Equity crowdfunding got off the ground in Wisconsin Wednesday, as Madison's MobCraft Beerannounced an agreement with a bank to help with the state's first deal using the new investment vehicle.
MobCraft is teaming with Monona State Bank, which will handle money the craft brewer will seek to raise under a recently enacted law that lets private companies sell stock over the Internet to people of modest means.
In the past, such stock sales generally have been limited to "accredited" investors with high income or net worth.
Advocates of equity crowdfunding view the mechanism as a way to democratize investment — giving small businesses a new means of raising capital, and allowing non-wealthy people to put relatively small amounts of money into private firms.
Critics fear that crowdfunding will be used to defraud unsophisticated investors.
Crowdfunding also raises questions of how easily people will be able to cash out of investments that are far less liquid than publicly traded stock. Wisconsin's law, which took effect June 1, allows businesses to sell up to $1 million in stock to state residents, with non-accredited investors putting in as much as $10,000 each. Firms can raise up to $2million if they make a financial audit available.
The law also requires that while the money is being raised it must be held in escrow by a state-chartered financial institution.
The 11 other states that have authorized crowdfunding also allow nationally chartered banks to hold the money, and the Wisconsin restriction has been criticized by some as an impediment to getting deals done.
But an arm of the Wisconsin Bankers Association has developed a model escrow agreement for use in crowdfunding transactions.
"Since then we have seen a lot more interest from banks," said David Dupee, a Milwaukee lawyer who registered the state's first website for crowdfunding initiatives to use, a food-and-drink-oriented platform called CraftFund.
Monona State Bank President and CEO Paul Hoffmann called crowdfunding "an exciting development for our state."
"We see the potential as really great for helping small, local businesses be able to either start or to expand," he said.
Crowdfunding activity so far has been modest in the dozen states that allow it.
Nationwide crowdfunding campaigns, authorized by Congress two years ago, are on hold awaiting regulations by the U.S. Securities and Exchange Commission.
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