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Crowdfunded “Mini IPOs” on Rise, Even as Questions Persist

Cable news watchers may have noticed a flurry of recent commercials offering the chance to invest in the IPO of tech company YayYo. John O’Hurley, an actor best known for playing J. Peterman on “Seinfeld,” urges viewers of programs on Fox News and MSNBC to buy shares in a public offering for the company, which offers a price comparison tool for ride-sharing apps like Uber and Lyft.

YayYo is one of a growing number of tech companies trying to raise money from the public by selling shares through what’s called a “mini IPO,” a form of online crowdfunding introduced in 2015. Securities rules allow anyone to invest in a mini IPO, including “unaccredited investors”—people who aren’t wealthy and are usually not allowed to invest in private tech companies. Stocks sold in mini IPOs don’t trade on any stock exchanges, although companies can list on an exchange afterward and investors are free to sell shares regardless.

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Even at a $200 million valuation, the potential returns are significant, he said. “If Uber can get a $68 billion valuation and barely penetrated the markets, there’s a lot of room to go. Our business model is pretty solid and if we succeed we can scale faster than everybody,” he said. He only recently learned that “yayo” is a common slang term for cocaine, a potential branding problem. He said he chose the name because it was easy to say in China, where he dreams of expanding.

“There is risk, but the upside is huge,” he said.

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Many companies raising money this way demand valuations that are astronomical even in the context of the speculatory world of startup investing.