Oregon Startups Are Embracing Investment ‘Crowdfunding.’ Will Investors Follow?

By Elliot Njus
The Oregonian, Portland, Ore.

For Eugene ice cream makers Stuart and Emily Phillips, a slew of new investment couldn’t have come at a better time.

Their first order of 10,000 pint containers with Red Wagon Creamery on the side — which only come in batches of 10,000 — was about to run out this week. The company, which has been expanding its wholesaling and working to get its ice creams into more grocery stores, would have been back to stickers and hand-labeling.

But the company became one of the first in Oregon to take advantage of new investment crowdfunding rules. They quickly met their minimum raise of $10,000 — the first firm in the state to do so — and put in a bulk order for new packaging. Now they’ve passed $50,000 of their $120,000 goal.

“We’re floored by the response,” Stuart Phillips said. “We had no idea we’d be where we are after a month.”

State rules enacted late in January allow Oregon-based companies to hold “community public offerings” in which they can raise up to $250,000 by selling debt or equity to state residents. Unlike registered securities allowed previously, they can publicly advertise the offerings, usually through online portals modeled after the donation crowdfunding site Kickstarter.

Eleven companies have filed paperwork for the offering. Only Red Wagon Creamery has so far reached its minimum, and only one other company has raised more than one-tenth of its goal.

But the companies that have launched their campaigns say the money and the interest is out there — if only they can spread the word about this new frontier of investment.

‘If we have to borrow…’
The rules are designed unlock capital for small, growing companies for whom traditional sources of capital — like bank loans or VC funding — might be out of reach.

For Red Wagon Creamery, raising the full $120,000 would let them buy ingredients in bulk and invest in new equipment, like a walk-in freezer, a new churning machine and another pasteurizer. They had talked to banks about a Small Business Administration loan and to venture capitalists about an investment, but hadn’t been able to put together a deal that worked for them.

“This way, if we have to borrow, we won’t have to borrow as much,” Stuart Phillips said. And in the process, the company raises a small army of locals who are personally invested in the company. “By going to the people, we’re not only getting money, but we’re getting brand ambassadors.”

Artisan ice cream, it turns out, is a pretty easy sell, especially when the company already has a following.

Finding would-be investors
Other companies have had a slower start with the new crowdfunding rules.

Portland-based WebLively wants to be a secure online storehouse for medical records, where they would be available to approved medical and wellness providers. The company, which grew out of co-founder Eli Eichenauer’s massage therapy practice, is seeking to raise $250,000 to hire developers and a sales and marketing team.

The biggest obstacle, Eichenauer said, has been educating potential investors about community public offerings.

“Most people still don’t know about it,” he said. “We’re essentially helping people understand they have a real opportunity to affect our local economy.”

Eric Wilson had an idea for growing produce in freight containers using aeroponics, where water and nutrients are delivered through the air rather than soil. The self-contained environment would let growers cultivate and harvest produce in any environment, year-round.

The system, he says, would be energy intensive compared to traditional agriculture but more productive on a per-square-foot basis. And because the systems could be used anywhere, users would cut out transportation costs.

But his company, GroVolution, has raised only $500 since launching its offering in January. Wilson hopes that will change when the company unveil its prototype during an event next month.

“A lot of people don’t really have an idea of what this might look like, how we might be able to grow so much in so little space,” Wilson said. “We’re expecting to get more traction when people can physically see, touch, walk around and look at what we’re doing.”

There’s been strong interest in the business community in launching more community public offerings, said Amy Pearl, the executive director of business incubator Hatch Oregon. Pearl was an architect of the Oregon crowdfunding rules, and Hatch has launched an online platform that is hosting most of the state’s investment crowdfunding campaigns.

Finding potential investors has been a challenge, so Hatch is organizing events around the state to promote the program.
“There’s an infrastructure for the entrepreneurs,” she said. “There isn’t anything for the investors. Where does an average Oregonian go when they decide they want to invest?”

No guarantees
Pearl said she’s also trying to strike a conservative tone talking to would-be investors.

Unlike crowdfunding platforms like Kickstarter, investors in community public offerings get an ownership stake in the company, or a promise that the company will repay the debt with interest. If the company succeeds, they could make all that money back and more. If it fails — as startups frequently do — the investors could lose it all.

And unlike most public offerings, these in-state, small-scale investment crowdfunding ventures aren’t reviewed by the state or federal government. In an effort to limit risk to personal savings, the state limited individual investments to $2,500.

Hatch, whose platform hosts 10 of the 11 offerings filed in Oregon so far, vets the companies that it works with but offers no guarantee they won’t fail. The incubator also produced a video called “Let’s Be Frank” that tries to outline the risks in plain language.

“We’re very optimistic and enthusiastic,” Pearl said, “so we have to temper that with thoughtfulness.”

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