What Happens To Money Raised By Candidates That Drop Out

This story appears in the July 2015 issue of Entrepreneur. Subscribe » You're reading Entrepreneur United States, an international franchise of Entrepreneur Media.

Joe Meisch had already invested tens of thousands of dollars in the temple massager he developed to relieve tension headaches. But last November he needed a few thousand more to finish updating the product based on feedback from beta users.

Gabriela Hasbun

Help a brother out: TrustLeaf founders Daniel Lieser (left) and Anson Liang.

He'd already tapped friends and family while building his original prototype several years back, so he figured that well had run dry. This time Meisch turned to TrustLeaf, a new platform that formalizes friends-and-family fundraising by offering free personal loan agreements using attorney-prepared templates.

The Meisch clan was impressed. Joe's sister, brother-in-law and a family friend invested $2,500 in all. Now the former U.S. Army reservist, who until this year had donated his massagers to combat veterans, is gearing up to sell online to the public for the first time.

Since TrustLeaf launched last year, dozens of companies have raised several hundred thousand dollars in fundraising campaigns on the platform, says CEO Anson Liang. Add in borrowers who have used TrustLeaf's contract templates without creating a campaign on the site, and that number jumps to $41 million, he says, with loans averaging $48,000 at up to 10 percent interest.

Liang, a Founder Institute alum and serial entrepreneur who knows firsthand the awkwardness of asking loved ones for a loan, built TrustLeaf along with head of business development Daniel Lieser. Their goal: to help the 38 percent of small-business owners who tap pals and relatives for starter capital each year. "It just takes the stress and emotion out of the combination of family and money," Liang says.

Fundraising campaigns posted on TrustLeaf are not public; they're visible only to people the campaign creator invites by email. "That's actually one of the key differentiators of our site," Liang says. "A lot of people want to keep their business idea and their fundraising process private, especially when asking friends and family for money."

There's no minimum ask for fundraising campaigns on the site, which tend to span 30 to 45 days. Borrowers can invite as many supporters to contribute to their campaigns as they want. They also can suggest several potential loan amounts and repayment scenarios.

Liang's attorney, a partner at global law firm DLA Piper and TrustLeaf board member, created the site's template loan agreement. Entrepreneurs plug in the necessary names, loan amount, terms and interest rate, then both lender and borrower sign the document online, where it's easily accessible 24/7. No private financial data is required to create a campaign or contract on the site.

Borrowers can use TrustLeaf's tracking and communication tools to keep tabs on payments and update lenders with their business progress. The ability to accept loans and repay borrowers through the site is coming later this year, Liang says; the same goes for a convertible equity note template founders can use for loved ones who would rather be repaid in company shares than interest.

The formal contract and ease of use made believers out of Meisch and his family. "They made the process organized and added a sense of legitimacy to what I was doing instead of me just picking up the phone and asking, 'Hey, can you loan me another $1,000?'" he says.

Armed with the additional funds, Meisch was able to stay in business long enough to attract the attention of Walter Reed National Military Medical Center, which is conducting trials with his product on PTSD patients. Hooah!