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Tweets-For-Equity Startup Will Try Harder to Comply With FTC Rules

Wahooly Still Offering Startup Equity to Social Media Influencers, But Will Pact With CMP.LY for Compliance

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Wahooly wants to help startups drum up publicity by giving equity to people who spread the word online. But its founders have decided that their business plan needs to address Federal Trade Commission guidelines on testimonials and endorsements in social media after all.

Dana Severson
Dana Severson

Wahooly is now partnering with CMP.LY, a 2-year-old startup that addresses the FTC rules by disclosing any material connection bloggers may have to the product or service they're writing about. Geared toward brands and agencies doing marketing in social media, CMP.LY generates badges and shortened URLs that link back to disclosure pages and enables monitoring to ensure that disclosures are being made so that customers can shield themselves from liability.

The FTC has taken formal action in only three instances since its guidelines were updated to address social media in 2009, but just this week it made its decision to close an investigation into Hyundai Motor America's social-media program. According to a blog post, the FTC was looking into a program where bloggers were given gift certificates and encouraged to link to Hyundai Motor Co. videos or comment on upcoming Super Bowl ads but decided to close the inquiry after determining that Hyundai itself was unaware of the program, which was conducted by an individual at an agency, and that relatively few bloggers had received the gift certificates.

When Ad Age spoke to Wahooly co-founder Dana Severson last month, he said the company's influencer program (which calls for users' equity stakes to grow or dwindle based on whether their social-media output spurs growth for the startups in things like sign-ups or downloads) wouldn't be subject to FTC regulation because the stakes will be worthless when they're given out. But he revised that position after hearing from users who place a high value on their online reputation and were concerned about the lack of a process for making disclosures.

"For users it comes down to being an ethical issue more than anything," Mr. Severson said. "That's the feedback we've gotten from several users."

Mr. Severson said that Wahooly, which launches officially in January, is recruiting startups for the service and had reached 25,000 users this week, 75% of them recruited on Klout, which offered Wahooly membership to users with high scores as part of its "Perks" program. They'll be able to claim stakes from among 50 startups in the launch group, and Wahooly aims to grow that number to 200 by the end of 2012.

CMP.LY will provide customized URLs for individual Wahooly users to include in social-media posts that will link back to the startups while surfacing a frame at the top of the page that contains a disclosure about a material connection. It will also enable social-media listening to track whether disclosures are being made when startup names and relevant keywords are being used. Users will only see their equity stakes grow if they use CMP.LY links.

"We're obviously both startups, and we felt this was a very important example of where disclosure is required and how it can be implemented," said Tom Chernaik, CMP.LY's founder.

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