The other day I caught up for a coffee with Ryan Wardell, the founder of Project Powerup, a crowdfunding site focused on startups.

Project Startup uses the classic crowdfunding model used by Kickstarter, Indie GoGo, Sellaband and other crowdfunding platforms for funding creative projects, in which funders are rewarded by receiving products, services, preferential treatment, and feeling good, but no equity.

I have written many times about the limits on equity crowdfunding and what goes beyond, and there is a detailed chapter on equity crowdfunding in my forthcoming book on effective approaches to crowdsourcing.

We discussed the legislation in most developed countries that forbids small equity investments in private companies. Then an idea came to me about how to go about this. I can’t see that I’ll be able to do this myself for the foreseeable future, given our existing project schedule, so I’d like to throw it out there as a gift for whoever would like to take it and do it.

Most of the discussion around equity crowdfunding in the US is about a $100 limit on investments. In general for equity investments in startups, you expect either to do well, or to lose your money. There isn’t often a middle path. If you have invested $1 million in a startup, you might want to recover some of it if you can. However it doesn’t really matter for smaller investments. Similarly, with a smaller investment, gains of 10-20% are meaningless. It is only worth doing if you make multiples on your investment. And with a small stake, the voting participation that equity gives is negligible.

As such, a way to avoid dealing with securities legislation is not having equity, but creating a vehicle that gives you a return if things go really well. There is actually no good reason for small investments in startups to take the form of equity.

For example, if you liked a startup, you could place a $100 bet at 10-1 odds that it will have an exit of over $5 million within 5 years. If that doesn’t happen, you lose your $100, which is a very likely outcome from equity investment in any case. If it does well, then you get a return of $1,000.

Of course, there are many issues that need to be resolved. Rather than securities legislation, you need to deal with gambling legislation in your jurisdiction. You need to ensure that the interests of the major equity holders are aligned with the betters, in achieving the defined success criteria rather than trying to avoid them. You need to determine which entity is paying the funds out, and the legal triggers for that.

However there is no reason these issues can’t be dealt with more easily than waiting for securities legislation to change. This structure could provide a real source of funding for startups that can get enough people excited and wanting to participate in its potential success.

So, if you think it’s a good idea, do it! And let me know how you go.