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Oregon proposes crowdfunding rules

posted Dec 5, 2014, 1:53 AM by J Shaw   [ updated Dec 5, 2014, 1:54 AM ]
Oregon’s proposed regulation of crowdfunding, which typically relies on the Internet to raise start-up money for small businesses, has drawn favorable comments from securities lawyers and small-business advocates.

“It’s hard to be against a rule that allows Oregon small businesses to find start-up capital,” Robert Banks, a Portland securities lawyer, testified Wednesday at a hearing in Salem. “My concern is that investors are protected.”

Banks was one of 11 committee members advising the Division of Finance and Corporate Securities on the draft rule, which would exempt crowdfunding from stricter state requirements for securities.

Among other things, the proposed rule would set caps of $250,000 on the total raised — for a usual security, it’s $1 million — and $2,500 from a single investor. A business could propose only one offering every 12 months.

Crowdfunding could be used only by businesses registered in Oregon — whose owners draw 80 percent of their assets or income within the state — and attract money only from Oregon residents. Businesses would be allowed limited advertising, but would have to provide detailed disclosures before offering or selling shares.

“There are not too many people who, even if they lose $2,500, are going to miss a meal or pay an electric bill,” Banks says.

After Dec. 10, the deadline for submitting written comments, officials will decide whether changes are needed in the draft. Jan. 1 is the target for the rule to go into effect.

On the advisory committee were six small-business advocates, four securities lawyers and state Rep. Tobias Read, D-Beaverton.

Entrepreneurs view

Amy Pearl, founder and chief executive of Springboard Innovation and co-founder of Hatch, testified in favor of the draft rule even though she would prefer a higher cap of $5,000 on individual investors.

“There is comfort there with all of the folks used to doing litigation and who feel it ($2,500) is a reasonable number,” she said after the hearing. “It’s kind of a starting point, we hope.”

Pearl says the new website under development,, would inform entrepreneurs how to use crowdfunding and advertise their prospects – and for potential investors to scrutinize the proposals and lend money or buy shares.

Although Congress required the federal Securities and Exchange Commission to come up with crowdfunding rules two years ago, it has not done so. Oregon would join 13 other states with such rules, which in most cases are less restrictive than Oregon’s proposed rule.

But Pearl says Oregon’s proposed overall cap of $250,000 is adequate. Some states, such as Texas, have allowed caps of up to a legal limit of $1 million.

“For small businesses in Oregon, $250,000 is a huge amount,” says Pearl, whose organizations work with entrepreneurs on financing. “Most of the businesses, I predict, will be raising quite a lot under $100,000.”

Pearl says Oregon small businesses need capital — and Oregonians collectively hold $90 billion in savings, most of the money out of state. She says even 1 percent of that total would make a big difference.

“On the one hand, you can say the rule is limiting,” she says. “On the other hand, you can think that if you are Oregon, this is the most powerful thing that has ever hit, because it’s de facto local investing. So it will bring money back into the state.”

Jarvez Hall, outreach manager for Small Business Majority in Portland, says it will aid many small businesses — particularly in minority and rural communities — that have limited or no access to start-up capital from more traditional sources.

“It gives more options for business owners to develop,” says Hall, who has worked both in government and small business.

“When you go into traditional financing, it’s more about your capital and your assets. But they do not measure a person’s business idea, passion or acumen. The great thing about crowdfunding is that when you have enough people to support it, you are starting to build your market. It takes the stigma out of the equation – and I think in the long run, everybody wins.”

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