Big News in Intrastate Crowdfunding Over the Past Month
Intrastate crowdfunding has been exploding across the country over the past 6 months and at truCrowd we have enjoyed sharing all of this exciting news with you. Early last month we wrote on intrastate crowdfunding updates on Tennessee, Kentucky and Oregon and today we have five new updates to share with you. That’s right, over the past five weeks five different states (four states and Washington D.C.) have released news about intrastate crowdfunding and we have all of the updates right here in one place. We want to give each story it’s due so we are going to get right into it if you don’t mind. Here are the thrilling intrastate crowdfunding updates from around the United States:
Arizona Intrastate Crowdfunding
Early last week, Rep. Jeff Weninger, R-Phoenix, and Sen. David Farnsworth, R-Mesa introduced intrastate crowdfunding bills to the Arizona House and Senate. The bills, House Bill 2591 and Senate Bill 1450, were co-written by the Arizona Small Business Association and are largely based off the proposed bill in the Kentucky legislature. The Arizona bills call for companies to raise up to $2.5 million and investors to pledge up to $10,000 each.
Unlike the SEC, Arizona does not want a long, overdrawn rule-making process so all the rules were written into the bill. If it passed, the Arizona Corporation Commission (ACC) will oversee all crowdfunding investments. It will decide the people and companies who create crowdfunding portals where securities can be sold. Sources say the ACC has not committed to the bill yet but members were present when the bill was drafted.
Senator Farnsworth stated he didn’t want to keep startups seeking capital waiting on the SEC. He offered this statement:
“I have little faith in the federal government. Most things that come out of Washington are slow and don’t work very well.”
Colorado Intrastate Crowdfunding
As discussed in a recent Crowdfund Insider article, Colorado is preparing to introduce intrastate crowdfunding legislation that has many similarities to the proposed federal Title III equity crowdfunding rules. For example:
–Non-accredited investors can invest up to $5000
–Accredited investors, as defined by existing federal guidelines, may invest as much as they want
–Issuers providing audited financial statements can raise up to $2 million. Those without audited financials can only raise $1 million
–Issuers must explain these are risky & illiquid securities in plain, non-technical language
–Issuers must provide quarterly updates to investors.
–Funding portals must keep records of shareholders (available for inspection) and may only be compensated by a fixed amount for each offering, a variable amount based on the length of time that the securities are offered by the on-line intermediary, or a combination of the fixed and variable amounts
The Colorado proceedings are still young so we will keep you updated as they proceed.
Minnesota Intrastate Crowdfunding
A rousing show of support from 15 state legislators, both Democratic and Republican, have helped Minnesota make a lot of ground very fast. By visiting the MNvest website you can see the exact politicians who support the proposed law, read FAQ’s and even add your electronic signature to the list of supporters across the Land of 10,000 Lakes.
However, not everyone is in agreement about the proposed laws. Mike Rothman, Commissioner of the Minnesota Department of Commerce, wrote a letter with several concerns over the MNvest bill. Two of them include maximum investment and offering limits being too high and the current rules lack disqualification for “bad actors.” Rothman may have a point because MNvest is proposing to allow issuers to raise up to $5,000,000 if they have provided independently audited financials and $2,000,000 without. That more than doubles what most other states have enacted ($2,000,000/$1,000,000). The bill also allows non-accredited investors to invest up to $10,000 per issuer, another substantially higher limit than the proposed Title III rules and all other intrastate crowdfunding laws.
Regardless of how far off the final rulings are, the intrastate crowdfunding wheels are turning in Minnesota.
Nebraska Intrastate Crowdfunding
On Monday, February 2nd, the Banking, Commerce and Insurance Committee held a hearing to examine LB226 which is sponsored by Senator Colby Coash, R-Lincoln. The bill is said to be modeled after Indiana’s intrastate crowdfunding laws allows Nebraskans worth less than $1 million or couples making under $300,000 a year to invest up to $5,000 in a single business. Businesses with audited statements can raise up to $2 million and those without are capped at $2 million.
Senator Coash provided this statement in a JournelStar.com article:
“The main difference between a Kickstarter website and this legislation is that when you contribute to a project on Kickstarter, typically you receive a T-shirt, or a poster, or other promotional gift depending on the size of the contribution, but have no monetary stake in the project. LB226 gives the investor a monetary stake in the project, not a donation.”
Washington D.C. Intrastate Crowdfunding
Late last week, Washington D.C. district regulators authorized the city’s first equity-based crowdfunding campaign. If you remember, the Washington D.C. Department of Insurance, Securities and Banking (DISB) enacted the D.C. Intrastate Exemption in early November 2014. The flagship venture, Prequel, is 17,000 sq. ft. a pop-up restaurant space that will feature five dining concepts that change each month.
During this first round of capital, Prequel set a reasonable funding goal of $200,000. In return of their financial pledges, investors will share a 10% ownership in the business and share 50% of the venue’s profits until their initial investment is recouped. Once this money is returned, investors will split 10% of the venue’s future profits.
Prequel also added some supplementary incentives based on the amount of equity you purchase. The prizes range from free drinks to party invitations to priority reservations – it all depends how much you invest. Most companies selling equity are content with just giving investors the equity they bought, so hat’s off to Prequel for adding some bonuses to D.C.’s first equity-based crowdfunding campaign.
There will be plenty more intrastate crowdfunding news next month so be on the lookout for the March edition. Thank you for reading and please leave your questions and comments below!