This blog provides information and updates on the North Carolina Providing Access to Capital for Entrepreneurs and Small business Act (NC PACES Act) which enables a new way to finance small business in North Carolina using investment crowdfunding. The NC PACES Act was passed unanimously in the North Carolina General Assembly and signed into law by the Governor in July 2016. The rules are in place and the law is now in effect as of April 1st, 2017.
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
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: