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Rick DeVos Introduces Start Garden, $15 Million Fund to Invest in Ideas
Grand Rapids, Mich., April 26, 2012 – After weeks of speculation, Rick DeVos’ Pomegranate Studios, creator of ArtPrize, Momentum and 5x5 Night, today introduced its latest initiative before a crowd of Michigan business leaders. Called Start Garden, it is a new venture capital fund that will invest $5,000 in two ideas each week, then continue to invest incrementally as they gain momentum. The fund is backed by a $15 million dollar commitment from the DeVos family.
The Start Garden fund is designed to remove the barriers for an idea to become a project and a project to become a startup business. The initiative’s ultimate goal is to make Michigan an amazing place to have an idea and run with it.
“A lot of regions are making it easier for startup businesses to get funding,” said Rick DeVos, founder of Pomegranate Studios. “With Start Garden, we took a step back and imagined an incredibly friendly place for new ideas. Somewhere you could have an idea one night, then have a little money and meetings set up to start proving it out within a few days.”
Each week, Start Garden will invest in two ideas submitted to the website (www.startgarden.com). Each idea will receive $5,000. One of the ideas will be chosen by Start Garden team members, the broader community will select the other. Each week, the public has the opportunity to visit startgarden.com and endorse the idea they like the most. The idea with the most supporters at the end of each week receives the second $5,000 investment.
“Anyone familiar with my past projects knows I enjoy getting the public involved with a ‘vote’,” added DeVos. “It’s not just to find out what people like, an idea has a much better chance of success when an entire community gets behind it.”
Start Garden will unfold in stages. The first stage provides the necessary resources. The DeVos family’s $15 million commitment is used to invest in new ideas, and then work with those ideas to grow them into new businesses. Start Garden places a lot of small bets across a wide variety of ideas with an expectation to earn a return on a few great innovations that emerge.
Each person who receives the initial $5,000 investment has 60-90 days to get some traction with his or her idea, and return to give an in-person update at a public event. The update informs Start Garden management and mentors which candidate made a smart use of the funds. Ideas can receive an additional $20,000 to continue to move forward. Projects that demonstrate success and continued growth can ultimately receive as much as $500,000 dollars in incremental investments.
Start Garden is bringing in the business community of the region to help mentor these projects. Several national corporations including, Steelcase, Amway, Cascade Engineering, Fifth Third Bank, among others, have already made a commitment to provide their expertise and resources to make this endeavor a success.
“Start Garden is one of our most ambitious projects to date and is the culmination of several years of work by the entire Pomegranate Studios team,” continued DeVos. “However, Start Garden won’t be successful if it’s just a few of us doing something big. Thousands of people doing small things in the same direction is the only way to make Michigan an incredible place for new ideas to grow.”
The website, www.startgarden.com goes live today to accept ideas and endorsements for those ideas. The only rule for what kind of idea can be submitted is that it should have potential to become a business. The first $5,000 investments will be decided on Thursday, May 3, and a new week of idea submissions will begin.
Crowdfunding Approved for Start-Up Companies
With President Obama signing the Jumpstart Our Business Startups (JOBS) Act on April 5, the word “crowdfunding” is getting a lot of attention by start-up companies and potential investors. Just what is crowdfunding? Generally, it is a process whereby an individual or start-up company uses the Internet and social media to raise capital in relatively small amounts from a large number of people. This potentially game-changing way to raise capital will now be governed under the new Act.
Title III of the Act creates a new exemption under Section 4 of the Securities Act for crowdfunding offerings as long as certain criteria are met. They are:
(A) no more than $1,000,000 is raised via crowdfunding in any 12 month period; and
(B) no single investor invests more than a specified amount in the offering, namely:
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the greater of $2,000 or 5% of the annual income or net worth of the investor, as applicable, if the investor has annual income or net worth of less than $100,000; or
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10% of the annual income or net worth of the investor, as applicable, if either the annual income or net worth of the investor is equal to more than $100,000, capped at a max of $100,000 invested.
(C) the offering is conducted through a registered broker or “funding portal” (i.e. Kickstarter);
(D) the issuer complies with certain other requirements that are detailed in the Act.
For example, an investor who makes $30,000 per year (or who has $30,000 in net worth) can invest up to $2000 in crowdfunding campaigns in a given year. If an investor’s income or net worth is $80,000, then he/she can invest up to $4,000. With an annual income or net worth of $100,000 or more, then he/she can invest 10% of his/her annual income/net worth, up to a maximum of $100,000 (in the case that their income or net worth is $1,000,000).
Like most issues, crowdfunding has its supporters as well as its critics. A few of the pros of crowdfunding include:
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More money for startups. Unquestionably, the greatest benefit for new businesses is that they can raise money from anyone. The general public can also benefit. If you really like a particular company, you might want to invest in it. Before the JOBS Act you couldn’t; now you just might be able to do so.
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More investors jumping into the pool. Crowdfunding might encourage accredited investors to get more active with startups; currently fewer than 5% of them do. And crowdfunded opportunities might be the easy, low-risk investment that inexperienced investors unaccustomed to startups will use to become comfortable putting money into all startup vehicles. Thus, the JOBS Act might eventually increase the amount of capital available for private businesses of all sizes.
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Less onerous Sarbanes-Oxley paperwork. For companies ready to go public, the JOBS Act streamlines the process. Some firms, like those with under $1 billion in revenues, can now go public without following all the Sarbanes-Oxley compliance and disclosure regulations, at least for the first five years on the public markets. Avoiding these expensive and burdensome regulations can help young companies conserve their cash while safeguarding sensitive information or trade secrets during the ramp up to IPO. This should be a benefit to strong but small companies as they access the public market.
On the other hand, crowdfunding has some drawbacks:
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A field day for scammers. Where there's money, there's fraud. Not every business seeking crowdfunding dollars will be legitimate, but it may not be easy to tell the difference between scams and real startups. Self-regulation in the crowdfunding arena will be critical and several groups are working to come up with methods to prevent crowdfund investors from getting bilked. There's a 270-day initial regulation-writing period during which this is all supposed to get sorted out. It won't be easy, and it may not be possible to foresee all the clever ways scammers will be able to rip people off.
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Nanna might lose her retirement nest egg . For new, inexperienced investors, crowdfunding may be a nightmare. Most businesses fail, and all the money in the world won’t change that. While there are limits to the amounts that an individual can invest and thus lose, many unsavvy investors still won’t be prepared to see their investments, no matter how small, wiped out.
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Investors will still have to do their own due diligence. While there are already many directories and "portals" of crowdfunding opportunities, they are all severely limited as to the information they can reveal to users. They cannot make recommendations on investments so they cannot rank companies, score opportunities, or offer editorial advice. Companies will be able to put their information out to consumer investors, but it will be difficult for investors to rate the companies against each other.
Companies must go through an intermediary (a “funding portal”) to crowdfund, and those intermediaries must be registered with the Securities Exchange Commission. Eight crowdfunding sites to watch include: Kickstarter, Crowdtilt, AngelList, Crowdfunder, WeFunder, Indiegogo, MicroVentures, and SecondMarket.
Start-up companies and investors interested in crowdfunding will be well advised to carefully consider its immediate and long-term implications. For more information and analysis on crowdfunding, including requirements applicable to funding portals, we suggest the following links: http://us.practicallaw.com and http://fundinglaunchpad.com/2012/04/investment-crowdfunding-legislation-review/.
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The Muskegon Lakeshore Chamber of Commerce has awarded a Muskegon Lakeshore couple with the 2012 Outstanding Entrepreneur Award. Garry and Charlotte Olson, owners of Lakeshore Document Services, received the award at the Annual Entrepreneur Award Luncheon at Watermark 920.