Larry Baker, founder of bolstr.com, has created an online marketplace to help entrepreneurs get funding for their endeavors. Bolstr.com uses a concept that is growing in popularity around the country called crowd funding. With crowd funding, you put your opportunity online -- including what you want to do, how much money you want from investors and what an investor might receive as part of an investment in your endeavor.
Here's the catch: With bolstr.com, investors don't receive a piece of the business. Instead, they receive a piece of the cash flow. In some cases that could be a windfall. But it's very different than the traditional model in which investing in a business means you own a piece of the business.
Mr. Baker is taking advantage of what he sees as a change in the regulatory environment for taking investments. In the past, federal and state governments have pushed businesses to get their legal investments from wealthy individuals -- often called accredited investors. But with the rise of crowd-funding tools, it's easier than ever for a nonwealthy individual to find investment opportunities. All they need is the ability to invest legally.
The SEC and state regulators are wary of investment opportunities because of the ability for unscrupulous individuals to take advantage of unsuspecting investors. So there are lots of regulations, and lots of filing requirements. In the tech industry, entrepreneurs often take advantage of SEC exemptions to allow individuals to make investments as long as they meet certain income or net worth requirements. For crowd sourcing to grow to its potential, the government must allow individuals who don't meet those requirements to be able to invest.
Changes in the regulations may be on their way -- but they're not here today. So Mr. Baker has created a resource that allows Main Street entrepreneurs to raise money without selling stock. A former investment banker, Mr. Baker and his team have created an online software platform that knows the regulations from all the states -- to make sure you can be compliant no matter where you are. And they've recruited a team of attorneys to help make sure that the specific offering is legal. The idea is that it's less expensive to do it this way and provides access to investors for good ideas that might not happen without an online platform.
According to a Pepperdine study, 76 percent of small businesses that seek friends and family funding become successful. Bolstr.com is meant to expand that definition of friends and family who can provide you with the money you need for that expansion. Currently in a private beta test, meaning you must apply and you may or may not be accepted, bolstr.com is attempting to minimize the risk for the investors by only accepting businesses that have a track record of at least two years in business and can produce tax documents to prove they are legitimate.
While his model may change based on how successful they are in the testing phase and how the regulatory environment progresses, Mr. Baker is optimistic that he can help open up the opportunity for small businesses to find small investors.