What happens when a Rock and Roll Hall of Fame member and a financial advisor join forces? We’re about to find out.
On Tuesday, Talking Heads’ guitarist/keyboardist Jerry Harrison and former Morgan Stanley advisor Brian Smith are launching an equity crowdfunding platform called RedCrow.
The concept of crowdfunding likely isn’t new to you. You’ve heard of Kickstarter, a crowdfunding platform where you can contribute $19 for a fidget cube or $1 to help a hungry fellow make potato salad.
But as the name suggests, equity crowdfunding allows individuals to get in on the ground floor of early stage companies — offering a piece of the private company pie to average investors.
For Harrison, the startup frenzy we’re experiencing now is comparable to the music culture of the ‘70s and ‘80s that he experienced firsthand.
“Helping and discovering new companies is a little bit like finding new bands and new artists…at that time, music was what defined the culture,” Harrison told Yahoo Finance. “It was more important than politics. What inspired people and what people were thinking about was music; it seemed to be the highest calling.”
Hot on health care startups
The seed for RedCrow was planted when a mutual friend first introduced Smith to Harrison, and the two realized they were both passionate about riding the next wave of innovation.
For Smith, he was keen on discovering startups that would have a profound impact on people’s lives. Prior to founding RedCrow, inspired by a personal tragedy around labor and delivery, Smith left Morgan Stanley and ended up working in business development at Mindchild, a company that manufactures non-invasive fetal heart monitoring devices. He says his experience there really gave him the inspiration to find other companies that were changing people’s lives.
“We tend to look for rockstars within health care,” Smith told Yahoo Finance.
RedCrow is launching with health care companies, to start, but eventually will explore opportunities in other industries, including fintech and cybersecurity. Some of the first companies on the RedCrow platform include Ixcela, a platform that helps you measure and improve internal fitness by focusing on gut microbiomes, and Stretch, a communications app that allows family members to discuss important family information like health issues.
The ability to help companies succeed — and the entrepreneurial spirit permeating Silicon Valley — is as powerful and inspiring as music had been, according to Harrison.
“Really, new companies and new ideas are the new focus of what is exciting in America. That’s one of the reasons I thought that moving to San Francisco was a good idea,” he said.
Title III of the JOBS Act
Passed last year but taking effect this past may, Title III of the Jumpstart Our Businesses Startups (JOBS) Act has carved space for platforms like RedCrow to exist. Title III allows non-accredited investors (those who make less than $200,000 a year or who don’t have a net worth of $1 million) a way to take a stake in startups. Title III investment minimums can start as low as $250.
RedCrow is trying to appeal to both accredited and non-accredited investors. Harrison said there’s only upside in getting experienced investors alongside first-timers.
Of course, there are limitations to this kind of investment. Founders are capped at raising $1 million per year through Title III, so for high-growth companies that could be troublesome. Startups may end up being underfunded and investors can be left with non-diversified portfolios and money stuck in illiquid investments.
The founders of RedCrow are confident that this is an optimal way for everyday individuals to participate in high-tech innovation.
“This is the most exciting part,” Harrison said. “Investors who were left on the sidelines before now have a chance to invest in these early stage companies, which are game-changers for society and game-changers for individuals’ financial portfolios.”
Soon enough we’ll be able to determine for ourselves whether investments through these platforms are worthwhile for both the individual and the entrepreneur.
Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.