After President Obama signed the JOBS Act more than a year ago, Ethan Senturia says he studied the provisions for crowdfunding startups under Title III, and came to the conclusion that it would be more trouble than it was worth.
Today crowdfunding boosters are still waiting for regulators at the Securities and Exchange Commission to devise the rules needed to make investor crowdfunding work. Meanwhile, Senturia and computer scientist Russell McLoughlin are building Dealstruck, a San Diego startup that serves as a kind of Kickstarter for business debt.
Instead of crowdfunding by raising investment capital, however, Dealstruck operates an online marketplace that matches qualified small-to-medium businesses with lenders made up of rich people who meet the qualifications of individual accredited investors. The investors are basically providing loans instead of making equity investments. With the Dealstruck online exchange, Senturia contends that profitable and growing businesses can get affordable loans on fair terms, with a minimum of administrative hassles. At the same time, individual investors can earn attractive returns while putting their money to work in the local economy, he says.
“We looked at Title III pretty closely,” says Senturia. “There’s a lot of friction and costs associated with it. You have to get your financials audited by a [certified public accountant], and you have to make certain disclosures to the SEC. We said, ‘Let’s try to create a framework that operates under existing rules and regulations, and that doesn’t come with the regulatory burdens of the JOBS Act.’”
Senturia and McLoughlin started Dealstruck last year, and made an auspicious showing in the fall at the San Diego Tech Coast Angels’ Quick Pitch competition (winning the “best pitch” award) and as a semi-finalist at the San Diego Venture Group’s 2012 PitchFest. Dealstruck already has counted $1.5 million in commitments from more than 40 individual investors, Senturia says. The first loan request to be posted on the Dealstruck website, for a $250,000 business loan, was funded in five days, with 21 individual lenders participating.
Angel investors also provided Dealstruck’s startup capital, although Senturia would not say how much has been raised so far.
The startup faces some stiff competition, however. Aside from traditional banks, (which are ready to be disrupted, according to Senturia), Dealstruck must differentiate itself from
