Hey, big spender: Small companies start advertising for investors
Katalyst Films Co-Founder and angel investor Ashton Kutcher speaks onstage at Day 2 of TechCrunch Disrupt SF 2011 held at the San Francisco Design Center Concourse on September 13, 2011 in San Francisco, California. New companies are connecting small private firms with accredited investors -- people who are worth a million dollars or more.
For the first time since the Great Depression, private U.S. companies and even hedge funds can advertise when they are trying to raise money. Advertise to millionaire investors, that is, thanks to new Securities and Exchange Commission rules for the 2012 JOBS Act.
How are they doing it?
“We’re gonna start working on our own website, and then spread naturally from there into social media,” says Rick Field, founder of artisanal pickle company Rick’s Picks in New York.
He chomps down on one of his new kosher organic pickles as he speaks. Boxes of smoked paprika pickled okra -- 'Smokra' -- are stacked behind him.
To do the actual fundraising, the company has a web page on a site called CircleUp, which both connects companies with investors and certifies those investors (SEC rules still require potential investors to be ‘accredited’, meaning they are worth $1 million or more or make more than $200,00o a year).
“This is indeed the wild west,” says Fields. He says he’s being deliberate about how to raise awareness of his CircleUp page and his plan to raise $1.4 million.
“You have one chance to make a first impression -- a glib 140-character posting on Twitter might be a little bit inappropriate whereas a thoughtful carefully worded posting on Facebook might be just right.”
Rory Eakin, CircleUp’s COO, says it’s important to remember that while private companies can advertise anywhere, only accredited investors can actually throw in money.
“So it’s not very cost effective for startups to have a large advertising campaign when they’re trying to reach a very small portion of the population,” he says.
Kevin Laws, COO of AngelList, a startup services company that focuses on tech firms, adds that at least in the case of more complex tech companies, “We have not seen yet startups shouting from the rooftops or taking out billboards or anything like that.”
In Silicon Valley, he says, companies are tweeting to their moneyed followers and putting out the word on social networks full of investors. But advertising too broadly can look bad.
“People don’t just say, ‘Hey, we’re fundraising,’ and put their plea everywhere. That’s kind of like begging for money. It’s not really fundraising,” he says. “That says, ‘I couldn’t raise money among those who actually know what I’m about so I have to go to people who don’t.’”
That’s not the case as much for non-tech companies. CircleUp’s Eakin says consumer-product companies may well use their product itself to fundraise.
“Putting a sticker on their product packaging or including offerings at a farmers’ market or other potentially engaged audience, there’s a whole host of new ways that companies can start that conversation,” he says.
And there may well be even more: True mass marketing could begin next year, when regulators are expected to let private companies ask any American for investment.