BOULDER – A new startup believes it’s providing a solution for companies that are looking to grow after their initial production runs but are still too small to get banks to lend them money for more inventory.

And as the U.S. Securities and Exchange Commission continues to delay final rules for crowdfunding securities with non-accredited investors, Kickfurther’s model for crowdfunding inventory provides a new platform for investors to potentially gain bigger returns on their money than they otherwise could.

“We’re big believers that capital investment is the way to get wealthy,” co-founder Sean De Clercq said. “There aren’t a lot of opportunities right now for non-accredited investors to have a place to really grow their money with any kind of significant returns.”

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A non-accredited investor is an individual who, for instance, has a net worth of less than $1 million or has not earned at least $200,000 in each of the past two years.

“So it seems like if we can make something available to that market, that would be a great opportunity,” De Clercq said. “So that’s kind of the driving force behind Kickfurther.”

Officially Ouiby Inc., Kickfurther is marketing itself as a next step for entrepreneurs who have executed successful campaigns on such crowdfunding sites as Kickstarter or Indiegogo, where backers receive either a new product or other reward for helping fund a campaign. But Kickfurther isn’t just for Kickstarter “alumni,” but rather any small business that is looking for a way to fund more inventory without giving up equity or getting a loan from a bank.

How it works

On Kickfurther, businesses post offers stating the return and timeframe they’re promising for investors to fund a certain amount of inventory. Investors pick the offers they’re interested in and decide how much money to contribute to each, with $100 being the minimum allowed.

Once an offer is funded, Kickfurther purchases the inventory on behalf of the investors, and the business sells it on a consignment basis. Kickfurther takes a 3.5 percent cut from the business when the initial amount is funded. When investors are paid back by the business, Kickfurther takes a 1.5 percent cut from the investors’ full return. If inventory doesn’t sell in the promised timeframe, the investors own it and collaboratively decide whether to have the business mark down the price or engage a liquidation company.

Because suppliers set the rates of return and timeframes, De Clercq expects those to be driven largely by the appetite of the investors. He expects that some deals could promise as much as 10 percent in three months, while others might be much more conservative. As businesses successfully pay off investors, their own credibility also will help form their subsequent offers.

“Maybe people are going to be really happy to get 5 percent, very safe in six months,” said DeClercq, Kickfurther’s chief executive. “Turn around 10 percent on their money every year. Maybe that will be what appeals to them.”

De Clercq and co-founder Andrew Westwick recently completed the Boomtown startup accelerator in Boulder, and this new finance platform is in the beta stage, with a couple of offers already online and investor sign-up available to any U.S. citizens age 18 or older.

For businesses, the founders say the advantages of Kickfurther are many.

For one thing, the companies might have tapped out their networks in gaining traction for their Kickstarter or other initial crowdfunding campaign. So launching another might not seem fruitful. The margin realized from an initial campaign – once inventory is purchased and products and rewards are shipped – also might not be enough to fund much additional inventory or fuel the kind of marketing efforts a company wants to employ to grow the business.

Businesses can work with factoring companies or other cash-advance services to fund new rounds of inventory. But the rates of return businesses must pay there can range from 5 percent to 25 percent, which is why Kickfurther believes its model will be able to compete with such services due to expected rates of 10 percent or less on most deals.

De Clercq De Clercq … This article has been intentionally blurred.

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Venture capital

Going the venture-capital route, meanwhile, can be advantageous with the strategic partnerships and rapid growth it can provide. But not everyone wants to give up a piece of his or her company so early on.

“Giving up equity in something you think is going to be a huge idea just because you need $50,000 to fund some inventory is really expensive,” De Clercq said.

The Kickfurther model walks a fine line as it relates to securities crowdfunding, but the founders believe they’ve made investors on the site active enough in the transactions to steer clear of trouble.

Per the Securities Act of 1933, securities can’t be offered to non-accredited investors unless they’re registered with the SEC. Title III of the JOBS Act passed in 2012 will create certain exemptions around securities crowdfunding to non-accredited investors. But until those rules are finalized, the practice still is illegal in most states, including Colorado, which is why Kickfurther must make sure it isn’t dealing securities in the meantime.

Active or passive?

Both equity and loans are considered securities. But other investments also can be considered securities if they fall under the definition of an investment contract per the “Howey Test.” Essentially, if you invest money in a business enterprise with the expectation that you’ll receive a profit through the efforts of others, it’s considered an investment contract and, thus, a security.

“The question comes down to, ‘Are the investors actively involved in the business or are they passive,’ ” Colorado Securities Commissioner Jerry Rome said.

University of Colorado law professor Andrew Schwartz said there is some gray area in how active investors must be for a deal to pass the Howey Test. But if a deal isn’t considered an investment contract, then it’s “just people doing business together,” he said.

“That’s why it’s key for (Kickfurther) to show that the investors are actively involved to avoid the Howey Test of passively handing over your money and having other people do all the work,” Schwartz said.

‘Involving the user’

De Clercq and Westwick believe they’ve satisfied this test. First, Kickfurther’s users have the ability to choose the products and sales channels they work with. Second, all investors are required to help market the goods they’ve invested in, be it on social media or email or other avenues, to help drive sales leads. Lastly, the users have a say in what happens if the inventory doesn’t sell.

“So we’re involving the user through each step,” said Westwick, Kickfurther’s chief technology officer.

Kickfurther does try to protect its users in other ways, too, notably by screening the businesses that are allowed to make offers on the site. Since many of the companies can be fledgling, Kickfurther looks at a variety of metrics that range from previous sales and credit history to social media presence, Amazon store ratings and how well companies delivered on previous crowdfunding campaigns. And Kickfurther doesn’t allow first production runs to be offered on the site.

“There has to be some track record even if it’s less than what a bank would accept,” Westwick said.

De Clercq and Westwick believe the inventory crowdfunding market they’re entering could be at least in the hundreds of millions of dollars.

The history

The idea is one that De Clerq, 27, has been working on for about 18 months after spending seven years working for his parents’ sourcing business in New Jersey. He connected with Westwick, 31, on Reddit when it came time to find a technical co-founder.

The pair moved to Boulder – De Clerq from New Jersey and Westwick from Austin, Texas where he worked in e-commerce – for Boomtown this fall and plan to keep operating here at least for the near term.

The only real startup costs so far have been covered by the $20,000 investment from Boomtown in exchange for 6 percent equity. But the company is in the process of raising a $1 million seed round of funding.

Aside from that, the bulk of their efforts are being spent on signing up more companies for the site that are slogging through a stage of slow, organic growth despite already proving their products can sell.

Said De Clercq: “As they build their track record, it only gets easier and easier to tap into the Kickfurther pool each additional time, because if you have 10 offers paid back, each one paid back in time, people will raise money quickly.”

Joshua Lindenstein can be reached at 303-630-1943, 970-416-7343 or jlindenstein@bizwestmedia.com. Follow him on Twitter at @joshlindenstein.