By now, everyone knows the Kickstarter model—come up with a brilliant idea, pitch your heart out, and then hand out nifty prizes to your donors. Funding your friend’s artisanal wrapping paper project is a wonderful thing, but are the million dollars pledged each day on crowdfunding sites going toward businesses that are built to last?
Alejandro Cremades and Rock the Post think it can be. On the surface, Rock the Post follows the same reward-based formula as Kickstarter: entrepreneurs post ideas, fans offer support, and if the pitch is successful, prizes are handed out (and the platform takes a cut). But Rock the Post's emphasis is on helping small businesses facilitate connections not only to funding, but also programmers, designers, and anyone else who can help get their idea off the ground. "At the early stage of a business, the most important thing is not the product," says Cremades. "It’s the people behind it, and how they’re going to face challenges."
In addition to providing a platform, Cremades also works to ensure businesses know how to communicate their idea. "If I have to jump on the phone myself for 30 minutes in order to help out a little more in crafting a pitch, I’m willing to do that." Born in Spain to entrepreneur parents, Cremades came to the U.S. at 22 and graduated from Fordham Law school the following year. "I remember when going to class, I was like a gladiator out to see who will get the best degree to get the best position at a law firm."
That ambition paid off when he landed an associate position at the international law firm King and Spaulding. There, he acted as an advisor when the firm represented Chevron in a high-profile lawsuit over environmental damage in Ecuador. But by the fall of 2010, Cremades decided his talents could be put to use helping smaller businesses.
"The community really needs small businesses," Cremades says. "Small businesses generated (over) 60% of new jobs that were created over the past 17 years." The trouble is, Cremades adds, that since the recession access to capital has been scarcer than ever. "We think crowdfunding can lift a little bit the conditions small businesses and entrepeneurs are facing. We hope to really be able to make a difference in people’s lives."
Rock the Post will have to make a pivotal decision this year about whether it will continue to focus on rewards-based crowdfunding, or take advantage of loosened regulations surrounding equity crowdfunding made possible by the JOBS Act. Unlike rewards-based crowdfunding, equity crowdfunding would allow donors to receive actual shares in the startups they back. But while platforms like Wahooly and Fundable are already making plans to service this new model, Cremades says Rock the Post will be extremely cautious until the Securities and Exchange Commission finalizes its regulations.
"They are amending laws that were established after the Great Depression. We’re talking about the Securities Act of 1933 and the Securities Exchange Act of 1934. So it’s a huge change." Cremades says the SEC may trigger automatic audits of startups that raise over a certain amount of money or put other obstacles in place, making equity crowdfunding perhaps more trouble than it's worth. Even if the SEC makes it legal for unaccredited investors to hold shares in startups, Cremades says the new rule wouldn't take effect until at least January 2013.
As the crowdfunding picture becomes clearer over the next few months, Rock the Post will need to decide whether to focus solely on rewards (like Kickstarter plans to continue doing), just equity (like CircleUp) or both (like Fundable). But even if we’re not living in a crowdfunder’s paradise this time next year, Cremades still hopes Rock the Post will play an important role in providing startups and entrepreneurs with capital, as well as connecting them with programmers, designers, or any other resources needed to get their company off the ground. "For us, it’s terrible to see the fact that 99% of the time an entrepreneur or small business gets rejected by a venture capitalist or a angel investor. We know that’s one of the biggest challenges in getting something in motion, so we want to fill that gap."
[Image: Flickr user Stuart Richards]