Pop stars and startups don’t cross paths often, but Alon Goren says the two actually draw from the same source: the crowd.

Goren and his business partner Yadid Ramot are co-founders of Invested.in Inc., a Santa Monica company that builds online donation platforms for raising money. It’s a process known as “crowdfunding,” in which people solicit many small contributions across a wide audience.

The company has built crowdfunding sites for celebrity charities as well as startup companies, and as Goren has seen from those experiences, “nothing draws a crowd like a crowd.”

The company has bagged some high-profile clients, notably pop singer Avril Lavigne, who is using Invested.in’s platform throughout September to run a charity drive benefitting Mattel Children’s Hospital at UCLA.

Invested.in also built the fundraising platform for BoostFunder, a new crowdfunding site in San Francisco that links startups with investors.

In recent years, the crowdfunding movement has taken a growing role in raising capital for early stage projects and foundations. Projects listed on Kickstarter Inc., a well-known crowdfunding site in New York, are on pace to raise $300 million for this year – a 200 percent increase from last year.

Invested.in and Kickstarter have different looks to their sites. Kickstarter projects are hosted on the company’s website and use a one-size-fits-all format; Invested.in builds custom sites that clients can host on their own web addresses.

David Travers of Rustic Canyon Partners, a venture capital firm in Santa Monica, says the success of crowdfunding comes from a chain-reaction effect. It encourages people to share investments on Facebook and Twitter, which then inspires others to do the same.

“The social mechanic of wanting to back something that other like-minded people like is well-proven,” Travers said. “We’ve seen it with political campaigns and charitable campaigns.”

There are three types of crowdfunding: for non-profit campaigns, such as Lavigne’s; for support of products or art projects, such as films through presales; and for equity investments through sites such as BoostFunder.

It’s that third branch of equity crowdfunding that only emerged in April with the passage of the federal Jumpstart Our Business Startups Act. The law paves the way for equity crowdfunding by allowing startups to publicly announce fundraising efforts and to solicit them to a wider audience. Under existing Securities and Exchange Commission rules, an accredited equity investor in a pre-IPO startup must have a net worth of at least $1 million or an income of more than $200,000 a year. New regulations from the JOBS Act should lower that threshold.

Also, the SEC and other federal regulatory agencies haven’t yet finalized many of the rules on how investors or companies will actually participate in crowdfunding.

In the meantime, most crowdfunding activity is dedicated to fundraising for non-profits and charities, and that’s where most of Invested.in’s business comes from.

Goren said his company’s online platform works better than raising money via text message donations.

He points to the 2010 earthquake in Haiti, when the Red Cross raised more than $20 million in relief money through text donations. But those didn’t have any momentum from social media.

“None of the donations were posted on Facebook to encourage others to give,” he said. “Using online platforms on smartphones would eventually raise much more money directly.”

Small donors

Goren and Ramot met when they worked at MySpace Inc. in Beverly Hills. They launched Invested.in in 2010 and decided at the beginning of this year to dedicate themselves full time to their startup.

Invested.in actually raised its earliest money by crowdfunding through its own platform. The company is also raising money through the more traditional route of venture capital. Invested.in is nearing the end of its first fundraising round, which Goren said should bring in between $500,000 to $700,000. He hopes to use the capital to expand the company beyond its current four employees.

In February, the two co-founders joined Venice startup accelerator Amplify.LA. The Amplify.LA connection introduced Goren and Ramot to Global Philanthropy Group, an organization in Los Angeles that handles charitable causes for high-profile clients. Lavigne was among them. The project with the Canadian pop star, Rockstar Room, asks people to make donations of $5 up to $1,000 to the hospital. For example, a $5 donation helps the organization buy guitar picks for children at the hospital; a $1,000 donation will help a kid record and produce a pop song.

Crowdfunding has become an Internet phenomenon. On Kickstarter, Ouya, an L.A. company that is making a videogame console, raised $8.6 million through online donations for manufacturing the product. Another company, Pebble Technology Corp. in Palo Alto, raised more than $10 million to make a wristwatch that syncs with a person’s cellphone.

Instead of taking an equity stake in the company, most investors who contributed to those and other for-profit Kickstarter projects are actually preordering the device.

But as equity crowdfunding begins to roll out, the government’s concern is how to best protect the investors. Investing in startups is a notoriously risky venture. Adam Draper, founder of BoostFunder, estimates that more than 90 percent of new companies fail.

Once the SEC allows the public at large to take equity in startups, Draper said that the flood of investors will allow more companies to prove their business to large investors.

“It democratizes the process of raising capital for startups,” he said. “With the social networks of today, the money raised in your friends and family round can get bigger, faster.”

But Travers of Rustic Canyon said crowdfunding isn’t likely to replace the venture capital model. More than likely, it will act like angel investment, to show venture capitalists that a company has potential.

“For a new company it’s still important to have the knowledge that a financially motivated, and experienced investor like a venture capital fund is backing it,” Travers said.

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