Startups and 13 States Jumpstart Equity Crowdfunding Without SEC

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limited to the Badger State. He wants to become a national leader in what could be an important, rapidly growing market.

“We want to become a national platform for investments, it’s just a question of how you get there,” he said. “Whether the SEC comes out with a workable rule or not, or whether it’s on a state-by-state basis, that’s the future we’re envisioning.”

So, while the way Dupee would realize that vision remains a little unclear, how he and CraftFund got to this point is not. It starts in Washington, DC, and requires a very brief lesson about investing regulations.

The impetus behind CraftFund was the JOBS Act, a federal law passed in 2012. The law changed securities regulations in a few ways, but the provisions people like Dupee noticed were those that seemed to loosen the rules about who could make equity investments in privately held companies.

Current SEC rules require those accredited investors to have a net worth of more than $1 million or annual income greater than $200,000 in the past two years. With the JOBS Act, people who did not meet the criteria would be able to make small investments in companies using online fundraising sites.

Cash-hungry entrepreneurs and would-be investors rallied behind the idea, seeing it as a blend of seed investing and Kickstarter that would democratize investing and usher in the age of equity crowdfunding. The concept has its share of skeptics, though, who raise concerns about protecting against fraud and question whether it’s wise for tech startups following the traditional venture capital pathway to take on hundreds or even thousands of shareholders through crowdfunding.

With high hopes, entrepreneurs rushed in to create the funding platforms. But more than two-and-a-half years later, everyone is still waiting on the SEC to finalize the long-overdue regulations. The reasons the agency has taken so long are convoluted—one reason is it has to balance the need for companies to raise money with keeping new investors from getting fleeced by bad apples.

A Wall Street Journal article explained the issues, but the bottom line is, as Dupee said, “it’s kind of a mess.”

That’s when he switched to Plan B and looked to Madison instead of the feds.

“It became clear that that was not going to go anywhere, so that’s why we became involved with the Wisconsin Legislature,” he said.

States are able to regulate businesses located within their borders that only want to sell stock to in-state residents, and that presented an opening. There was some lobbying involved, but in early June, the state’s new law went into effect.

While each state’s laws are different, the new rules usually cap the amount companies can raise. In Wisconsin, it’s up to $1 million unless the companies agree to be audited and share the results with investors, in which case they can raise $2 million.

The laws also cap the amount individual investors can put into a company. Wisconsin limits it to $10,000 in a single offering, and all investors have to do is be able to prove they’re legal residents in the state. The amount is uncapped if they meet the national accredited investor standard or Wisconsin’s new, less-strict criteria for “certified investors.”

In short, this is still unchartered territory, and investors and entrepreneurs are studying matters like how the laws would impact them and the best way to run crowdfunding campaigns. While Dupee thinks “crowdfunding has been talked about ad nauseam” in startup circles, he realizes people running portals need to do outreach to potential investors.

“There’s a lot of education that needs to be done, and building awareness,” he said. “Our focus on Wisconsin now is just to show that this could work, that the general public can make these kinds of investments, and they can succeed.”

After all, supporters don’t want state-level equity crowdfunding to be the same disappointment the national version has become.

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