TODAY'S PAPER
52° Good Morning
52° Good Morning
Business

Small firms now pitching stock along with their products

A BeautyKind pop-up at the Academy of Country

A BeautyKind pop-up at the Academy of Country Music "Party for a Cause" event in Las Vegas. Usually only rich people and venture capitalists invest in startups, but new federal rules allow small businesses to sell shares to the general public. Shoppers who go to the BeautyKind website can learn how to buy stock in the company. (BeautyKind via AP) Credit: AP

Last year, Randy Murphy went to DietBet.com and bet $25 that he could drop 4 percent of his weight in four weeks. After shedding about 20 pounds, he won back $50.

Now he’s making a bigger bet: he’s invested $1,000 in the company that owns DietBet, WayBetter Inc. of Manhattan.

Making the purchase — which was the first time he’s bought stock — was easy. He clicked a link in an email from WayBetter that invited DietBet users to invest. A few clicks later, he had ordered 1,000 shares for $1 each.

“I’m not a wealthy guy, but I felt like the risks were worth it,” says Murphy, a program manager in Toronto. “It has the potential to pay off.”

Usually only rich people and venture capitalists invest in startups. But now more regular folks are getting the chance.

That’s because of two changes to a federal law that have made it easier for small businesses to sell shares and raise cash from the public. Last June, rules known as Regulation A were updated in an effort to get more companies to raise money from the public. And this month, new crowdfunding rules took effect allowing smaller companies to raise up to $1 million a year from average Joes and Janes.

Many are hitting up their customers. Shoppers who go to BeautyKind.us to buy moisturizer or perfume will see a banner on the top of the site: “BeautyKind is going public! Click here to learn how you can be a BeautyKind shareholder!”

Investing in startups is risky. Most fail. Many don’t have a proven business model. Experts say there are a few ways investors can make money from their investment, such as if the company is bought or if it goes public. None of that is guaranteed to happen, and if it does, it could take years.

“The bottom line is that Main Street investors should not invest beyond what they are comfortable losing,” says Mike Pieciak, deputy commissioner for Vermont’s securities regulator, who serves on a committee that advises the Securities and Exchange Commission.

To protect inexperienced investors, the SEC limits how much they can invest. For example, if your annual income or net worth is below $100,000, you can invest $2,000 or 5 percent of your income or net worth, whichever is less. And financial details about the companies must be available to investors on the SEC website.

Murphy read about the risks before he invested in WayBetter. His $1,000 investment is small enough that it won’t hurt him much financially, he says, and he likes that WayBetter is expanding its betting model to other products, such as StepBet, which motivates people to walk more. WayBetter declined to comment.

“I love the idea of getting in on the ground floor,” says Murphy.

So does Sean Haffner, who invested in Elio Motors, a company developing a three-wheeled car that is expected to cost $6,800 and up.

Haffner first heard of Elio two years ago, when he saw a prototype of its three-wheeled car on display at a Connecticut mall. He sat in the backseat and quickly became a fan.

“I was kind of skeptical of it, but it was really comfortable,” says Haffner, a manager at pet care company 203 Pet Service, who signed up for email updates from Elio.

A year later he received an email saying he could buy stock. He paid $600 for 50 shares at $12 each. The stock was later listed on the OTC Market and is currently trading above $20.

Elio hasn’t delivered a car and hasn’t earned any revenue since its founding eight years ago. But the Phoenix company was able to raise nearly $17 million from investors through Regulation A. Its first vehicles will be ready for customers next year, says CEO Paul Elio.

Haffner hopes his $600 will help build the next American automaker. “It’s an investment I feel good making,” he says.

More news