10/16/2013 @ 5:15PM
More States Are Leading The Way In The Push For Crowdfunding
After a very slow start, there is momentum at the SEC to enable crowdfunding at the national level. Title II of the JOBS Act, which permits General Solicitation to accredited investors, became law in September. It is expected that the rules for Title III, which expands this right to non-accredited investors, will be published for comment before the end of the year. We’ll see.
Several weeks ago I wrote that crowdfunding will flourish regardless of what the SEC does. One reason for this is that an increasing number of individual states want to tap crowdfunding to expand investment in local businesses and create jobs. Rather than waiting for federal rulemaking, these states are enacting intrastate crowdfunding exemptions. This is a regulatory framework for crowdfunding transactions where both the investors and the businesses reside within the state.
Left to right: Angela Barbash, CEO of Reconsider; Rep. Nancy Jenkins, 57th House District; Michael Sauvante, executive director of the Commonwealth Group; and Diane Bissell. (Courtesy: Michigan House Republicans)
Kansas was the first mover and since then Georgia passed a crowdfunding exemption and legislative processes were initiated in North Carolina, Wisconsin and the state of Washington. A proposal for a crowdfunding exemption, developed by a group I am affiliated with called Funding Wonder, is now circulating in Florida as well.
Recently State Representative Nancy Jenkins introduced legislation (HB 4996) to establish equity crowdfunding in the state of Michigan and earlier today the Michigan House Commerce Committee heard testimony on the bill. She expects that the bill will gain swift approval from the House and then move on to the Michigan State Senate where she believes it will get a prompt review. If successful, HB 4996 would be the first state bill to allow an intrastate exemption legislatively. In both Kansas and Georgia the Commissioners of Securities simply established new rules under their own authority.
Representative Jenkins told me that she believes that there is a lot of capital sitting on the sidelines in Michigan that, with the right vehicle, could be deployed to benefit Michigan businesses and investors. Her bill will allow unlimited investment by accredited investors and up to $10,000 for non-accredited investors. Businesses will be able to raise up to $1 million, or $2 million with the proper financial documentation. The bill also has built in protection for small businesses so that if an out of state investment is inadvertently accepted, they will not fall afoul of the SEC.
Efforts by individual states to increase business investment through crowdfunding are likely to accelerate going forward. This is a positive trend for the nascent crowdfunding industry and will no doubt encourage continued progress at the national level.