Entrepreneurs go public for cash

On March 20, CordCruncher appeared on Kickstarter.com with 30 days to raise $20,000.

With just 10 days left to deadline, the extendable latex headphones stalled out at $5,000 raised. If the product didn’t reach its goal on the popular crowdfunding website, its Las Vegas-based developers wouldn’t see a single penny.

"We had flatlined," said Jaerrett Gaaei, the company’s director of operations. "We were only raising a couple hundred dollars a day."

Then a Florida public relations firm contacted the company, offering to help CordCruncher reach its $20,000 threshold. CordCruncher’s Kickstarter pitch went viral. Donations poured in, bringing the company’s final tally to $66,689.

Welcome to the new age of startup business financing, when all you need is a dream and social media marketing.

Crowdfunding portals Kickstarter and Indiegogo are circumventing traditional means of finding capital by allowing entrepreneurs to tap directly into their customer base. CordCruncher, for example, set up a tiered structure for donations, where each tier received a different premium for donating. More than 1,000 backers donated $20 or more and will receive a first-run set of headphones.

Paul Thistle, chairman of the finance department at the University of Nevada, Las Vegas Lee Business School, said the traditional startup path begins with an entrepreneur’s own money, then help from family and friends, angel investors and, finally, venture capital.

"(Crowdfunding) is probably going to supplement the family and friends and, to a certain extent, the angel investor step," Thistle said.

So far, crowdfunding has been popularized by donation-based sites like Kickstarter, which have an all-or-nothing approach. If a startup misses its goal it doesn’t see a dime. Crowdfunding portals typically take a cut; Kickstarter takes 5 percent.

Crowdfunding got a big boost in April with passage of the federal Jumpstart Our Business Startups (JOBS) Act, which lifted restrictions on equity-based crowdfunding or the use of Internet portals to raise funds by giving equity to small investors. The legislation allows startups to raise as much as $1 million a year using equity-based crowdfunding. Currently, private companies are not allowed to give equity to the public.

The Securities and Exchange Commission is still working out the details of the legislation. The National Crowdfunding Association formed and has signed on more than 400 crowdfunding stakeholders in the last six weeks to contribute to the SEC regulation discussion.

"It’s going to be a brave new world," said David Marlett, the association’s executive director. "The great thing is, it’s already been well proven that the Internet and social media has a fantastic sunshine effect of clearing out a lot of the bad deals, just by all the comments that people will make."

However, the new wave of interest in crowdfunding will contribute a lot of noise to the startup scene. Marlett tells entrepreneurs to get in now.

"We are encouraging people to use the donation model now," Marlett said. "It’s free money if you can get after it."

Free money has its obvious advantages. But when equity comes into play, crowdfunding is more complex.

"You are now going to have a presumably large number of investors," said Thistle. "It’s a trade-off. They’ll have issues to deal with, but it gives them another source of capital. If I needed to raise capital from friends and family, I wouldn’t be able to raise $1 million."

The Pebble, a smartwatch connected by bluetooth to your smartphone, came out of Palo Alto, Calif., in April to raise more than $1 million in 28 hours on Kickstarter. The product is now the pillar of successful crowdfunding. Pebble has since raised more than $10 million, far exceeding its goal.

Software developer Matt Kronyak earlier this month launched his Kickstarter pitch for a video game called Realm Explorer. His company, RealmSource, is seeking $250,000 to build the fantasy computer game. So far, the game has garnered a little over $9,000 in donations.

Video game development is typically funded by publishing companies that pay creators up front and pocket profits from sales.

"Kickstarter is really appealing because we get to retain full ownership over our intellectual property," Kronyak said. "Any future profits go back into our company. We’re not really beholden to the winds of the publishers."

Art installations, independent films and music tours will continue to rack up donations. But for startups with products to sell, like CordCruncher, equity-based crowdfunding may replace angels.

CordCruncher developer Jay Johnson is using the original $20,000 to fund his company’s first production run of 5,000 headphones, which retail for $24.99. The remaining $50,000 will be used for future production.

Contact reporter Caitlin McGarry at cmcgarry@review journal.com or 702-387-5273.

Lehman Brothers bet big on Las Vegas
Lehman Brothers collapsed 10 years ago, helping send the country into the Great Recession.
Fremont9 opens downtown
Fremont9 apartment complex has opened in downtown Las Vegas. (Marcus Villagran/Las Vegas Review-Journal) @marcusvillagran
Ross & Snow launches in Las Vegas
Luxury shoe brand Ross & Snow has opened in Las Vegas, featuring "functional luxury" with premium shearling footwear. (Bailey Schulz/Las Vegas Review-Journal)
Remote Identification and Drones
DJI vice president of policy and public affairs discusses using remote identification on drones. (Bailey Schulz/Las Vegas Review-Journal)
Drones and public safety in Nevada
Two representatives in the drone industry discuss UAV's impact on public safety. (Bailey Schulz/Las Vegas Review-Journal)
Frontier Airlines to launch flights from Las Vegas to Mexico
Frontier, a Denver-based ultra-low-cost carrier, will become the first airline in more than a decade to offer international service to Canada and Mexico from Las Vegas when flights to Cancun and Los Cabos begin Dec. 15. (Rick Velotta/Las Vegas Review-Journal)
MGM Resorts International CEO Jim Murren addresses Oct. 1 lawsuits
MGM Resorts International Chairman and CEO Jim Murren addresses criticism his company has received for filing a lawsuit against the survivors of the Oct. 1 shooting. (K.M. Cannon/Las Vegas Review-Journal)
MGM Resorts International opens the doors on MGM Springfield
Massachusetts’ first hotel-casino opens in downtown Springfield. The $960 million MGM Springfield has 252 rooms and 125,000-square-feet of casino. (K.M. Cannon/Las Vegas Review-Journal)
MGM Resorts International prepares to open MGM Springfield
Las Vegas-based MGM Resorts International gave news media and invited guests a preview of the $960 million MGM Springfield casino in Massachusetts. The commonwealth's first resort casino will open Friday, Aug. 24. (K.M. Cannon/Las Vegas Review-Journal)
A Walk Through Circus Circus
It only takes a short walk through Circus Circus to realize it attracts a demographic like no other casino on the Strip: families with young children. (Todd Prince/Las Vegas Review-Journal)
Morphy Auctions, a vintage slot machines seller, wants gaming license
Vice president Don Grimmer talks about Morphy Auctions at the company's warehouse located at 4520 Arville Street in Las Vegas on Thursday, Aug. 16, 2018. (Rick Velotta/Las Vegas Review-Journal)
Nevada's venture capital money doesn't stay in state
Zach Miles, associate vice president for economic development for UNLV, said there’s venture money in Southern Nevada, “but trying to find the right groups to tap into for that money is different.” According to a 2017 report from the Kauffman Foundation, Las Vegas ranked number 34 out of 40 metropolitan areas for growth entrepreneurship, a metric of how much startups grow. With a lack of growing startups in Las Vegas, investment money is being sent outside of state borders. The southwest region of the U.S. received $386 million in funding in the second quarter, with about $25.2 million in Nevada. The San Francisco area alone received about $5.6 billion. (source: CB Insights)
Neon wraps can light up the night for advertising
Vinyl wrap company 5150 Wraps talks about neon wraps, a new technology that the company believes can boost advertising at night. (Marcus Villagran/Las Vegas Review-Journal) @brokejournalist
Nevada on the forefront of drone safety
Dr. Chris Walach, senior director of Nevada Institute for Autonomous Systems, talks to a reporter at NIAS's new Nevada Drone Center for Excellence of Public Safety, located inside the Switch Innevation Center in Las Vegas. K.M. Cannon Las Vegas Review-Journal @KMCannonPhoto
Motel 8 on south Strip will become site of hotel-casino
Israeli hoteliers Asher Gabay and Benny Zerah bought Motel 8 on the south Strip for $7.4 million, records show. They plan to bulldoze the property and build a hotel-casino. Motel 8 was built in the 1960s and used to be one of several roadside inns on what's now the south Strip. But it looks out of place today, dwarfed by the towering Mandalay Bay right across the street.
Project billed as one of the world's largest marijuana dispensaries plans to open Nov. 1
Planet 13 co-CEO Larry Scheffler talks about what to expect from the new marijuana dispensary, Thursday, July 19, 2018. (Marcus Villagran/Las Vegas Review-Journal) @brokejournalist
Oasis Biotech opens in Las Vegas
Brock Leach, chief operating officer of Oasis Biotech, discusses the new plant factory at its grand opening on July 18. (Bailey Schulz/Las Vegas Review-Journal)
UNLV Tech Park innovation building breaks ground
Construction on the first innovation building at the UNLV Tech Park is underway. (Bailey Schulz/Las Vegas Review-Journal)
Caesars Forum Meeting Center
Caesars broke ground Monday on its $375 million Caesars Forum Meeting Center (convention center) just east of the High Roller observation wheel. (Caesars Entertainment)
Technology reshapes the pawn shop industry
Devin Battersby attaches a black-colored device to the back of her iPhone and snaps several of the inside and outside of a Louis Vuitton wallet. The device, installed with artificial intelligence capabilities, analyzes the images using a patented microscopic technology. Within a few minutes, Battersby receives an answer on her app. The designer item is authentic.
Recreational marijuana has been legal in Nevada for one year
Exhale Nevada CEO Pete Findley talks about the one year anniversary of the legalization of recreational marijuana in Nevada. (K.M. Cannon/Las Vegas Review-Journal)
Young adults aren't saving for retirement
Financial advisors talk about saving trends among young adults. (Bailey Schulz/Las Vegas Review-Journal)
President Trump’s tariffs could raise costs for real estate developers, analysts say
President Donald Trump made his fortune in real estate, but by slapping tariffs on imports from close allies, developers in Las Vegas and other cities could get hit hard.
Las Vegas business and tariffs
Barry Yost, co-owner of Precision Tube Laser, LLC, places a metal pipe into the TruLaser Tube 5000 laser cutting machine on Wednesday, June 20, 2018, in Las Vegas. Bizuayehu Tesfaye/Las Vegas Review-Journal @bizutesfaye
News Headlines
Add Event
Home Front Page Footer Listing
You May Like

You May Like