Wednesday, June 5, 2013

4 Reasons the NC JOBS Act Bill Beats the National Crowdfunding Exemption


#1 -- Sooner

Investment Crowdfunding will be available in North Carolina well before it is available nationwide. The regulations for the national crowdfunding exemption are likely to remain unavailable until at least late in 2014, with lots of complex implementation time required on top of that. In contrast, since NC JOBS is well defined and much easier to implement, we expect to see companies raising money under NC JOBS in the second half of 2014.

#2 -- Cheaper

Raising money under the national crowdfunding exemption is expected to be rather expensive; some estimates suggest that as much as 15% of the money raised will go to “overhead” expenses rather than being used to grow the business.

There are two ways the NC JOBS Exemption keeps costs down:

First, audited financials -- which can be very expensive to produce -- are not required if the issuing company is raising $1,000,000 or less. (A company raising between $1,000,000 and $2,000,000 will typically have more operational history, and in these cases the cost of audited financials is a reasonable burden to help protect potential investors.)

Secondly, portals using the national exemption will face extensive costs to comply with FINRA regulation -- and those costs will be certainly be passed along to the companies that are fundraising.

Investors would rather see their dollars being used to build a company rather than going to lawyers and accountants for meeting excessive regulations. Wouldn’t you?

#3 -- Simpler

The amount that can be invested by any non-accredited person is a flat $2,000.

This is much more straightforward and safer than the national version which uses a sliding scale based on investor income or net worth -- which could lead to a situation where startup companies are forced to handle highly sensitive financial information of potential investors in order to ensure that they do not lose their exemption.

With NC JOBS issuing companies simply have to make sure to accept only $2,000 or less from each non-accredited investor.

#4 -- Angel-Friendly

Accredited investors are excluded from this $2,000 cap -- they can invest as much as they choose.

When you look at the data from countries where investment crowdfunding is already legal, you find that most successful raises are accomplished through a combination of many small ($1,000 to $2,500) investments along with a few more substantial sums ($25,000 to $100,000).

In order to support this “80/20 rule” effect, a crowdfunding exemption must support both smaller non-accredited investors as well as more experienced “angel” investors.

A company raising money should benefit from a mix of smaller and larger investors as well -- your “team” has just grown to a whole new level as you can tap into a crowd of passionate supporters as well as some more experienced and connected investors.

Support the North Carolina JOBS Act:
If you have any questions or comments, please email the JOBS NC Crowdfunding Team at jobsnc@nc.rr.com or contact Representative Murry’s office at murryla@ncleg.net.

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