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Pennies from Many 143
business—could be their best source of capital and support, if only
they knew how to tap it. As ProFounder’s web site explains:
Why can’t anyone just invest a few hundred dollars in a small
business they love? We’ve heard hundreds of stories from
entrepreneurs and small business owners who have tried
gathering investments (real investments, not just donations)
from friends, family, and other members of their community,
but have struggled along the way. Unfortunately, the process
is unnecessarily confusing, costly, and complicated. 12
ProFounder, of course, aims to change that. If anyone knows
how to do a “Kiva for equity,” it should be Jackley. To comply
with securities regulations, Jackley and Mauriello came up with a
two- tiered investment system, one for friends and family and one
for broader social circles. Both employ a revenue- sharing model,
which is easier for startups and small companies to deal with
than equity.
The fi rst tier helps entrepreneurs manage the often- messy process
of raising money from friends and family. ProFounder hosts
a private site for the entrepreneur, who can invite a close circle of
friends and kin to view details of the offering and fi nancial information.
This focused capital raising is conducted under the Reg D,
rule 504 exemption for restricted offerings under $1 million.
Reaching out to broader communities—social networks, alumni
groups, or customers, for example—posed a trickier challenge,
because the public nature of the offering raises the SEC hurdles.
Jackley and Mauriello wanted to be able to tap into a wide audience
without requiring securities registration, which would be
prohibitively costly for a small fi rm. Their solution was to fall back
on the Kiva model: Members of the public can make a loan to the
startup, which will be repaid, but the revenue- sharing portion, or
profi t, gets donated to charity.
“Money on its own is one thing,” says Jackley, who likes to
surf in her off- hours. “But money plus a supportive community is
a whole different thing. I saw that happen on Kiva and I think that
is the most powerful tool to catalyze entrepreneurs.”