"One of my co-founders and I began our careers on Wall Street right after the collapse of Lehman Brothers," says Jay Lee, a Harvard Law School graduate and one-time corporate finance lawyer. "We saw enormous international financial transactions running through our offices, while small businesses were being shuttered and replaced by chains on our blocks. The financial system made it easy to channel billions of dollars all over the world, but makes it nearly impossible to put money to work just 50 yards down the block. That’s ridiculous."
Lee and his partner quit their jobs on Wall Street shortly thereafter. Then, in an about-face that would have made Jane Jacobs proud, they relocated from Manhattan to Brooklyn and founded SmallKnot, a company that they hope will foster the kind of local businesses that have disappeared from New York over the past two decades.
Think of it as neighborhood-based seed funding. On Smallknot, local businesses can exchange goods and services for capital investments from their fans. Let’s say your local bike shop wants to expand, or your favorite pizza shop wants to install an authentic wood-burning oven. "For a lot of local businesses, even very successful ones, projects like these get put on hold or never happen because of a lack of access to capital," Lee explains. "Banks don’t lend to the smallest businesses in your neighborhood, and credit cards are costly and expensive." But on Smallknot, business owners can launch a campaign to incentivize their own customers to invest, in return for special deals and perks—not unlike a more targeted, localized version of Kickstarter.
Since launching in October, Smallknot has helped a fairly diverse group of small businesses raise funding: $2,500 for a new cake shop, for example, and $10,000 to help beloved Williamsburg brunch spot, Egg, replace its tables and chairs. Today, a small progressive radio show in South Carolina is hoping to rebuild its website after a hacker knocked it offline ($100 will make you co-host for a show). The made-in-NYC design shop on my block is even on Smallknot.
Right now, investors in sites like Smallknot and Kickstarter get perks and prizes for their cash. But as reported on Brooklyn Based, a new bill called the Entrepreneur Access to Capital Act could change the crowdfunding game by letting small businesses offer stock options in addition to perks. In a New York Times Op-Ed, Amy Cortese explains how the act would help small businesses and the platforms that support them: "the proposed crowdfunding changes would make it easier for entrepreneurs to tap ordinary investors—often customers or people in their social networks—for funds, with the promise of a return."
If the bill passes, Smallknot will be perfectly positioned to take advantage of the expected surge in crowdsourced investments. Until then, free coffee and the best table in the house will do just fine.
[H/t Swiss Miss]