The Crowd Comes Of Age

Where before they could only donate, now the crowd can invest. What does it mean for startups? We talk with Sang Lee of the National Crowdfunding Association to find out.


Sang Lee is the founder of Return on Change, a crowdfunding platform set to launch this summer, as well as an executive board member of the National Crowdfunding Association. We caught up with Lee to find out what happens when the crowd starts taking an actual equity stake in the companies it funds–a situation newly possible in the wake of President Obama signing the JOBS Act into law.

FAST COMPANY: What is Return on Change?

SANG LEE: Return on Change is the next-generation crowdfunding platform for high-impact startups. We’re focusing on high tech, clean tech, social ventures, biotech, and medical tech startups.

How is it different from Kickstarter?

Kickstarter supports specifically creative endeavors, and can only do so on a philanthropic basis. People who support a project on Kickstarter are not permitted to be actual equity investors in the business. Our platform allows supporters to become long-term investors in the business itself.

Will investors visit Return on Change because they want to get rich, or because they want to change the world?


To be frank, I think it’ll be both. I think people can get great economic returns while at the same time investing in the future.

When President Obama signed the JOBS Act, it legalized the idea of a site like Kickstarter enabling equity investment. Do you think Kickstarter will go in that direction?

It’s difficult to say. Kickstarter’s openly stated mission was to support creative endeavors on a donation basis, but they very well may be able to pivot to benefit from legislation under the JOBS Act.

Some groups, especially traditional investors, opposed the JOBS Act. Why?

A lot of traditionalists in the securities field thought that by opening up this kind of investment tool to people who were not savvy investors, there might be an invitation to outright fraud. But we’ve seen some success in the field, and the crowd tends to have a self-filtering mechanism anyway.

Have there been cases of fraud in the crowdfunding world, where a company claimed they were making a product, when really they were taking the money and flying to Cabo and spending it on cocaine and prostitutes?


The days of crowdfunding are new to begin with. We haven’t seen an open issue of fraud, but it may be too early to say. Information may not be publicly available yet. With Kickstarter, there are certain products that were funded that have fallen behind schedule.

That’s clearly a euphemism for going to Cabo and blowing the money on cocaine and prostitutes.

I hope that’s not the case. I believe the supporters are trying to take class action, which would be very difficult. The way the structure of the crowdfunding movement currently works, there is no obligation, legally speaking. It’s kind of an honor system. That’s why we’re really excited about the new legislation that enables people to become actual equity investors. Then you will have an obligation, as the founder of your company, to do the best for your shareholders.

What’s going on when a Kickstarter project (the Pebble Watch) raises $10 million–100 times as much as they asked for?

That’s more of a pre-purchase order model. Basically, a lot your supporters are at the end of the day your consumers. For the Pebble Watch founder, his responsibility now, since he hit 100 times his target, is to produce 100 times the number of watches.

What if he simply lacks the operations experience to scale up like that?


One obligation we’ll have on Return on Change is to have specific uses for the capital you’re raising. This is different from Kickstarter–it can’t be open-ended, you have to be raising an amount of capital for a very specific purpose. Whether it be manufacturing, or supplies procurement, you know exactly where the funds are going.

And presumably you can’t designate a capital stream for trips to Cabo.

You could designate funds for trips to Cabo. The question is what investors would support you in that.

On Kickstarter, hyped projects get overfunded while other worthy ideas languish by the wayside. Is crowdfunding just replicating the blind spots of venture capital?

The way I view it, once crowd investing platforms become a commercially viable early-stage funding method, it’ll just move over the risk-return profile to the right a little. What I mean by that is this: The reason VCs often command such a high return is because they take an outsize risk. But if you have several thousand investors, they become marketers and maybe consumers as well, so the business idea is thriving by the time a VC is shown the idea. They may then be able to make more investments, and that will have an overall positive impact on the startup community.

Thank you for your time, Sang. Enjoy your trip to Cabo.


Thank you.

This interview has been condensed and edited.

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About the author

David Zax is a contributing writer for Fast Company. His writing has appeared in many publications, including Smithsonian, Slate, Wired, and The Wall Street Journal