New site aids equity crowdfunding in Mich.
Detroit — Seven years ago, Nailah Ellis-Brown took a family recipe for tea and turned it into a business.
"This has been in the family for years, and the way people react to it when they try it, why not put it on the market?" she said. "I thought, 'This could be my ticket to entrepreneurship.' "
After securing grants and investment, a contract to sell locally at Whole Foods and other specialty grocers, and an appearance on "The Ellen DeGeneres Show," Ellis Island Tea is on the cusp of national success. But to take her business to the next level, Ellis-Brown needs money to expand production.
She is going to be one of the first entrepreneurs in Michigan to use a new site that capitalized on a recent law that allows for crowdfunding from both accredited investors and the average person.
The MichiganFunders.com uses the Michigan Invest Local Exemption, passed in 2013 to allow for intrastate Security and Exchange Commission exemptions for equity crowdfunding.
Basically, this means if a new business wants to open in Detroit, the owners can seek funding not only from venture capital firms and big-time investors, but the everyday people living in the vicinity of the business who use it.
Michigan is the 15th state to adopt such a law and it's opening up new avenues of funding for startups. It's also leveling the playing field for women-and minority-owned businesses, said co-founder Niles Heron.
"I can put my product on the table and anyone who believes in that product can invest," said Heron, a business development expert, born and raised in Detroit. "That isn't something that has been available for the whole pool."
It's different from Kickstarter or GoFundMe: Instead of giving a donation or buying into a product with the intention of getting that item sent to the investor eventually, this is about buying stocks in a company.
"We're more like 'Shark Tank' than Kickstarter," said Heron.
The site officially launched Thursday. The founders and first companies to sign up gathered to pitch ideas and network Thursday night at Detroit City Distillery in Eastern Market.
One of the limitations is both investors and entrepreneurs need to be from Michigan. But, says co-founder David Tessler, keeping things local is actually best.
"At the end of the day, you are investing in a person, a community," said Tessler, an entrepreneur and business owner who grew up near Southfield. "The differentiation for us is we are here and we can connect people online and offline."
Along with a third co-founder, Jeffery Freeman, a local attorney who helped navigate the new law, the three men have begun working with companies to secure funding.
One company is Chris Jackson's Detroit-based development firm Queen Lillian. It is developing a building on Woodward and Stinson near Mack Avenue for apartments, with retail on the ground level and 200 parking units.
Even though they wouldn't have trouble funding the project, Jackson says he is setting aside 5 to 10 percent of the equity for crowdfunding.
"We want to bring people in," he said. "It would be great if other Detroiters could share in the success and feel a part of the development."
On the other end of the spectrum is Detroit Waste Systems, founded by a group of former Energy Conversion Devices scientists. They have created a portable device that will recycle medical waste and other types of waste cleanly and safely. They are ready to build a prototype but they need investment.
Co-founder Marshall Muller says the crowdfunding method will accelerate how quickly they can move to the next level.
"This way, we get 100 percent exposure to the investment community," said Muller. "We're not picked out of a list. Right now it's all based on the merit of the idea."
As with any investment, there is always risk. And there are regulations and steps built into the Michigan Funders platform to help prevent fraud. The state has a list of requirements for a company to meet and levels of validation and security that must be addressed before the crowdfunding method can be used. Everything is done through the Bureau of Labor and Regulatory Affairs, just as any other company would have to register. Once they meet these requirements, they are eligible to use the site and receive investment from non-accredited investors from $100 to $10,000, says Heron.
And, the chance to grow the economy locally and give back, while investing money, is something everyone will now have an opportunity to do, he said.
"I don't need to go elsewhere. Michigan is enough," said Heron. "We prove it time and time again."