Startups looking to take advantage of a new law allowing them to sell their stock online to the public can’t count that seed money just yet. The U.S. Securities and Exchange Commission, which will oversee what’s expected to be a fast-growing market in crowdfunding for emerging businesses, must weigh in first. The agency has until early next year to write rules governing who can buy and sell the stock and to establish safeguards against fraud—basically, erect a whole new regulatory bureaucracy. One group that’s not sitting by and waiting: the lobbyists competing to be the new industry’s voice in Washington.
When you think of crowdfunding, Kickstarter is likely the first—and maybe the only—business that springs to mind. This is something different. With Kickstarter’s help, a musician or a guy with an idea for a better bottle opener can raise startup cash in exchange for a copy of the completed album or one of the first bottle openers to roll off the line. The new law, part of President Obama’s JOBS Act, is for businesses that will offer equity—not IOUs—to investors.
Even before Obama signed the legislation in April legalizing crowdfund investing, which he praised as a way to spur entrepreneurship and create jobs, two new lobbying groups had sprung to life. The leaders of the dueling organizations—the National Crowdfunding Association and the Crowdfunding Professional Association—don’t yet have pricey offices in the nation’s capital. In fact, they don’t have offices at all. Or staff. Or experience lobbying, for that matter.
David Marlett is a Dallas securities lawyer who came up with the idea for the National Crowdfunding Association when he realized all these now-obscure startups would need someone to represent them. He figured it might as well be him. Along with his background in financial law, Marlett points to his brushes with politics: A Democrat, he’s helped run the campaigns of two unsuccessful challengers to Texas Republican Representative Ralph Hall. “I’m kind of a troublemaker, and you need somebody like me,” he says. Businesses can join his group for a $600 fee. So far he claims scores of takers, among them EarlyShares.com and Return On Change, two startups that hope to become Kickstarter-like portals connecting businesses with investors willing to buy their stock.
Photograph by Michael Friberg for Bloomberg Businessweek
Marlett’s chief rival is Berkeley Geddes, a self-described serial entrepreneur. He says his Crowdfunding Professonal Association is a natural outgrowth of his day job as chief executive officer of a Salt Lake City company that helps new businesses get off the ground. To encourage new members (and, perhaps, outmaneuver Marlett), Geddes is waiving dues for the first year. “Anybody who believes in entrepreneurship should sign up immediately,” he says. His members include crowdfunding portal Vim Funding and Gate Technologies, an online trading platform.
The two men don’t have much nice to say about each other. Marlett calls Geddes’s free group “a terrier, chewing at your heel. We wish them well.” Geddes is more philosophical. He says Marlett’s group represents “the actions of one individual. We represent the crowd.”
Both spend their days pitching businesses, spreading the word at conferences, and preparing to make their case to the SEC officials they hope to keep off their members’ backs. Because the agency’s main mission is to protect investors, it’s expected to set a high bar for who can sell stock online. If there’s “too much bureaucracy, crowdfunding will die,” says Geddes.
Marlett and Geddes may be in competition, but startups don’t necessarily see a need to take sides. Maurice Lopes, a co-founder of EarlyShares, joined Marlett’s group and sits on its board. He also signed up with Geddes, though he doesn’t have an active role. “It doesn’t matter how many associations we have,” Lopes says. “The more people involved in making this legitimate, making this work in a cohesive way, the better.”