Like most startups, QaZing in Peterborough needs to raise money. And like many, it needed to choose between crowdfunding and selling equity to rich investors.
But unlike any other startup in New Hampshire, it’s doing both.
QaZing, which makes an app to connect people with a variety of services in the on-demand marketplace, is the only company in the state to have sought investors under new federal equity crowdfunding rules.
This system, which has been in the works since 2012 but only went fully into effect in May, allows virtually anybody to buy equity in a private company, something previously limited to accredited investors with at least $1 million in net worth.
“For the first time, anybody, not just the wealthy, can invest in a local company,” said Jason Garland, CEO of QaZing, which has an office on Peterborough’s Main Street.
“It’s often the case that a local startup company, if it has the whole community behind it, has a much greater chance of success.”
If you donate to a company through Kickstarter, you might get a T-shirt or a gizmo; doing it through StartEngine, the equity crowdfunding portal used by QaZing, gives you a piece of the company that, hopefully, will rise in value. (For details, go to startengine.com/startup/qazing.)
Equity crowdfunding, officially called Regulation Crowdfunding Title III or Title IV from Securities and Exchange Commission rules and legislation, is so new that the New Hampshire Bureau of Securities Regulations issued a cautionary press release about the topic Thursday even though the state has virtually no oversight in this area.
“It’s just getting started, so we have to see how it develops. What we’re really focused on is making sure that investors realize that it’s out there, but that you’re dealing with startup companies, which have a high failure high, high rate of risk,” said Kevin Moquin, senior staff attorney for the Bureau of Securities Regulation.
“You need to know what you’re getting into.”
If an equity crowdfunded investment disappears, he said, New Hampshire would get involved only if there was fraud. Otherwise, investors beware.
The general concept of equity crowdfunding isn’t new: When a company goes public and sells shares of stock, it’s raising money by selling lots of tiny pieces of itself to lots of people.
Equity crowdfunding uses the internet and systems made familiar by crowdfunding sites like Indiegogo and Kickstarter to allow small firms to do this while avoiding the cost and complexities of going public – they don’t, for example, have to provide audited financial statements.
On the investor side, it allows ordinary people to play the role of “angel investor” – accredited (meaning well-off) people who give money to startups in return for a piece of future rewards.
The whole idea of using online crowdsourcing to help new firms get easy access to investing capital got started in 2012 when President Obama signed the Jump-Start Our Business Start-Ups Act. But it took the Securities and Exchange Commission four years to write all of the rules, largely because of concerns that lack of oversight given to companies selling stock would make it too easy for people to invest badly or be ripped off.
“Crowdfunding offers another way for early-stage companies to raise capital and expand their businesses, but investors should be on the lookout for unscrupulous issuers and intermediaries attempting to misuse crowdfunding to steal from investors through false and misleading representations,” warns the New Hampshire Bureau of Securities Regulation.