Entrepreneurs like industrial engineer Kim Forssell, chairman of Net Zero Enterprises, are harnessing the power of equity crowdfunding to launch passion projects. His big idea: a sustainable shrimp farm—which is among the top equity-crowdfunded projects in the country.
Harvesting sustainable seafood can be considered a hot topic among enthusiasts like Forssell, who said more than 90 percent of the fish found in the U.S.are imported, and nearly 100 percent are poor quality.
To change that, he's set out to create the country's first sustainable shrimp farm, in San Diego—but he needed a bit of help from the "crowd." And as it turns out, many share his passion.
Net Zero Enterprises, a sustainable solutions company, has raised more than $5 million via equity crowdfunding in an offering on Return On Change. In fact, it's currently one of the top equity-crowdfunded projects in the country, according to Crowdnetic, a company that provides real-time data and analytics for the equity crowdfunding industry.
The index is the daily average of the largest capital commitments raised by 50 private U.S. companies listed on Crowdnetic's data platform, which collates real-time offerings on 16 equity crowdfunding sites: Alchemy Global, AngelList, Crowdfunder, CrowdStreet, EarlyShares, EquityNet, LendZoan, MicroVentures, Patch of Land, Prodigy Network, RealCrowd, RealPartner, Realty Mogul, Return on Change, SeedInvest and WeFunder.
"We want to produce green-label shrimp," he said. "It's 100 percent organic, non-GMO, harvested and produced in an environment that is self-sustained. We won't consume much water; we will produce our own energy from the waste."
The shrimp farm still has a convertible note offering ongoing, with $180,000 left to raise from the crowd. The total project budget is $11.4 million—a blend of equity and back financing, and Forssell said they plan to break ground early this year. Investors will get 25 percent internal rate of return, plus a 25 percent yearly dividend payout on a project with an estimated $40 million enterprise value.
Equity crowdfunding allows accredited investors to invest in companies raising cash on platforms like Crowdfunder, with a promise of future returns. Investors are more like shareholders in a company than they are donors.
To be an accredited investor, one must be at a certain level of wealth, as defined by the Securities and Exchange Commission. The definition is a person with at least $1 million in assets, not including their main residence, or an income greater than $200,000 in each of the past two years.
Under the Jumpstart Our Business Startups (JOBS) Act, signed into law by President Obama in 2012, businesses are able to raise money from the "crowd," but right now only accredited investors are able to donate under Title II of the act.
Luan Cox, founder and CEO of Crowdnetic, said that while many associate crowdfunding with rewards-based returns, the equity model is very real—with room to run.
On Sept. 23, 2013, the general solicitation ban was removed under the JOBS Act, and businesses were able to legally advertise and solicit investors. From that date through the end of 2014, Crowdnetic found that financial and real estate projects topped $130 million raised.
"There are approximately 8 million accredited investors in the U.S., and out of those 8 million, only about 375,000 have invested in a private deal," Cox said. "That's probably because the other 7.6 million don't know they're accredited or what that means. They were never presented opportunities to invest in the next Facebook."
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That all changed under Title II, but it's Title III of the JOBS Act that has Cox and entrepreneurs like Forssell excited. This would allow everyone—both accredited and non-accredited investors—to put money behind private companies seeking cash, and rules from the SEC are expected to be finalized in October 2015, meaning entrepreneurs can start to raise in January 2016.
"If 1 percent of Americans invest what they have at their disposal, this could be a $300 billion market," Cox said.