Honeycomb Credit, the East Liberty-based fintech startup that allows small businesses to crowdsource funds from their own customers and community, has launched a new equity-based offering on its platform for the first time.
Previously, Honeycomb exclusively offered small businesses the ability to offer debt financing to interested investors, with these small businesses then paying back an investor's total funding amount with a fixed interest rate over a set time.
But with the new equity-based investment offering, people using Honeycomb's platform can buy shares in participating small businesses. So far, Honeycomb is hosting two campaigns that offer equity-based investments; a South Side-based craft brewery called Velum Fermentation and a Washington, D.C.-based prepared foods maker called 8Myles.
According to Honeycomb CEO and Co-Founder George Cook, the program has already shown early signs of success. Velum has raised over $55,000 and 8Myles has raised about $30,000 just days after launch. Cook said he's looking forward to launching more equity-based funding campaigns on the platform in the near future.
"This is kind of the first equity deal we've done; going out and letting a Main Street business, a brewery here in Pittsburgh, raise capital alongside professional investors who have put in money but making it accessible to the community and to the public and helping [these businesses] get their doors open and get the community to be owners and stakeholders in this project.," Cook said.
It took some convincing to get to this point, though.
"We were historically turning away a non-trivial number of businesses that were really great independent businesses, exactly the type of businesses that we wanted to be on the Honeycomb platform, but they were looking for equity or revenue share or other financial products," Cook said. "That was sort of a lightbulb moment for us that if it's still aligned with our vision, still aligned with our values and our mission, then we can start to push the boundaries a little bit and offer more, different types of financial products to businesses."
For its part, Honeycomb has charged the two businesses a $250 posting fee to launch the campaign and will issue a loan origination fee between 5% and 8% depending on the final amount raised. Honeycomb is also placing a 2.85% investment fee made by an investor that's capped at $37.25 individually. The securities are being offered under Regulation CF (Reg CF) and more details about each particular campaign are posted on their respective web pages.
The small businesses participating are happy, Cook said, but so, too, are Honeycomb platform users.
"Generally the feedback we've been getting from Honeycomb users as well has been a lot of excitement that we're broadening the opportunity to invest in small businesses in new ways and not just debt," Cook said. "We're going to continue to do debt, we're going to focus on debt, but now all of a sudden we have more tools in our belt and we can serve more businesses and offer more and different types of investment opportunities."
