Recovering Lawyers Build Crowdfunding for Communities with Smallknot

By Erin Griffith , written on June 14, 2012

From The News Desk

Ben Rossen spent the better part of 2008 digging through emails related to the failed $10.6 billion mega-merger of chemical conglomerates Hexion Specialty Chemicals and Huntsman Corp. I know this, because I wrote my fair share of stories about those very emails, and once we realized the common memory, the two of us shared a polite, knowing laugh about the bad old days.

We didn't have to discuss how either of us managed to escape from the world of finance, but it goes without saying that building a startup to help communities loan money to small businesses (him and co-founder Jay Lee), and writing about such startups (in my case) is a slightly more rewarding form of employment.

Smallknot, a TechStars NY company, debuted its local crowdfunding product at the incubator's demo day this morning. By now Crowdfunding is a well-trod idea, but the company has a heartwarming take on it that, if successful, will bring together online and offline communities while benefitting small, local businesses.

Smallknot projects are teeny tiny -- anywhere from $2,500 to $10,000. But they're significant enough that a small business isn't likely to find success in taking out a loan of that size. They're specifically for small businesses that need upgrades but don't have enough cash on hand to finance them.

Rather than give "investors" equity in the establishment, project creators offer special rewards that are within their bandwidth. Example: Egg, a super popular Brooklyn brunchery, used the platform to raise $10,000 to replace its worn out tables and chairs. Forty-five investors participated and will receive rewards in the form of local produce baskets, a private investor party, and a biscuit making class.

I've seen this concept pitched a number of different ways, and if any company is poised to carve out a crowdfunding niche, I am rooting for Smallknot. For one, Mom and Pop businesses are starved for cash. Loans are not easy to come by, and even if they are, your average regular can't do more in the way of supportĀ than frequent the establishment.

For two, we love Mom and Pop. The sense of social mission that comes with rallying around a much-loved local business is strong. Communities feel a sense of accountability in this situation, Lee says. The whole "support local businesses" thing has worked swimmingly for Amex thus far. Although I will note, this is how we end up with hideous words like "Locavesting."

These sorts of projects might exist on Kickstarter, but in general the company encourages creative projects over commercial enterprises. Smallknot aims to target small, local businesses by rolling out in individual cities. Currently in New York and Greenville, SC, the company plans to expand.

Smallknot announced it is raising a $700,000 round of funding. (Note: I previously wrote that the company had closed the round--it's still open.)