States beat the SEC to the new frontier of crowdfunding


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    Shaun Lee plays a Bohemian Guitar. He says its sound is unique and raw, and that the guitar is weighted different than most.

    - Jim Burress

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    A custom-wrapped Bohemian Guitars oil can rests on a workbench at the company's Atlanta headquarters. Three people work here, and none get a paycheck.

    - Jim Burress

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    Bohemian Guitars uses vintage gas cans, when available, to make their oil can guitars.


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    Marcus Cannady, Megan Johnson and Jeff Bekaries "are" SparkMarket. The three stand outside a building in Atlanta's Grant Park Neighborhood they say would be the perfect example of the potential of crowdfunding.

    - Jim Burress

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    In 2008, neighbors in Atlanta's Grant Park neighborhood created a Facebook page to bring a local pup/restaurant here. Because of the economic crisis, the dream died. SparkMarket's founders say that one event is what "sparked" their idea for the crowdfunding site.

    - Jim Burress

Adam Lee shows this custom Bohemian Guitars oil can. He and brother Shaun often use recycled and vintage cans, although they're difficult and expensive to acquire.

Shaun Lee gets crowdfunding.

Without Kickstarter, he might not be in an industrial loft near downtown Atlanta turning oil cans into $300 electric guitars.

“Since the body is metal, not only are you picking up stuff from the strings, you’re picking up stuff from the can as well,” Shaun explains as he cuts into an oil can. “So just from it rubbing up against your body, you get a really unique tone.”

A few years ago, Shaun and his brother Adam noticed that unique tone coming from a street musician in their native South Africa.

They brought an oil-can guitar back to Atlanta, and soon, lots of folks were asking where they could get one. Adam says it seemed logical to start a business. They named it Bohemian Guitars.

“Over time, the demand grew and grew and grew, and we knew we were on to something special here,” he says.

Although penny-pinchers, the brothers quickly burned through the original $55,000 they crowdfunded through Kickstarter. They need $150,000 to expand and keep up with demand, but banks have said “no” to loan applications big and small. 

Now, the brothers are poised to test a new kind of crowdfunding: selling shares to their fellow everyday Georgians.

Equity crowdfunding isn’t as easy as it sounds. 

To curb fraud during the Great Depression, Washington banned private companies from soliciting investment from the general public. Since then, only wealthy people -- who qualify as so-called accredited investors -- have been able to buy shares of firms not listed on a stock exchange. 

Last year’s JOBS Act -- short for Jumpstart Our Business Startups -- was supposed to change that. Making it easier for small companies to court public investment is potentially the most far-reaching part of the law. But the Securities and Exchange Commission is still writing the regulations for ordinary investors.

While most of the nation waits, two states, Kansas and Georgia, have moved ahead on their own to promote equity crowdfunding. Georgia’s fix is the Invest Georgia Exemption.

“We passed this rule in 2011,” says Vincent Russo, general counsel for the Georgia Secretary of State’s office. 

He says federal law allows states to regulate commerce inside their borders. Georgia’s exemption lets small, local firms raise up to $1 million by selling shares to state residents -- and only to state residents.

If that option had been available in 2008, Megan Johnson says she would be enjoying a beer now instead of standing in front of a deserted building of storefronts.

“You should be able to invest your money and get a return on local projects you believe in,” says the lawyer-turned-entrepreneur.  “The fact that our archaic securities laws have prevented that from being a possibility is crazy.”

Back then, she and her neighbors were part of a Facebook campaign to bring the Brickstore Pub to Atlanta’s Grant Park neighborhood. But when the economy tanked, so did the project’s funding. 

That event sparked her interest in crowdfunding.

Last year, Johnson and business partner Jeff Bekiares were among the earliest to spot the crowdfunding potential in the Invest Georgia Exemption.

Now they are about to launch SparkMarket, an online service to link startups with investors. Bohemian Guitars is SparkMarket’s first customer.

“There are no crowdfunding experts, only crowdfunding enthusiasts,” Bekaries says, noting that the financing idea is in its infancy. “And that’s what SparkMarket is. And we’re learning and growing together from that point.”

The pair anticipates growing pains along the way, including  competition. Another Georgia crowdfunding site is already up and running.

Then there's convincing locals to buy in, despite concerns about fraud. It’s fraught enough owning shares of highly regulated public companies.

Investors should understand there are “a ton of risks,” says SparkMarket co-founder Johnson.

“A lot of the businesses that will ultimately seek raises through SparkMarket will be new and untested business models,” she says.

New and untested, like crowdfunding itself.

Georgia followed Kansas into this market; North Carolina and Washington state are also considering crowdfunding laws.

Adam Lee believes Bohemian Guitars will validate the concept and send a message to big financiers who now snub the company.

“It’s not something they see as a long-term investment,” he says. “We’re going to prove everyone wrong.

Despite its name, Bohemian Guitars is showing signs of going mainstream. On the eve of offering shares, the company just landed Urban Outfitters as its biggest customer yet.

About the author

Jim Burress is a reporter for WABE in Atlanta.

Adam Lee shows this custom Bohemian Guitars oil can. He and brother Shaun often use recycled and vintage cans, although they're difficult and expensive to acquire.

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