What began as an attempt by University of Iowa students to start a Chicago-style hot-dog stand turned into the start of <a href="www.seedlauncher.com”>Seedlauncher.com</a> — a crowd-funding business aimed at bringing together potential investors and local small-businesses in Iowa City.

“It’s really powerful that people can invest back into their communities,” said UI student Jeromy Sonne, one of the founders of Seedlauncher.com.

The grass-roots model — the brainchild of three UI students — allows members of the community to invest any amount of money, even as little as $1, into a local small business that is having trouble finding a traditional loan. In return for helping fund businesses using Seedlauncher, people who invest receive perks, bonuses, and discounts.

The website launched in July, and so far, three businesses have signed up on the site: Molly’s Cupcakes, Yotopia, and — as of Tuesday — Iowa City Games. There are 15 registered users on the site.

Molly’s Cupcakes, 14 S. Clinton St, was the first business on the site, and it is now in its 37th day. Their goal is to receive $10,000 in investment — they have $345 as of Tuesday.

“It just seemed like a good fit,” said Jamie Smith, owner of Molly’s Cupcakes, explaining why she chose to use Seedlauncher to fund her purchase of an industrial dishwasher.

Yotopia, 132 S. Clinton St., has been involved with Seedlauncher for 30 days, and it has so far only funded about $25 of its $6,500 goal.

“I thought it was a great idea. It sounded like something that could really help small businesses,” said Yotopia owner Veronica Tessler. “It’s a way to get our customers to have some direct investment in our company."

The journey that led to the launch of Seedlauncher began when local banks rejected Sonne’s and his friend’s plans to open a hot-dog stand while they attended the UI.

“My primary goal for the company is to enable small businesses to get the funding they need without having to worry about a bank breathing down their necks,” said Dan Ambrisco, who helped found Seedlauncher and is currently the chief operating officer.

Sonne is working heavily on building the community of Seedlauncher and on enabling the business to reach out to potential community investors through social media, especially Facebook and Twitter.

“It takes a critical mass to make it effective,” Sonne said, saying that with enough people, it is a very effective finance plan. 

UI marketing Professor Gary Russell agrees that it could be a very effective model.

“This might be a better model for small businesses [than the traditional model]” he said.

He compared it to the micro-financing that is popular in poorer countries. Micro-financing has one person invest a little money in many people, while crowd-funding allows many people to invest in one person.

“Each of these people invest very little money— if it’s not successful, no one really cares very much,” Russell said.

He said this model spreads the risk. A bank would have to make a very risky decision with a loan, so would be very cautious, as compared with many different people.

“This encourages entrepreneurship because you can take a very risky idea and get money,” Russell said.

And because the model comes with very little risk, Tessler said, it’s one that can ultimately have a very positive effect on one’s business, such as hers.

“I think it’s definitely a strong business model,” she said, “I think people have a desire to see the business succeed.”