crowdfunding

Less than two months into 2015, Massachusetts and potentially Arizona will join the growing number of states that have adopted intrastate crowdfunding exemptions – one of the emerging trends in economic development from 2014.  In January, the Massachusetts Securities Division adopted a crowdfunding exemption that will allow businesses to raise up to $2 million in equity from both accredited and non-accredited investors.  A similar exemption was introduced in early February to both the Arizona state Senate and House with strong bipartisan support and the approval of several key business leaders and organizations. Minnesota (SF 138) and Colorado also have recently proposed or introduced intrastate crowdfunding legislation. However, both may face a difficult path to approval due to stronger opposition from key organizations and leaders within the state.

Over the last several years, universities have been forced to reimagine ways that they engage with alumni beyond the traditional method of fundraising via alumni donations. These universities and their alumni associations want to increase alumni involvement and facilitate interactions between their high-achieving alumni, faculty, and students. Over this same time span, many universities have increased the size and scope of their entrepreneurship curricula and degree programs. These two trends have started to merge as there has been a rise in the number of alumni angel networks that connect the talents and capital of alumni with faculty and students looking to launch an entrepreneurial venture.

Michigan Gov. Rick Snyder recently signed a new law (HB 5273) that will allow for the creation of secondary markets through which intrastate crowdfunded securities can be listed, sold and resold. Under the new securities exemption, broker-dealers interested in establishing an exchange (online or in person) must apply and be registered with the state as well as follow rules of operation laid out in the legislation. They also must take steps to ensure that both businesses and investors are protected from fraud and are located in the state. The bill is intended to complement legislation passed earlier this year that will allow Michigan businesses to raise up to $2 million from non-accredited Michigan investors (Read related Digest Article). The creation of secondary markets provides a solution to one of the primary issues stalling intrastate crowdfunding across the country, a lack of liquidity due to the difficulty of connecting buyers with sellers. Read the bill…

Over two years, President Obama signed the JOBS Act, a bill authorizing a variety of significant changes to securities laws. Among those changes, the Securities and Exchange Commission (SEC) was mandated with implementing rules for equity crowdfunding within 270 days – approximately January 2013. However, the rules still remain in draft form. This SEC slow play has led to grassroots lobbying efforts by crowdfunding industry professionals; 30 members of the U.S. House  of Representatives’ Innovation and Entrepreneurship Caucus drafting a letter to pressure the SEC into adopting the new rules; and, federal lawmakers proposing new federal legislation to revise the original JOBS Act proposed crowdfunding rules.

Crowdfunding is touted by its proponents as a model that can democratize and neutralize gender bias in the existing small business investment community, for both female investors and entrepreneurs. Crowdfunding proponents point toward the disproportionate number of middle-aged men who are angel investors or work in the venture capital industry. In 2007, 86 percent of angel investors were men. Crowdfunding proponents also point out that less than 10 percent of all companies that receive venture capital funding are run by women. Although equity crowdfunding for all is stilled delayed by the SEC, two recent academic research studies have found that reward-based crowdfunding in the U.S. and peer-to-peer (P2P) lending in Germany and the United States appear to be opening up opportunities for female entrepreneurs and investors.

Investments and policy to support innovation-focused agendas have flourished with the close of the 2014 legislative sessions in several states. Crowdfunding legislation, incentives for attracting talent, higher education affordability, punishing patent trolls, and encouraging greater accountability are some of the areas where lawmakers focused their efforts.