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Neil Young's PonoMusic Turns To Equity Crowdfunding To Raise $2.5 Million

Crowdfunder_FB600x315_V3.5PonoMusic, the company led by Neil Young that raised over $6 million on Kickstarter to fund the PonoPlayer, is now turning to equity crowdfunding to raise an additional $2.5 million. This offer is limited to accredited investors with a minimum invesment of $5000 of which they currently have at least $1.43 million in commitments. The fundraising campaign ends September 1.

PonoMusic's outrageously successful Kickstarter campaign raised $6,223,354. Supporters received rewards for their pledges and PonoMusic's then current owners maintained ownership.

From Rewards-Based Crowdfunding to Equity Crowdfunding

Now PonoMusic is turning to Crowdfunder to seek more funds. Since equity crowdfunding is still in the early stages, this opportunity is not open to everyone, but only to accredited investors. Despite references to "democratization" in the press materials, equity crowdfunding is still not open to the general public.

Crowdfund explains what an "accredited investor" is in their Investor Faq:

"To be an accredited investor, you must meet a certain level of wealth defined by the SEC. For example, a person having at least $1 Million in assets excluding their main residence, or an income greater than $200,000 in each of the past 2 years, would qualify. If you meet the SEC criteria, verify your Accredited Investor status now to get access to Investment Deals on Crowdfunder."

This move opens up investments in PonoMusic to those who don't have the connections to make direct investments and may not have the capacity to make larger investments.

It's unfortunate that the SEC's slow pace in making the rules is still keeping everyday people from investing in companies like PonoMusic. I would love to see the response to this campaign if it were that open. But I still think this will be big.

PonoMusic On Crowdfunder

Here's the deal:

PonoMusic is raising $2.5 million in a round that closes September 1, 2014.

They've already raised $1.43 million.

The company's current or "pre-money" valuation is $50 million. That will be reassessed after this round.

If I understand what I'm looking at correctly, the Kickstarter round was their only investment, which raises some interesting questions about ownership splits. Did angel investors put their money in through Kickstarter? And how does one split ownership in such a case?

On down the line I would not be surprised to see PonoMusic become the subject of a Harvard Business Review-type case study because they're a relatively early company to turn to equity crowdfunding in the U.S. and one of the few I've heard of that followed a rewards-based crowdfunding campaign with an equity crowdfunding campaign.

The campaign has already reached 57% of goal. They do say they're currently raising "at least" $2.5 million so this opens up the door to another outperformance.

And though it is limited to accredited investors, I bet there are a heck of a lot of Neil Young fans (baby boomer power base) that qualify. So this is no revolution but it is an interesting move to see how a once revolutionary musician, who still seems to have a big heart, makes moves in the 21st Century.

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Hypebot Senior Contributor Clyde Smith (@fluxresearch) also blogs at DanceLand. Send news about music tech startups and services, DIY music biz and music marketing to: clyde(at)fluxresearch(dot)com.

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