While everyone was waiting for the Securities and Exchange Commission (SEC) to finalize its equity crowdfunding rules, many states took matters into their own hands. Now that the federal regulations are finally in place, it remains unclear what role intrastate crowdfunding will play.
Intrastate crowdfunding on the rise
In total, 28 states have now legalized some form of equity crowdfunding at the local level. Many more, including New Jersey, have proposed legislation that would allow entrepreneurs and small businesses to solicit financing from “everyday” investors, otherwise known as the “crowd.” Under these state laws, issuers can sell securities via the Internet to investors who reside in the same state, subject to certain caps. This is intended to facilitate small businesses in seeking relatively small amounts of capital to establish or grow their companies.
Amendment considered to encourage intrastate crowdfunding
To further encourage the use of intrastate crowdfunding for smaller securities offerings, the Texas State Securities Board is considering an amendment that would permit a registered portal to handle investor funds if the funds are held in a segregated account when the maximum offering amount in a crowdfunding offering is $100,000 or less. As detailed in the crowdfunding rule proposal, portals must make certain disclosures to investors regarding the use of the segregated account and are responsible for the prudent processing, safeguarding, and accounting for funds entrusted to the portal by the investors and the issuer.
Given the relative scarcity of traditional funding as compared with earlier decades, crowdfunding presents a unique opportunity for entrepreneurs and start-ups to solicit capital directly from the public. However, despite the rapid adoption of state crowdfunding laws, entrepreneurs and investors have yet to fully buy into the new opportunity, with only 119 offerings having been made under the various states’ crowdfunding laws to date.
What’s next?
Going forward, it will be interesting to see if the finalization of the SEC rules will ultimately provide the “jumpstart” the equity crowdfunding industry needs. So far, less than 25 companies have taken advantage of equity crowdfunding under the JOBS Act regulations that took effect in May.
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Are Intrastate Crowdfunding Laws Still Relevant?
Author: Dan Brecher
While everyone was waiting for the Securities and Exchange Commission (SEC) to finalize its equity crowdfunding rules, many states took matters into their own hands. Now that the federal regulations are finally in place, it remains unclear what role intrastate crowdfunding will play.
Intrastate crowdfunding on the rise
In total, 28 states have now legalized some form of equity crowdfunding at the local level. Many more, including New Jersey, have proposed legislation that would allow entrepreneurs and small businesses to solicit financing from “everyday” investors, otherwise known as the “crowd.” Under these state laws, issuers can sell securities via the Internet to investors who reside in the same state, subject to certain caps. This is intended to facilitate small businesses in seeking relatively small amounts of capital to establish or grow their companies.
Amendment considered to encourage intrastate crowdfunding
To further encourage the use of intrastate crowdfunding for smaller securities offerings, the Texas State Securities Board is considering an amendment that would permit a registered portal to handle investor funds if the funds are held in a segregated account when the maximum offering amount in a crowdfunding offering is $100,000 or less. As detailed in the crowdfunding rule proposal, portals must make certain disclosures to investors regarding the use of the segregated account and are responsible for the prudent processing, safeguarding, and accounting for funds entrusted to the portal by the investors and the issuer.
Given the relative scarcity of traditional funding as compared with earlier decades, crowdfunding presents a unique opportunity for entrepreneurs and start-ups to solicit capital directly from the public. However, despite the rapid adoption of state crowdfunding laws, entrepreneurs and investors have yet to fully buy into the new opportunity, with only 119 offerings having been made under the various states’ crowdfunding laws to date.
What’s next?
Going forward, it will be interesting to see if the finalization of the SEC rules will ultimately provide the “jumpstart” the equity crowdfunding industry needs. So far, less than 25 companies have taken advantage of equity crowdfunding under the JOBS Act regulations that took effect in May.
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