Crowdfunder.com founders Chance Barnett (top) with Rafe Furst. Photo by Westside People
Rafe Furst and Chance Barnett want to launch the next best crowdfunding site on the Internet
By Ed Pilolla
From a modern office space off Abbot Kinney in Venice, Rafe Furst and Chance Barnett are trying to change the world of early stage finance. For the first time ever, they hope to offer anyone the ability to invest in companies directly with a click of a mouse through its web site Crowdfunder.com. (Think Kickstarter only with actual ownership shares.)
Up until this summer when the Securities and Exchange Commission expects to issue rules on a law passed two years ago, private companies looking to raise capital from investors who were not wealthy (known as Accredited Investors) was very difficult and in some cases violated the law.
“We’re here to democratize finance for entrepreneurs, but also to democratize access for everyday citizen investors,” said Furst, who spoke from a couch in an upstairs room that’s more of a loft than an office.
In 2010, state regulators took issue with a crowd-funding site Furst invested in called ProFounder, so he and others set out to change the laws. As a result of lobbying and education efforts, the 2012 JOBS Act included a provisions which allowed private companies to publicly advertise their fundraising efforts, and to allow anyone to invest, not just Accredited Investors.
“As a startup, ProFounder didn’t have the resources to argue with the government on why what they were doing was in fact legal,” Furst said. “ProFounder didn’t survive, but Chance and I had woken up to the same idea, that we needed to change laws in light of the internet, and a different investing climate than existed in the 1930s when the laws were written.”
After meeting several years ago through mutual friends, the pair began their journey as business partners when they ran into each other at a meeting about investment legislation reform in downtown L.A.
“We were the only two people not dressed in suits,” said Furst, 45. “As a Westsider, I rarely go past the 405.”
Barnett, 38, grew up in Pacific Palisades and graduated from Palisades High School. An avid surfer, he went to college at U.C. Santa Cruz, which is where he caught the web and technology bug as the first web boom was happening over the hill in San Jose.
“So I actually left to set up my first web business while I was in school, which ultimately failed and taught me I was more ambitious than I was educated and skillful. I have worked to balance that out over time,” Barnett said.
One of the things Barnett learned was that generating outside investment can be difficult.
“There’s a difference between knowing how to operate your business and knowing how to present it, package it and sell it to investors,” Barnett said. “So for me, Crowdfunder is not only getting to support entrepreneurs but to kind of level the playing field and say people who have a big wealthy network shouldn’t have an advantage. Democratize that so we have better access.”
Furst grew up in Venice in the 1970s with a passion for computers. He went to Windward School before attending Stanford University in 1986 where he earned a masters degree in computer science with a specialization in artificial intelligence. His wife and newborn child now live in the Palisades, and last year he gave a TED talk at Pali High on crowdfunding.
Besides computers, Furst also had a passion for poker, having won a World Series of Poker bracelet in 2006. Furst was an early investor in the wildly-popular Full Tilt Poker. But when the federal government shut down all internet poker sites on Black Friday, April 15, 201, Furst found himself fighting the government to keep the profits he made from his investment. In the end, he paid a fine to settle the case.
“It was the most difficult time period of my life, financially, legally and socially,” Furst said. “Some of my best friends, some of my closest relationships were fractured. It was a real growing experience.”
Crowdfunder.com founders Rafe Furst (left) and Chance Barnett. Photo by Westside People
The changes in the law they helped promote have big potential. With 560,000 startups a month in the U.S. alone, Crowdfunder could become the gateway that matches brand new businesses with investors. Crowdfunder, which faces competition from similar investment crowdfunding sites, is different than Kickstarter where people donate money to projects without gaining any equity.
“I love working with individual entrepreneurs and I love talking to people about the magic of angel investing, but it’s a drop in the bucket,” Furst said. “With Crowdfunder, there’s nowhere else in the world I can make a bigger impact. Without knowing what my career was building to it really does bring together and synthesize all the things I’m passionate about and curious about.”
Until the new law goes into effect, the Crowdfunder site is active and allows accredited investors to find companies they want to invest in. Nearly 9,000 businesses are registered with the site and more than $18 million in investment money has been pledged. Crowdfunder is also open as a social network, allowing investors and entrepreneurs to interact.
“Crowdfunder is ‘pro-entrepreneur,’ although we also help investors in making the fundraising process a lot simpler,” Barnett said. “What we’re talking about is all of early stage finance, which is as big of a business market as you can imagine.”
For Jared Krause, CEO of TradeYa, a website devoted to trades and swaps, Crowdfunder was the way to go.
“Crowdfunder was the easiest, most efficient way we have raised money,” Krause said. “From the time we pushed our campaign live to the time we had money in the bank was less than two weeks. The investor we got through Crowdfunder was excellent, the kind of investor you hope and wish will show up with lots of experience and knowledge along with expertise and a great track record.”
Krause said his company tried two other crowd-funding sites before using Crowdfunder last December when TradeYa raised $100,000. Krause said TradeYa will be back on Crowdfunder looking for more investment in May.
Furst and Barnett, meanwhile, have high hopes for the future.
“Nothing short of a total revolution in early stage finance for entrepreneurs and citizen investors alike worldwide,” Furst said.