,000. CEO and co-founder of RockThePost Alejandro Cremades said they are phasing out the donation-based version of the platform, but that it helped shape the model they have built today. He said he hopes to democratize the space of startup investments, and was inspired to create his model as he saw potential investors missing out on startup investments because they weren’t part of angel groups or VC firms.
“I felt that it was really unfair that entrepreneurs would have had to spend months really taking a huge distraction out of their business, to be rejected basically 98 per cent of the time by these firms,” Cremades said. “What we want to do is to open the gates to the non-accredited investors as well, and to really streamline and the fundraising process for startups to get funded faster.” (Right now only accredited investors can put money in, but that will change when the JOBS Act comes into effect.)
Cremades said they are currently concentrating on scaling the platform, and they will focus on a business model after, conceivably some sort of fee for either the startup or investor, or both. He added that they are not exclusively focused on tech startups and that they are interested in other kinds of early stage businesses. The company vets startups so that all that the projects on RockThePost already have traction, and from there RockThePost’s investment committee, led by Robert Simmons, formerly the CFO of E-Trade Financial, goes through the terms of the startup’s proposed deal to ensure that the legalities surrounding them are sound.
As for competition, Cremades acknowledges that there are many donation-based crowdfunding sites on the market like Indiegogo and Kickstarter, as well as other equity-based crowdfunding platforms like CircleUp, and online investment platforms like AngelList. Despite the competition, Cremades said he believes his model’s openness will offer a leg up for startups, and attract attention from investors.
“We’re giving the opportunity, for example like what would happen on Dragons’ Den or Shark Tank, to any accredited investor to be able to come on our site, and be able to make the investments they want,” he said. “Any type of business that has a compelling story and some sort of uniqueness is what we’re showcasing.”
Crowdfunding isn’t a new idea, so RockThePost’s main challenge will be proving it’s the best place for startups to turn when traditional funding avenues don’t pan out, and its larger challenge will be convincing startups to turn to them first when they need to raise funding. For investors it’s a way to get a piece of the next big thing, although like any other startup investments, there’s never a guarantee of a return. Whether the company can settle on a viable business model and find the same success with equity funding that they did with donation-based crowdfunding remains to be seen, but the JOBS Act should ensure there will be plenty of interest in the space.
Source: BetaKit – Andrea Ozretic