West Hartford entrepreneur Adam Alfin has been wearing a tie for more than 20 years.
“And I have always dreaded the tie-tying process and the tie-wearing experience,” he says.
Alfin, admittedly exaggerating a bit about his tie-wearing struggles, said he nonetheless wanted to make it easier for men to fold their shirt collars down over their ties without the tie sticking out the back or getting rumpled in the process.
He and three friends co-founded Parle IV L.L.C. in the beginning of 2012 and have so far come up with three shirt prototypes, each with a unique collar design.
The four, in search of funds to bring their prototypes to market, recently launched a campaign on the popular crowdfunding platform Kickstarter Inc. Through its campaign, the group hopes to secure $185,000 in pledges by April 29.
“We”™re really just focusing right now on getting more exposure and getting the word out there in order to drive more traffic to our Kickstarter campaign,” Alfin said. “We are in the process of really developing a fundraising strategy that will enable us to raise some funds through venture capital and that”™s part of our plan and part of our next step.”
Parle IV is just one of hundreds ”” if not thousands ”” of Connecticut companies to solicit funds through Kickstarter and other donation and reward-based crowdfunding platforms.
To date, companies seeking funds through Kickstarter have secured more than $470 million in donations.
However, investors and financial experts say donation-based crowdfunding represents just the tip of the iceberg.
The Jumpstart Our Business Startups (JOBS) Act, signed into law by President Barack Obama April 5, 2012, included a provision that legalized equity- and debt-based crowdfunding.
Under the JOBS Act, companies are now allowed to issue up to $1 million in equity or debt to accredited investors through online crowdfunding portals that meet certain standards.
Experts say the expansion of crowdfunding could yield billions of dollars in new investments in a market where, currently, businesses are limited to pledging rewards in exchange for donations.
The problem? The U.S. Securities and Exchange Commission (SEC), which is under new leadership as of last week with the Senate”™s confirmation of Chairman Mary Jo White, has yet to finalize rules to govern crowdfunding.
The JOBS Act, which was passed with very little opposition from either Democrats or Republicans, has been championed for opening up new doors to up-and-coming businesses in search of financing by easing securities regulations.
However, critics have said the law represents a significant deregulation of the financial services industry and Wall Street, and have questioned whether it goes too far in reversing safeguards that were put in place to protect investors and consumers through the Sarbanes-Oxley Act in 2002 and through the Dodd-Frank Wall Street Reform and Consumer Protection Act.
At a Senate confirmation hearing in March, White, a former U.S. attorney in Manhattan, declined to say whether she supported the JOBS Act, but said she would follow Congressional intent with regard to its provisions.
Elizabeth Kulik, co-founder of the crowdfunding platform ProHatch L.L.C., said, “No one is by any means letting their guard down that the possibilities (for abuse) are there. But there”™s lots of different checks and balances.”
ProHatch, which is based in Boston with field offices in New York City and Hartford, is one of the many businesses that sprung up in anticipation of the start of equity-based crowdfunding.
“Where we look at crowdfunding and see tremendous opportunity is all over Main Street,” Kulik said. “You”™re talking businesses, you”™re talking community development and you”™re talking about job creation.”
The company was formed a year and a half ago and is getting ready to launch its first projects later this spring.
Companies that launch campaigns on ProHatch will be required to map out their projects in 30-day phases that align incremental fundraising goals with key business milestones.
ProHatch enables donation-based crowdfunding ”” where businesses can seek donations online in exchange for small rewards and status updates ”” and is preparing to cater to businesses that hope to issue equity and debt through crowdfunding means.
“We think that there”™s a real value to doing the donation-reward side,” Kulik said. “Some of the byproducts of that kind of fundraising are really, really valuable in an early-stage enterprise.
“Then there”™s the other side … who are looking at this (the JOBS Act) and saying this is an amazing way to attract new and accredited investors,” she added.
When the company was developing the technology behind its platform, Kulik said accountability was prioritized.
As a result, any business that seeks funds through ProHatch is required to deliver donors ”” or investors ”” three pre-scheduled updates on business milestones for each 30-day funding phase.
“For us, that was basic: you don”™t give someone money unless they”™re going to tell you what they did with it and how it went,” Kulik said.
Ultimately, she said there is evidence to suggest that fraud will be minimal in equity-based crowdfunding.
“If you look to the examples in Australia and Europe where the fraud levels are very low and the success rates are high, a lot of it goes to the regulations,” Kulik said. “But the crowd also smells when things are not correct, and is very vocal.”
