Crowdfunding shows potential

Durangoan finds opportunities as laws tweaked for Internet age

Enlarge photo

Cliff Vancura / Herald illustration

Kevin Dawson has an idea. The local graphic designer wants to create a phone app that allows people to play table-top games such as dungeons and dragons remotely on their phones. But before the idea can become a reality, Dawson needs about $7,500 to hire a developer. He tried unsuccessfully to raise the money through the crowdfunding website Kickstarter, so the project is at a standstill.

But local business and economic-development officials see hope for Dawson and other local aspiring entrepreneurs in a new law passed last month. The Jumpstart Our Business Startups Act loosens regulations on crowdfunding, opening up new opportunities for small businesses and startups to solicit money from a large pool of small investors.

The new law has the potential to change the game for many of Durango’s smaller businesses. “It’s a new avenue to raise capital that in recent history has only been available to large corporations,” said Anthony Edwards, a Silverton lawyer who is starting a new crowdfunding-related business.

Allowing businesses to sell a portion of their company to a much broader base of potential investors “levels the playing field,” Edwards said.

Companies will no longer need to cater to the country’s relatively small number of accredited investors who are concentrated in a few major population centers. Now, even small companies in rural areas can seek money on a national platform without going through the unrealistic and expensive process of creating an initial public offering.

That opportunity to raise capital from anyone, anywhere it erases geographic barriers that might dissuade businesses to settle in a place like Durango, said Roger Zalneraitis, executive director of the La Plata Economic Development Alliance.

“We hear a lot that companies need equity and have difficulty finding it,” Zalneraitis said. “We are very asset heavy for a rural region, better equity sources may help us attract and keep businesses.”

On the flip side, Durango’s retiree-friendly atmosphere attracts a lot of past executives interested in helping a new business start up, he said. The crowdfunding act also creates portals aimed at providing a way for companies and investors to find each other.

Crowdfunding can be an ideal way to fill the gap between a business owner’s initial capital and how much they need to qualify for a bank loan, said Joe Keck, director of the Southwest Colorado Small Business Development Center.

A lot of early startups struggle to qualify for financing because they don’t have initial equity and haven’t existed for long enough to build a track record worthy of attracting big-time investors, he said.

“(Crowdfunding) is almost like democratization of the financing industry,” he said. The crowdfunding strategy could be especially valuable to businesses that produce a product or service that may not fit traditional banking criteria, he said.

The law also has potential benefits for community projects that may otherwise struggle to raise enough capital or equity to qualify for a bank loan. Members of a community could come together to support a project, such as the proposed resource recovery park, that could benefit everyone in the long run, Keck said.

“The more communities that can determine their own ways to fund key economic-development projects that need to occur, the better,” Keck said.

While democratization is good, the new law takes down regulations that historically have acted to protect investors, which could be risky, said Mark Daigle, president of First National Bank of Durango.

In an effort to protect investors, the law requires both parties to interact through a specific portal that ensures investors and offerers comply with investing limits and financial-transparency requirements.

Edwards’ company, Crowdfunding Offerings, is one of dozens around the country racing to capitalize on the new demand for the portals.

“I’m hoping this (law) is able to help foster a new entrepreneurial period in this country,” Edwards said.

ecowan@durangoherald.com