January 07, 2014

Actor Woody Harrelson is best known for his roles in movies such as the Hunger Games and Natural Born Killers. But the Midland-Texas born native is a serious environmentalist and entrepreneur, who is trying to save the world’s trees.

Fifteen years ago, Harrelson started Prairie Paper Ventures with two other partners to create tree-free paper made from crop waste. The current product is made from 80 percent wheat straw and 20 percent wood fiber and is sold in Staples for $8.50 a box, noted a recent article . In a video, Harrelson explains that purchasing one box of paper will save two trees. To keep up with demand from customers, Harrelson and co-founders Jeff Golfman and Clayton Manness are trying to raise $5 million through an institutional equity crowdfunding portal so they can develop a 100 percent tree-free line of paper. Now Harrelson is starring in videos promoting his company’s product Step Forward Paper to potential investors.

Instead of going the conventional corporate finance route, Harrelson and his partners chose to go through Optimize Capital Markets, a new institutional equity crowdfunding marketplace based in Toronto, which matches small companies seeking finance from investors.

Optimize listed the initial crowdfunding offering (ICO) on its site in mid December and has already begun to receive investor interest, according to Matthew McGrath, CEO and president of Optimize Capital Markets. The campaign is slated to close around Feb. 15 and on target to raise $5 million, said McGrath.

The New Crowdfunding Model for Accredited Investors

While there are many crowdfunding companies out there, including microfinance sites and social-based web sites like Kickstarter and Indiegogo, which offer pre-sales of products before they launch to investors or McGrath said his firm is distinct in focusing on what’s called the equity crowdfunding market. The Jumpstart Our Business Startups (JOBS) Act of 2012 is meant to allow all size companies to raise capital without cumbersome regulations through registered broker-dealers and crowdfunding portals catering to the retail investor (non-accredited) market. However, Optimize is focusing on the accredited investor and the institutional market in which the investments tend to be larger. Accredited investors would typically invest $100,000 to $200,000, while institutions would be $1 million or $2 million, but can go up to $3 million to $5 million. “It’s really for the doctor, the lawyer, entrepreneur that has made a chunk of money and want something better than an I.R.A. or 401K is offering,” said McGrath.

Technology is obviously going to enable crowdfunding portals to reach investors and compete against broker dealers. Optimize’s market is online and web-based. To build its portal, McGrath said, “We’ve invested pretty heavily in the technology side. We have an in-house technology team that has built out our platform for us, so it is something that we have built ourselves and continue to tweak and modify. “ The site is open to the public as well as he Canadian marketplace. “There’s such a huge opportunity and value to bring to accredited investors with an open and transparent marketplace,” said McGrath.

In general, the firm is focusing on early stage companies both public and private. “We shy away from what I refer to as concept companies that haven’t started yet to generate revenue or are three years away from generating revenues.” It has over 35,000 participants since launching its market in August and doing three-to-five deals per month.

No doubt the involvement of a famous actor helped attract the corporate finance firm. This is an innovative company with an established business with smart people, and blue chip customers like Staples who are out to disrupt the paper industry, said McGrath. But in a society where everything is supposedly going paperless, what made Optimize Capital Markets invest in a company that makes eco-friendly paper?

Despite the view that everyone is using tablets and pdfs, in North America, McGrath said, “We know the paperless society is a myth. We realized that China, India, and Brazil are not very eco-friendly and are growing in the more traditional manner,” explained McGrath. From a worldwide perspective, global demand for paper since 1993 has doubled from $100 billion to $200 billion. “In fact global demand for paper has grown so rapidly it will soon outpace worldwide supply of forests,” said McGrath in a video on his site.

“As you put a tree-free paper technology inside of an existing $200 billion market the opportunity for investors is huge,” said McGrath in the interview. It’s not so much that demand for paper has to go up to attract buyers for this product. It’s more that as a society, when faced with the choice of buying eco-friendly or non-eco-friendly products, that nine times out of ten, people will choose the eco-responsible product, said McGrath.

The deal with Harrelson’s company is also a sign that crowdfunding has the potential to change corporate finance. “We’ve seen banking going online, trading go online and corporate finance is the next part of it that is going online,” said McGrath. “We view ourselves as a next generation corporate finance firm,” said McGrath. Even so, Optimize Capital Markets still does some traditional broker dealer activities, about 30 percent in the institutional space. “I think there will be room for broker-dealers to work,” said McGrath. But he predicts a lot of changes will be happening over the next five years.

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Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...