There's this phenomenon that happens when entrepreneurship students graduate from college and prepare to launch their ventures.
They've got the education, business plans, mentors, campus awards, and sometimes even products built, but they have no money and they can't seem to find anyone to fund their ventures.
Recent N.C. State University graduates Sean Steigerwald
and Jon Spinney
are tired of hearing this refrain. They've spent the last year preparing to launch an equity crowdfunding site that rallies investors around these young businesses, making it easy and less risky to fund startups' seed rounds. Malartu
, meaning exchange
in Irish-Gaelic, will launch in February, with a platform for helping North Carolina startups raise $50,000 to $1,000,000. Accredited investors can put as little as $1,000 into a company.
I learned about this new business on Friday—just before local angel investor Mark Easley wrote the first check to the startup. Easley declined to share the amount of his investment—a convertible note—but said it is enough to bring several others to the table alongside him. Malartu also will use its platform to complete a seed round early in 2015.
Easley has been a vocal supporter of changing North Carolina's laws to allow intrastate crowdfunding. He's also an investor in Groundfloor, the real estate crowdlending startup
that moved from Raleigh to Atlanta earlier this year to take advantage of its progressive crowdfunding laws (though it still employs a small team here).
Easley's take on crowdfunding? "There is no more discussion of when crowdfunding will work. It works and it's exploded."
Malartu's founders believe it's too hard for local startups to distinguish themselves on those national sites, and most are focused on helping companies raise larger rounds.
"This is the perfect place to start," says Steigerwald. Malartu will start in North Carolina before launching in other states. "We have great companies that need funding but aren't as connected as in other parts of the country."
What makes Malartu different
Steigerwald and Spinney met as students in Professor Lewis Sheats' finance and accounting class in 2012. They were working on different projects but had a lot in common and a similar interest in solving the funding gap. It was the same time that the intrastate crowdfunding law was presented to the North Carolina legislature, and the pair saw an opportunity to pursue the opportunity. They began working on Malartu part-time in 2013—Steigerwald graduated and worked in marketing at Busiapp and Spinney finished school (he graduated last week)—and enlisted Sheats as their key advisor.
The crowdfunding landscape has gotten more crowded since then—hundreds of sites (AngelList counts 863) have been announced. Some have already launched and failed. Others have grown in significance and reputation over time. But the Malartu founders stuck with it—they hadn't found a site dedicated to seed level raises and focused on the local nature of angel investing.
That's what caught the attention of Easley. He's long envisioned a site that lets angel investors form syndicates to support any startup, not just the ones selected by exclusive national sites like FundersClub. Research shows that just 3 percent of accredited investors in North Carolina have invested in startups. He wanted a site that would introduce wealthy individuals who haven't yet invested in startups to the practice, and without requiring bunches of meetings and research.
For example, NC State alumni could form a Malartu syndicate to invest only in startups launched by NC State graduates. Malartu's platform, like the global-in-scope AngelList, allows them to make very small investments to test the waters before investing on a larger scale.
"We want to activate a lot more investors in this state by making it easier: due diligence will be simpler, all online and transparent," Easley says.
How it works
Malartu, which is based at American Underground in Durham, serves as an investment advisor in each of its deals. It makes money along with its investors when funded startups have an exit. The company also will collect monthly subscription fees from startups and investors who use the site to post or source deals. It includes tools for entrepreneurs to stay in contact with investors, send updates and track results.
The men have enlisted the Durham design and development agency Smashing Boxes
to develop the site—it's about 70 percent complete today. To list on the site, entrepreneurs must answer 10-15 questions about their companies (similar to an NC IDEA application) and then get approved by Malartu to raise funds. They must choose whether to raise equity or convertible debt. And once listed, they must close the full round within 90 days or else all funds are returned to the investors. Steigerwald calls the process "crowdvetting."
Other features include a Quora-like Q&A forum, so investors can engage in conversation with the entrepreneur and other investors, and streaming video for live digital pitches. And Malartu expects to build a network of preferred vendors, like law firms, accountants and business advisors.
Testing will happen through most of January, with an early February launch planned.
To get early deals and users on the site, Steigerwald and Spinney have spent several months meeting with local startups and investors. They expect to tap into the state's accelerator programs and shared workspaces like the American Underground and HQ Raleigh locally and Packard Place in Charlotte for deal flow. Malartu may be the first startup to list on the site, proving the concept itself.
They'll also target universities, the original inspiration. That's Sheats's passion.
"For the real early stage younger entrepreneur, it's tougher," he says. "Their network isn't that great—it's 22-year-old students. It's hard to get the Marks of the world to meet them and write checks."
Pictured above from left to right: Mark Easley, Sean Steigerwald, Jon Spinney, Lewis Sheats