Raising Money For Startups & Getting A Jump On The Government

returnonchangeIf you’re mixing social enterprise and regulatory change, the watchword is patience. Just ask Sang Lee.

When the Jumpstart Our Business Startups Act (JOBS) was passed last year,  Lee was as excited as anyone else who saw the potential for social enterprise startups to be able to tap a new source of financing–equity crowdfunding from both accredited and non-accredited investors.

But he also knew, even after it became official, real implementation wouldn’t happen overnight.

In fact, the former investment banker started his own social enterprise, New York-based Return on Change, an online funding platform for-profit high-impact startups–that includes cleantech and social enterprises, among others–in 2011, well before it was even clear that a law would ever be enacted at all.

His plan: Start a web site for listing companies looking for funding, but do so assuming a law would be passed and, even after passage, would take a long time really to take effect.

Plus, like many others in the funding side of social enterprise, he knew that many likely startups would be far from ready for prime-time, thanks to their tendency to focus more on their particular cause than the business side of things. As a result, he would need to work with promising startups to get them in shape to list on his site. “A lot of entrepreneurs aren’t ready to raise capital,” he says. “They don’t have their ducks in a row.”

Sang got interested in the area while working for six years as an investment banker, part of that time for banking giant BNP Paribus.  He focused on the power and energy sector and, as a result, started learning a lot about clean energy and cleantech startups, which were, he says, “the hottest thing in investment banking,” he says.  (Those days are gone, of course). From there he got to thinking about the larger world of social impact startups, the difference they could make, the difficulty they had raising money–and how he could apply his expertise to that problem.

Eventually, as he heard more about the still-nascent JOBS Act, he realized he had his answer: Confident a law would pass, he would build a site listing for-profit companies with what he calls “a social twist, either giving back to society or helping the environment.” Now he’s waiting to register his site as what the law calls a portal, meaning he would  keep track of how much each investor invests and make sure startups don’t raise more than is permitted by the regulation, among other things. (As of now, companies can raise $1 million every 12 months).

As Sang expected, the law was passed–and then came the lengthy process of ironing out the details. But at the end of September, Title 2 of the Act is

supposed to be all set to go. That allows companies to solicit over Facebook and other social media, although the investors, themselves, still have to be accredited to make an equity investment. As soon as Sang got that news, he launched his site in beta.

The bigger deal is Title 3, which will allow non-accredited investors to make equity investments through SEC-registered portals. That should be ready later on this year.

Of course, one big challenge is getting a critical mass of startups to list. According to Sang, he has about three companies ready to go live on the site as soon as they’re in shape to list and raise money, and “10 or so in the pipeline.” First to go live: a New York-based startup Thankster that makes it possible for people to write multiple thank you notes online, say, for wedding presents, and to create messages that look they’ve been handwritten. (The secret is a technology the company developed that can mimic people’s real, idiosyncratic  handwriting style.) The site also takes care of mailing the notes.

To drum up interest, Sang also has been doing such things as speaking at conferences and reaching out to organizations like the UN.

Certainly, Return on Change is not the only new site out there aiming to become a JOBS Act portal. But, according to Paul Geller, Thankster’s founder, the company may have an advantage, because it started well  before most of its potential competition. “They’ve built up a lot of knowledge of this space,” he says. “They really went ahead and took a chance.”

“I’ve always wanted to raise capital for social impact startups using the skills of an investment banker and leveraging the power of the Internet. But it’s been illegal,” says Sang. “The regulations have finally started to catch up with the times.”

[Source: Anne Fields @ Forbes]


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