US financial services firm RetireAmerica.com (Texas) has launched a web-based crowdfunding portal and will roll out a capital-protected investment product for investors to funnel money into private start-ups seeking initial operating capital.
The online portal will go live by the end of the year and will include a diversified roster of companies across multiple industries from which investors can cherry-pick.
“Everyone knows that early stage investing is risky,” said the firm’s chief executive, Steve Colmar. “Our mission has been to develop a product that opens up investment opportunities in early-stage companies to investors who want to minimise their risk of loss.”
Investors will be able to opt out of any capital protection and have all of their investment funnelled to a fledgling company or companies. Alternatively, investors can select a 50% or 100% capital protection level. Depending upon the protection level chosen, one portion of the investment will go directly to the operating company with a second portion invested in US government-backed zero coupon bonds maturing in ten years.
RetireAmerica.com has built in a conversion option through which, once the zero coupon bonds mature, investors can opt to convert their protected capital into additional shares of the start-up, if it is still a viable company, or have their protected capital returned to them.
Investors’ risk of loss is capped with whatever portion of their initial investment was not selected for capital protection should the start-up company fail. However, the original investment is not capped on the upside performance so that investors can ride the full growth wave of a successful but fledgling company. If the fledgling takes flight and goes public, investors will have the option to sell or retain their shares. If the start-up is acquired by another company, investors will receive their pro-rata portion of shares from the sale.
The online portal takes its cue from the world of social media and the recent crowdfunding phenomenon that facilitates investments of even small amounts by the masses. Colmar is expecting to raise collectively between $1.5m and $4m for each company, with typical single investments of between $1,000 and $5,000.
“We think this aligns the interests of [company] management with the interests of investors,” Colmar told SRP.
The initial rollout will be to “accredited investors” who meet certain criteria for total assets and salaries. But the upcoming implementation of further provisions under the US JOBS Act (which in September approved general solicitation for private securities offerings) will allow less affluent investors to participate.
RetireAmerica.com does not charge investors a fee for access to the portal programme. It will, however, charge “a success fee” (cash or an equity stake) paid by the start-up company contingent upon the closing of a round of financing.