Ken Stuart
By Ray Birch
NEW YORK—Approximately 15 credit unions have partnered with a new equity crowdfunding platform to build their small business loan portfolios.
GrowthFountain is providing each of the credit unions with a white-labeled website that lists local businesses seeking funding for their startups. GrowthFountain manages the websites, and businesses simply upload their information to the sites, advertising their business plan and needs. The credit union is free to offer any products or run advertising on its site.
CUs also receive referral fees from GrowthFountain.
“Small businesses are really an underserved segment of the community and often are too early stage to receive a loan from a bank or a credit union,” explained Ken Stuart, founder and CEO of GrowthFountain.
While the new platform is another way for credit unions to invest in their communities, Stuart said it also drives business to the credit union in both the near and longer term.
Business Services Needed
“These businesses may be in their early stages, but they still need a bank account, a credit card and, down the road, a loan from the CU,” said Stuart. “This is a great way to establish a relationship with new, local businesses.”
Stuart emphasized that each website will be seen by credit union members and businesses as being from the credit union—not only displaying the CU’s colors and branding, but its name as well.
“For example, DCU Federal Credit Union in Marlboro (Mass.) is working with us, so their site is DCU.GrowthFountain.com,” Stuart said.
When consumers go to the credit union’s GrowthFountain site, they will first see any local business that is participating, and then all of the other startups within the entire GrowthFountain platform.
Stuart said that since crowdfunding appeals to a younger demographic, that those investing will tend to be in the 25-45 age group, which will also help credit unions appeal to younger consumers. He also said that GrowthFountain differs from many other crowdfunding platforms.
“We are different from companies like Kickstarter or Indiegogo in that with those kind of sites if you give money you really get nothing in exchange for your contribution,” said Stuart. “On our platform you get securities, and you have the prospect for a financial return. You are investing in these local businesses.”
Referral Fee
Credit unions receive a referral fee based on the number of businesses that sign up through their website and the number of investors.
GrowthFountain went live in January and has about 15 credit unions participating—six live with the program and the others in various contract stages of development.
“So far, we have raised more than $40,000 for businesses on the platform and we have a reach of about one-million credit union members,” said Stuart.
Approximately 10 businesses are signed up across the country with a dozen more in the pipeline, said Stuart, who projects that within the next 12-24 months GrowthFountain will have 20 to 30 businesses participating at any given time, with credit unions collectively raising about $2 million a month for them.
Stuart explained that changes in securities law that went into effect late last year enabled private companies to publicly advertise their funding campaigns and open up investment to general consumers. “You don’t any longer have to meet certain wealth or income thresholds that existed in the past,” he explained. Couple those two factors and local business entrepreneurs can now much more easily raise money from their communities.”
Stuart believes local startups will gravitate to the credit unions’ crowdfunding sites because it automates many of the steps in seeking funding, he said.
“We built the site with that basic, local business owner in mind. The owner of the startup knows how to run his business, but may be intimidated when it comes to legal documents and things like financial valuation,” said Stuart. “So our system automates that part of the process for the business so they can focus in loading content to the website that tells their story.”
GrowthFountain reviews all content submission before it goes live.
Stuart credited Washington-based Callahan & Associates for helping to shape GrowthFountain’s concept and tying the business to credit unions.
“We think crowdfunding is a good fit with credit unions, which are interested in their local communities and assisting small business,” said Stuart. “And we think this will build their business services portfolio.”
Heartland Tour
Stuart also expects GrowthFountain to better distribute venture capital funding across the nation.
“Right now 75% of all venture capital funding goes to three states—California, New York and Massachusetts. That leaves the rest of the states to fight over 25% of business formation capital.”
GrowthFountain will soon kick off the Heartland Tour, which will travel to ten cities across America to host an event with ten CU partners. Local startups participating in GrowthFountain will demo their products and services and answer questions of potential investors during a live web stream at the credit union.”
Small business represents 50% of the economy and 60% new job growth, said Stuart.
“This is just another way for credit unions to invest in their local communities, make some money, and expand their business partnerships,” said Stuart.