Mini-JOBS for Many Jobs
A September 2013 Gallup poll revealed that Americans believe job creation is the most important move the federal government can make to improve the US economy. The respondents were also asked what businesses and corporations could do to boost the economy and 31% said create jobs and hire more workers.
The jobs shortage prompted the JOBS Act, a framework expected to develop U.S. financing by expanding participation in the markets. With thousands of emerging businesses and millions of non-accredited investors waiting at the starting line, equity crowdfunding is set to transform the investment game the moment the gun goes off. And due to the countless SEC directed requests to move with haste toward the implementation of the rules for equity crowdfunding, a few states have already taken matters into their own hands by adopting intrastate crowdfunding.
Lucky 13 States Adhere to The Crowdfunding Exemption Movement
As of June 2014, thirteen US states (Alabama, Colorado, Georgia, Idaho, Indiana, Kansas, Maine, Maryland, Michigan, Minnesota, Tennessee, Washington and Wisconsin) have adopted laws that allow crowdinvesting to occur within their borders. Kansas was the first to act when it enacted the IKE (Invest Kansas Exemption) in 2011. The exemption was “designed to assist small businesses and other organizations formed in Kansas raise up to a total of $1,000,000 during a 12-month period.” This exemption in Kansas – and the exemptions of the states that followed its lead – present many similarities to the regulations found in the Title III of the JOBS Act, but offer advantages such as immediate accessibility and lower overall costs of capital raising.
Many of the JOBS Act issuer requirements are absent on a state level including presenting certified or audited financial statements, using a FINRA registered broker/dealer or funding portal and generating expensive campaign products. By avoiding these requirements, this type of crowdfunding offers a relatively cheap funding option. However, all the intrastate crowdfunding exemptions are self-limited by being bound to operate within state borders and may only offer securities to potential investors who reside in the same state.
A MILE Closer to the all-encompassing JOBS Act
Michigan has taught the other states a lesson of “the crowdfunding spirit” by taking a hands-on approach to their new rule: the Michigan Invest Locally Exemption (MILE). This federal law exemption allows residents within the borders of Michigan to invest a portion of their income in exchange for state-based securities offerings. On the surface, you may think nothing is out of the ordinary. But after passing the regulation, the Michigan Municipal League, a non-profit organization dedicated to supporting local government leadership and development, began to educate businesses and investors to encourage and support MILE-based deals. The first successful Michigan crowdfunding campaign (run by the Tecumseh Brewing Co.) took place on Localstake in May 2014 and successfully closed at $175.000. Recently, Corp! magazine surveyed Michigan investors about MILE and found, “there’s an untapped potential of more than $41 million that our survey respondents could invest in Michigan companies that they’re currently investing elsewhere.” For the state of Michigan, intrastate equity crowdfunding went beyond adopting a market-friendly legislation.
The “mini-JOBS Acts” adopted by the thirteen states enhance the experience of community-based finance. While the country awaits the SEC to finalize its rulemaking process, the aforementioned states have found an alternative way to help small businesses grow and prosper. By legalizing a small scale equity crowdfunding (intrastate crowdfunding), the exemptions encourage locavesting, thus actively contributing to local job creation and building momentum for financial innovation.
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