![]() Minnesota – Land of 10,000 Lake and Hopefully Intrastate Crowdfunding
If you have not yet viewed the proposed, they admirably push the envelope in terms of what has been currently enacted in other states. First and foremost, the proposed MNvest bill allows issuers to raise up to a maximum of $5,000,000 if they have provided independently audited financials, or $2,000,000 if they have not provided such financials. These limits are significantly higher than the typical $2,000,000/$1,000,000 maximum respective limits in most enacted states. The proposed MNvest bill also allows for a $10,000 maximum investment per non-accredited investor (per issuer) which is double that of the corresponding $5,000 maximum investment limit per non-accredited investor present in the majority of the enacted state regulations (which are also typically a “per investor” versus a “per issuer” annual limitation). There are several other novel provisions taken in this bill which are beyond the scope of this article. To date, the proposed MNvest bill has gotten significant support from several Minnesota Senators, Representatives and other legislators on both sides of the isle. The MNvest movement however, has hit somewhat of a roadblock in the form of a letter from Mike Rothman, Commissioner of the Minnesota Department of Commerce, addressed to Senator Bonoff regarding Mr. Rothman’s concerns about the current iteration of the proposed MNvest bill. In his letter, Commissioner Rothman outlines several concerns about the proposed MNvest bill including, among others, that the maximum offering and investment limits are “too high,” and that the current rules lack disqualification for “bad actors.”
Clearly there is work that needs to be done to gain the support of the commerce department but at least the door appears to be open to make that happen. Knowing Zachary Robins personally, I have faith that he and the other members of the MNvest team will find a way to find the balance Mr. Rothman is looking for. Arizona – New Kid On The Block
One unique aspect of the proposed Arizona bill is the express right of an investor to cancel their commitment, upon notice delivered to the issuer:
It should also be noted that the proposed rules, for whatever reason, specifically exclude the use of the exemption by an issuer that is “an entity that would be an investment company but for the exclusions provided in the Investment Company Act of 1940.” Given that many real estate (and other companies) are set up by means of one or more holding companies that fall within the exclusions provided in the Investment Company Act, this would prohibit the use of this exemption by such companies. I am not sure whether this was intended or an oversight by the drafters but it is significant.
D.C. – Off To The Races
The approved issuer is “Prequel, LLC,” a District-based subsidiary of “EquityEats,” also a District-based entity. In the proposed offering, Prequel has been authorized to offer and sell $200,000 of its “Class B” membership interests to D.C. residents, with a minimum investment amount of $100. The stated purpose of the offering is to supplement the funds currently held by the company (being $58,000) which will be used to fund the completion and staffing of a pop-up restaurant space at 918 F. Street NW, a former LivingSocial events space. It should be noted that, under the District’s rules, the full $200,000 of this offering must be raised before the company will receive any of the funds. If the offering is successfully however, the “Class B” securities holders will own a total of ten (10%) percent of the company. The parent company, EquityEats, was launched in October of 2014 for with the goal of funding several district restaurant concepts by equity/debt investment from accredited and non-accredited investors. Accordingly, if the appropriately named “Prequel” offering is successful, it could signal more such offerings to come. This is good news not just for the District and local investors, but for evidencing the usefulness of intrastate offerings. Colorado – Improving On Existing Regulations
What makes this new bill so unique is the fact that, under § 11-51-304(6) of the Colorado Securities Act and the corresponding rule Rule 51-3.3, intrastate crowdfunding appears to be currently permitted up to $1,000,000 in any twelve (12) month period. I am not a Colorado licensed attorney but the forgoing statutes seem pretty clear on this point, though they are silent on the use of general solicitation. Perhaps my reading of the statutes is incorrect and the proposed regulation is needed to facilitate intrastate crowdfunding. This may explain why the proposed bill specifically makes note that “[c]urrent securities law restricts businesses’ ability to raise capital through crowdfunding, which is the raising of money on-line through small contributions from a large number of investors. ”On the other hand, maybe Representative Lee’s bill is simply intended to improve on the existing rule by increasing the maximum offering limit and clarifying other provisions of the exemption such as per investor annual investment limits. If the latter, it does represent a significant improvement on the existing regulations.
Whatever the reason for the new bill, it will be certainly be interesting to see if it gains traction. Particularly in light of the criticisms put forth by, what appears to be, one of the State’s biggest crowdfunding advocate groups.
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