Tuesday, November 18, 2014

The NC JOBS Act is Coming Back in 2015

The NC JOBS Act, which will enable investment crowdfunding of small businesses and startups by both accredited and non-accredited investors in North Carolina, is expected to make a comeback in the legislature in 2015. The bill passed the NC House in the last long session by a vote of 103 to 1, but got bogged down in this year's short session by politics and horse trading in the NC Senate. The NC JOBS Act team will be working with the legislative sponsors to re-file the bill in the new session in 2015.

The fall elections impacted the bill somewhat as the chief sponsor and House Commerce Committee Chairman Representative Tom Murry lost his re-election bid, but we are grateful to Representative Murry for all his efforts to put this bill together and get it passed in the NC House. The bill had 18 other sponsors in the House last time around and we anticipate broad bi-partisan support in the new session. We also encourage the NC Senate to take up consideration of the bill on its own merits this time. If the Senate can find a way to do that, the NC JOBS Act exemption should be available to help businesses and investors grow the North Carolina economy and create jobs in 2015.

Texas Launches Intrastate Crowdfunding

Yesterday a new intrastate crowdfunding exemption very similar to the NC JOBS Act went into effect in Texas, which is one of over a dozen states that have passed similar laws over the last year and a half. Texas is the largest state so far to implement the exemption, and like North Carolina, it is a good sized state with a strong tech sector, a growing small business sector, low taxes, and generally attractive business climate. The exemption will give Texas a great new way to help finance small businesses and startups, and create jobs. We need to implement this in North Carolina as soon as possible.

The Texas State Securities Board website has details about the Texas Intrastate Crowdfunding Exemption. It also has some interesting information for prospective investors.

A new press release from Front Page PR outlines some of the benefits for the Texas economy that will come from investment crowdfunding in that state. We can look forward to similar benefits here in North Carolina once the NC JOBS Act has been enacted.

November 17, 2014 07:35 ET

Front Page PR Targets New Texas Crowdfunding Portals

Offers Texas Crowdfunding Portals (TCPs), Texas Equity Private Placement Issuers & Texas Investors Guidance on the Best Strategies to Launch and Market Successful Crowdfunding Campaigns in Texas

AUSTIN, TX--(Marketwired - Nov 17, 2014) - Today a new Texas Crowdfunding Exemption Rule goes into effect that will give the state yet another financial tool to encourage more people with creative ideas to start new businesses in Texas. For the first time in 80 years, businesses will be able to sell equity shares in their business to more than 20 million unaccredited investors who live in Texas via new online Texas crowdfunding portals using general solicitation.

"Already armed with a zero income tax, low overall tax burden, sensible regulations and low housing costs, Texas is now armed with an even more powerful financial tool, Equity Crowdfunding," said Robert Hoskins, Front Page PR's Crowdfunding Director. "This new small business financing tool will be the key to helping businesses, entrepreneurs, and new startups in Texas raise venture capital by selling equity shares in their companies to Texas residents."

Similar to the way that powerful and exclusive Silicon Valley venture capital firms built their wealth during the 1990s by betting on high-tech startups, every legal resident in Texas can now legally become a micro venture capitalist by investing up to $5,000 per deal in local Texas startups and existing businesses. As crowdfunded deals begin to go public, the wealth and economic development that will be created in Texas will be hard to match.

Texas offer investors a wide variety of industries to choose from including apps, aerospace, aviation, communications, information technology, bio-tech, life sciences, clean-tech, energy, oil & gas, high-tech, video games, film, entertainment, music and many other promising industries.
Already home to 1.7 million small businesses, gaining access to a market of 20+ million new potential investors combined with the SEC's legalization of general solicitation will make Texas the best and easiest place in America to start a new business and raise venture capital.

And the seeds for a bumper crop of new Texas Crowdfunding Portals are already being planted. SeedInvest.com/Texas, TexasCrowdfunding.com, TexasEquityShares.com are already in the various stages of building their new crowdfunding portals and filing their applications with the Texas State Securities Board, but soon they will be harvesting their first round of Texas crowdfunded startups.

"SeedInvest has worked primarily with angel, venture capital and other accredited investors to match them up with startups in Texas such as Virtuix, based out of Houston," said Marc Nathan, SeedInvest's Managing Director of Texas. "But the Texas crowdfunding exemption will allow us to reach a much wider audience of unaccredited investors."

"There are many great companies that connect technology startups with sophisticated investors, but we're focused on working with businesses that want to build and grow with support from investors in their own backyard," said Amy Forsyth, Texas Crowdfunding's CEO. "To accomplish this goal we're taking a different approach than most and plan to focus on featuring local small businesses and early-stage companies that are often overlooked, undervalued and under capitalized."

"Our crowdfunding portal will be seeking high-tech crowdfunding equity issuers that are focused on Internet technologies, e-commerce, smartphone apps, digital properties and platforms, Software as a Service (SasS), etc.," said Dusty Brogdon, Texas Equity Shares' CEO. "We are seeking to serve mid-tier crowdfunding equity issuers with a minimum project value of $200,000+ with a long-term goal of taking the business public within two years."

"Texas is about to see a dramatic surge in demand for Texas crowdfunding portals, equity private placement issuers and investors. Front Page PR is ready to help these companies bring their products and services to the Texas marketplace," Hoskins continued. "Armed with the right community outreach programs needed to educate entrepreneurs and investors on the new crowdfunding rules, the possibilities for small business formation and growth in Texas will be limitless."

Front Page PR provides a portfolio of crowdfunding marketing communications services, which will be instrumental in bringing these new crowdfunding portals to life and helping them launch successful crowdfunding campaigns for their fundraising campaign managers, including:
  • Crowdfunding portal selection
  • Crowdfunding deal structure
  • Crowdfunding disclosure documents
  • Crowdfunding profiles and pitch videos
  • Community outreach strategies
  • Advertising campaigns
  • Email marketing campaigns
  • PR/media relations campaigns
  • Investor education programs

Tuesday, August 19, 2014

Intrastate Crowdfunding is Officially Dead in North Carolina - For Now

We are sad to report that the NC JOBS Act, which would have enabled intrastate investment crowdfunding of small businesses and startups in our state, is now officially dead. After the original crowdfunding bill (H680) passed the NC House last year by a vote of 103 to 1, the bill fell victim to political gamesmanship in the NC Senate. The Senate leadership tried repeatedly to attach other more controversial legislation to the NC JOBS Act, and each of those attempts failed either in the Senate or when sent back to the House. The final attempt today was a bill entitled H1224, which bundled together 6 other provisions for sales taxes and corporate welfare along with the JOBS Act, and was also tied to two other bills that would provide amendments to H1224 if it was passed. A very contentious debate about the other provisions in the bill raged over the last week between the Senate and the House, in committees, and in the caucuses, with the ultimate result a final vote today of 47-54 against the bundled bill. This was the final bill to be considered by the legislature for the current session, which will adjourn tomorrow.

The failure by the NC Senate to bring up H680 as passed by the NC House for a vote on its own merits represents a significant lost opportunity for North Carolina small businesses, startups, and everyday investors. Ever since 2008, it has been extremely difficult for small business to get funding from banks and other sources, and the NC JOBS Act would have enabled a significant new source of funding all around the state, all while not costing the taxpayers a dime. Many other states have already passed similar crowdfunding exemptions over the last year, and businesses in those states are beginning to benefit. North Carolina was an early leader in proposing this idea, and the merits of it are clearly understood by state governments around the nation. Unfortunately the North Carolina Senate seems to have little interest in helping the small business community.

The NC JOBS Act team would like to thank all of those who supported this effort along the way, including chief sponsor Representative Tom Murry, Speaker Tillis,  Lt Governor Forest, the many sponsors from the NC House, the Triangle startup community, small business around the state, and the over 15,000 visitors to this blog who were tracking this effort, emailing and calling the legislature with their support, and spreading the word about the opportunity. We appreciate everything you did to help out.

Perhaps after the election this year, the new version of the NC Senate will be a bit wiser next time around.

Wednesday, August 13, 2014

New Report Shows Crowdfunding Success Increases Follow Up Venture Funding

A new report from CB Insights, which covers the Venture Capital industry, shows that startups that have successful crowdfunding campaigns have a much better chance of attracting follow on venture funding. In a post about the report on WRALTechwire today, editor Rick Smith points out:

"Are North Carolina startups missing out on potential investments from venture capitalists because the state's general Assembly has yet to pass crowdfunding legislation?
A new report would indicate that's the case.
CB Insights, which tracks the venture capital industry, documents for the first time in a report out this week the importance of crowdfunding to startups not only for initial capital but also as a way to ignite interest from institutional investors. 
A copy of this report should be sent to every North Carolina Senator where the NC JOBS Act crowdfunding bill - passed overwhelmingly by the House - is caught up in a larger piece of legislation. (Our WRAL Capitol Bureau team says no action is expected anytime soon, by the way.)"

The post on WRALTechwire includes an excellent summary of the report. The full report can be read online.

We urge you to send the link to the WRALTechwire post and CB Insights Report to your NC Senator and the Senate leadership immediately, and ask the Senate to pass H680, the NC JOBS Act crowdfunding bill now!

Contact information for NC Legislators:

Representative Murry
 Office: 919-733-5602919-733-5602

Senator Berger
 Office: 919-733-5708919-733-5708

Senator Gunn
 Office: 919-301-1446919-301-1446

Senator Meredith
 Office : 919-733-5776919-733-5776

Senator Rucho
 Office: 919-733-5655919-733-5655

Senator Rabon
 Office: 919-733-5963919-733-5963

Senator Apodaca
 Office: 919-733-5745919-733-5745

Saturday, August 2, 2014

NC JOBS Act Crowdfunding Update - House Rejects Senate Substitute Bill, Senate should vote on H680 on its own merits

Yesterday the NC House rejected the NC Senate's substitute consolidated bill H1224 which merged 5 separate and unrelated economic development bills into one. Part V of the bill is the original H680 NC JOBS Act crowdfunding bill which passed the NC House on its own by 103 to 1 last year. House members objected to provisions of several of the other bills that were included in H1224, but no objections were raised concerning Part V, the NC JOBS Act section. The NC Senate leadership has failed to bring the original H680 to a vote on its own merits, and instead has pursued a strategy of bundling the popular and innovative intrastate investment crowdfunding bill with other lesser known and more controversial bills in three different attempts to push them through the legislature. This strategy has failed. It is time for the Senate leadership to do the right thing and bring the original H680 up for a vote, and pass it before this session ends.

The Legislature has not yet formally adjourned, and the potential of reconvening again this session is still possible, so the future is uncertain. We call on the NC Senate to bring the original H680 NC JOBS Act bill up for a vote on its own. The North Carolina economy and job creation in our state will suffer if we fail to enable this new way of financing small businesses and startups across the state.

As of today, 12 states have already enabled intrastate investment crowdfunding, and 11 more states have started the process. Most have followed the lead of H680, which was the first intrastate crowdfunding legislation to be proposed and passed by any state house last year. This is now a nationwide trend, and North Carolina is in danger of missing the boat on this great opportunity.

Intrastate Crowdfunding Exemptions Enabled as of July 2014:

Intrastate Crowdfunding Exemptions in Process as of July 2014:
◦ Missouri
◦North Carolina
◦New Jersey
◦South Carolina

As we have emphasized from the beginning, the NC JOBS Act does not cost taxpayers a single dime. It is simply an exemption in our state securities law that enables a new way for small businesses and startups in our state to raise money with debt or equity, and allows any North Carolina citizen to invest in those opportunities provided the registration, reporting, limits, and disclosure rules in the bill are followed. Please see the FAQs for more details on the bill.

The fate of this bill is in the hands of the NC Senate leadership. This legislation enables a new type of financing known as intrastate investment crowdfunding. It has been endorsed by many of the top startup and business leaders in the Triangle community. The list includes endorsements from CEOs, founders, managing directors, partners, and investors at our leading startup accelerators, our leading venture capital funds, individual angel investors and angel funds, a leading CPA firm, the North Carolina Technology Association, the North Carolina Biotechnology Center, SAS Institute, UNC Chapel Hill Technology Development Center, Triangle area business attorneys, and many of our local technology startup CEOs. This is a strong showing of support that we received in a 72 hour period recently. These startup community leaders are representative of the over 14,000 startup and small business community members and everyday investors across our state that have visited our NC JOBS Act blog to learn more, and are excited about the possibilities to start and grow a new business, or expand an existing business, or invest in a favorite local business opportunity, and create more jobs.

We urge the Senate leadership to do the right thing, bring the original bill up for a vote, and pass H680.

Please call and email your expressions of support for H680 to the Senate Leadership. Senator Berger is Senate President Pro Tem, Senators Gunn and Meredith are the co-chairs of the Senate Commerce committee, and Senators Rucho and Rabon are the co-chairs of the Finance committee. Senator Apodaka is Chairman of the Rules Committee. Please ask them to move the original H680  bill as passed by the NC House forward. Representative Tom Murry is Chairman of the House Commerce Committee and the Chief Sponsor and creator of H680. The original bill needs quick action by the Senate before the end of the current session. Since H680 has already passed the Senate without changes or opposition as part of H1224, it will be very easy and quick to move it through the Senate and get this bill to the Governor's desk. We urge the Senate to get this done now!

Thank you for your support.

Best regards,
The NC JOBS Act Team

Contact information for NC Legislators:

Representative Murry
 Office: 919-733-5602

Senator Berger
 Office: 919-733-5708

Senator Gunn
 Office: 919-301-1446

Senator Meredith
 Office : 919-733-5776

Senator Rucho
 Office: 919-733-5655

Senator Rabon
 Office: 919-733-5963

Senator Apodaca
 Office: 919-733-5745

Wednesday, June 25, 2014

NC JOBS Act Update

As of today, we are still waiting for action from the North Carolina Senate on the NC JOBS Act.

Two important updates:

Update 1:

There has been a significant grass roots effort over the last two weeks to encourage our Senators to pass this bill. The start-up and small business community has been emailing and calling key Senators, which is very helpful. Over the weekend, the NC JOBS Act team put together a Community Statement of Support, and got an excellent response. Many thanks to all of you that called, emailed, or signed the letter. 

The statement has been forwarded to the Senate along with this introduction:

Dear Senators:

Attached is the Community Statement of Support for the NC JOBS Act (H680) that our team worked on this weekend. We urge you to pass H680 this session.

This legislation enables a new type of financing in our state known as intrastate investment crowdfunding. It has been endorsed by many of the top start-up and business leaders in the Triangle community. The attached list includes endorsements from CEOs, Founders, Managing Directors, Partners, and Investors at our leading Start-up Accelerators, individual Angels and Funds, Venture Capital Funds, a leading CPA firm, the North Carolina Technology Association, the North Carolina Biotechnology Center, SAS Institute, UNC Chapel Hill Technology Development Center, Triangle business attorneys, and many of our local technology start-up CEOs. This is a strong showing of support that we received over the last 72 hours. These start-up community leaders are representative of the over 12,000 start-up and small business community members that have visited our NC JOBS Act blog to learn more, and are excited about the possibilities.

Please forward this letter of support to your colleagues in the NC Senate and House. Please help us make this new form of financing for start-ups and small businesses a reality so we can grow the economy and create more jobs in North Carolina. Pass H680 now.

Thank you.    

Best regards,

Mark Easley Sr.
The NC JOBS Act Team

Update 2:

Lieutenant Governor Dan Forest has joined the community of supporters of the NC JOBS Act. We received this letter of support from his office.

Thank you for your e-mail on H680, The Jump-Start Our Business Start-Ups (JOBS) Act. Lieutenant Governor Dan Forest believes that this bill is an important step towards growing North Carolina businesses by allowing start-up companies and companies that wish to expand the ability to quickly raise capital from smaller investments, often called crowd-sourcing or crowd-funding. As a result, businesses will be able to establish themselves in their market on an expedited basis and employ more North Carolinians sooner--all while having many citizens invested in the company's success.  The Lieutenant Governor supports passage of this bill as a well-thought out mechanism to ease the burden on North Carolina's start-ups.

Rebekah Bradley
Office of the Lieutenant Governor
310 N Blount Street
Raleigh, NC 27601

Friday, June 6, 2014

Investment Crowdfunding Can Become a Reality in North Carolina This Year

The North Carolina JOBS Act enables a new way of funding startups and small business in our state known as investment crowdfunding. The FAQs and other posts on www.jobsnc.blogspot.com provide details and analysis of what the bill does and how it will work. The legislation (H680) passed the NC House by an almost unheard of bipartisan vote of 103 to 1 last June, and is now pending in the NC Senate for the short session beginning May 14th. So if everything goes as expected, 2014 will be the year that intrastate investment crowdfunding will become a reality in North Carolina.

Over the last year here in the U.S., there have been a number of important developments in the investment crowdfunding exemption story. Many states are following in the footsteps of Kansas and Georgia, who were the first to implement in-state investment crowdfunding exemptions by regulation, and North Carolina, where we were the first to introduce an exemption by legislation.

As of today seven states - Kansas, Georgia, Michigan, Wisconsin, WashingtonIndiana, and Alabama - have intrastate crowdfunding exemptions in place, four states - North Carolina, Florida, Texas and California - have legislation pending, and five more including Idaho, Colorado, Maine, Maryland and New Jersey are in various stages of considering the idea. Here is a comparison of several of these intrastate crowdfunding exemptions. 

Many more states are expected to join the intrastate investment crowdfunding movement because it grows the economy from the ground up and creates jobs locally.  And here is a statement from North Carolina Congressman Patrick McHenry, the original creator and sponsor of the the Federal JOBS Act, on why he supports state based solutions like NC JOBS

In the startup community, which is so important for North Carolina in both the technology and life sciences markets, a report in Entrepreneur Magazine says that crowdfunding is the fastest growing source of funding for startups. In addition, accredited investor crowdfunding sites like AngelList and FundersClub have proven how effective they can be in providing funding for high growth startups. As an example, just one of the investment crowdfunding sites called EquityNet has over 130 investment crowdfunding projects listed just in the biotech-pharmaceutical-healthcare category.

So what else has changed since last year?

Crowdfunding in general, and investment crowdfunding in particular have been growing very rapidly in the US and around the world. The biggest donation and rewards based site Kickstarter just announced that they surpassed $1B in pledges to crowdfunding campaigns hosted on their site.  Entrepreneur Magazine calls the growth of crowdfunding ‘epic’ and says the crowdfunding economy has tripled in 3 years and was over $5.1B in 2013. They also expect crowdfunding to provide a $65B boost to the world wide economy in 2014.

In the United Kingdom, where investment crowdfunding has been legal for over 3 years, the investment site CrowdCube has announced their stats on their 3rd birthday in 2014:
“The platform has raised £19.9 million (around $33 million) for 103 businesses, which Crowdcube anticipates will add 1900 jobs over the next three years. Darren Westlake, the company’s cofounder and CEO also mentioned that the company grew by 562 percent on the year before, and it sees over 100 applications per month. The company has 60,000 registered members.”

And that is just one of the many investment crowdfunding platforms operating in the UK, other parts of Europe, and in Australia.

Meanwhile, several types of investment crowdfunding have taken off like rockets in 2013. One is investment crowdfunding in startups for accredited investors on sites like AngelList, another one is called Peer-to-Peer (P2P) lending, where people get personal loans from the crowd, and a third is real estate crowdfunding, where local real estate development projects are funded by the community crowd.

Many more market segments are just beginning to use investment crowdfunding as a financing method. And venture capitalists are making major investments in a wide variety of crowdfunding platforms and services around the nation, because they see this as a major growth industry in the financial sector coming down the road.  A report by nowstreetwire has more details on these trends.

So what does all this mean to North Carolina?

It means we can benefit from these trends by helping our small businesses and startups to participate. We can make it much easier for them to find funding. And that funding will help them grow and create jobs. The NC JOBS Act investment crowdfunding exemption will be an important part of making it happen.

Support the North Carolina JOBS Act:

If you have not yet done so, now is the time to contact your state Senators with an email of your support for  H680, the NC JOBS Act. It is very easy to do using the links we give below.
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.

Wednesday, June 4, 2014

We Need Your Help with H680, the North Carolina JOBS Act, which Enables Investment Crowdfunding in North Carolina

Dear friends and supporters of the North Carolina small business and startup communities:

We are in the final stages of making investment crowdfunding a reality here in North Carolina with the passage of H680, the North Carolina JOBS Act. It has already passed the NC House last session by a vote of 103 to 1. We need your help to push it over the finish line in the NC Senate.

Please call and email your expressions of support to the Senate Leadership and your own NC Senator. Use this tool to find and contact your own North Carolina State Legislators and express your support. Senator Berger is Senate President Pro Tem, Senator Tarte and Senator Barringer are working to get the bill passed in the Senate, Senators Gunn and Meredith are the co-chairs of the Commerce committee, and Senators Rabon and Rucho are the co-chairs of the Finance committee. Senator Apodaka is Chairman of the Rules Committee. Please ask them to move H680 forward. Senators Pate, Brown, and Tillman are part of the Senate leadership, and Lt Governor Forest is also Senate President. Representative Murry is Chairman of the House Commerce Committee and the Chief Sponsor and creator of H680. The bill needs action by the Senate Commerce and Finance Committees, and a floor vote in the Senate before the end of the short session, which began on May 14th, 2014 and is currently in session. There are many competing priorites in the session, so we need to keep the NC JOBS Act near the top.

Representative Murry
Office: 919-733-5602

Senator Berger
Office: 919-733-5708

Senator Barringer
Office: 919-733-5653

Senator Tarte
Office: 919-715-3050

Senator Gunn
Office: 919-301-1446

Senator Meredith
Office : 919-733-5776

Senator Rabon
Office: 919-733-5963

Senator Rucho
Office: 919-733-5655

Senator Pate
Office: 919-733-5621

Senator Apodaca
Office: 919-733-5745

Senator Brown
Office: 919-715-3034

Senator Tillman
Office: 919-733-5870

Lieutenant Governor Dan Forest
Office: 919-733-7350

Thanks for your help, and please forward this request to your contacts in the startup and small business communities.

Best regards,

NC JOBS Act of 2014 Team

Here is a suggestion for an email or phone conversation. All the Senators have legislative assistants who will answer your call during office hours, and pass on your request to the Senator. If the timing is right, many of the Senators will take your call as well. Please be courteous and respectful of their time when calling.

“I am (  ) with (  ). I am contacting the Senator with regards to H680, the NC JOBS Act. This bill, which creates a new way to fund startups and small business using investment crowdfunding, is a great opportunity to create jobs and improve the economy in North Carolina. It passed the House by a wide bipartisan vote of 103 to 1, and has support from the startup and small business communities of North Carolina. This bill needs action from the Senate during the short session and I urge you to pass this bill. Thanks for your support of NC JOBS and the small business community.”

Support the North Carolina JOBS Act:

If you have not yet done so, now is the time to contact your state Senators with an email of your support for  H680, the NC JOBS Act. It is very easy to do using the links we give below.
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.

Wednesday, May 28, 2014

The NC JOBS Act Works for Rural Business Too

Crowdfunding is rooted in community. Before the modern mega-banking industry began to take shape, communities would come together to finance the needs of community members. Small rural banks knew their borrowers and their depositors. This was truly "relationship banking." Today however, relationship banking is all but dead. To most banks, the customers are merely a collection of numbers: credit scores, account balances, assets, and income. This way of doing business means that customers in small or rural communities are usually under-served. 
The 2008 credit crisis made matters even worse for rural communities. Many local banks failed, and national banking conglomerates curtailed their lending activities in these communities. Things haven't gotten better. Small business borrowers in particular have few alternatives when it comes to accessing capital. Rural communities may not yield the next Twitter or Facebook, but they are places where people live and work. The rural small business owner deserves the same opportunities to grow their business as any other company. Here in North Carolina, one way to serve rural citizens and aid rural economies is with grant programs like the Golden Leaf Foundation. And now, with the NC JOBS Act, North Carolina will have another tool to help these communities.

The NC JOBS Act brings control of financing back to the community. Through crowdfunding, as defined in the NC JOBS Act, rural small businesses will be able to solicit their customers and community members when it comes to raising money, and not be limited to just the banks and grant programs. Now, the people who are best equipped to assess the prospects of a rural small business, the very same people who live in those communities, can contribute to the development and growth of their local economies by investing in local businesses. We've seen this play out on a larger scale, such as the success of CrowdCube in the U.K. in helping many small businesses, so why should we wait any longer for our rural and local small businesses to benefit from the same fundraising tools?
The NC JOBS Act is a common sense solution to an important problem: giving small business owners the capital they need to grow and hire. At the same time, it gives many individuals the opportunity to invest locally. Let's make 2014 the year we implement this important new fundraising framework.

Support the North Carolina JOBS Act:

If you have not yet done so, now is the time to contact your state Senators with an email of your support for H680, the NC JOBS Act. It is very easy to do using the links we give below.

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.

Wednesday, May 21, 2014

Yente in the Middle: SEC Ensures Matchmakers will Play a Key Role in Crowdfunding And Other JOBS Act Exemptions

Benji's Blog by Benji Jones

“Matchmaker, Matchmaker,
Make me a match,
Find me a find,
catch me a catch”

Benji Jones
Ever since the SEC issued its compliance and disclosure interpretations (or C&DIs) on conducting intrastate crowdfunding offerings under Rule 147,  I just can’t seem to get that song out of my head . . . do you know it?   It’s from the Broadway classic, Fiddler on the Roof. Set in the early 1900s in rural Russia, Fiddler tells the story of Tevye (TEV-yah), the father of five daughters, and his struggle to maintain his family and Jewish religious traditions in the face of outside (modern?) influences encroaching upon their lives. (Thanks to the Wiki page for this quick synopsis.)  I know the show and the song well.  I played Chava (HA-vah), the “book smart” daughter, several years back.  (Type-casting, you say???)

You see, Tevye expects his daughters to marry as he and the local matchmaker, Yente (YEN-teh), dictate.  This doesn’t sit well with Tevye’s three oldest strong-willed, independent young daughters, Tzeitel, Hodel, and Chava.  They think they should be able to find their own husband and marry for love – even if they don’t follow with tradition (gasp!).  They don’t need, and certainly don’t want that old busy body, Yente, getting into their business and telling them who and in which order they must marry!  And, just think how much money they could save by not having to pay the matchmaker’s fees!

Gosh this sounds familiar.  It seems the SEC is taking a page from Tevye’s script – insisting that companies use a matchmaker to find investors.  Think about it: 

  •          The recent CD&Is on Rule 147 tell us that companies can use third-party internet portals to conduct intrastate crowdfunding offerings, but that it’s going to be really tough for them to “go it alone” and use their own existing internet or social media presence to promote offerings.
  •         The proposed Securities Act Section 4(a)(6) “crowdfunding” rules under Title III of the JOBS Act require companies to use registered funding portals to conduct offerings.
  •         Procedures under new Rule 506(c) favor the use of third parties (registered broker-dealers, CPAs, attorneys, etc.) for verification of accredited investor status.

All of these rules and regulations are making it harder for companies to “go it alone” – to find investors without having Yente in the middle (or having to pay Yente for her services).  The one bright spot may be moving forward under Regulation A+ under Title IV of the JOBS Act, but if NASAA succeeds with its lawsuit, companies may have several Orwellian “Big Brothers” to deal with as well.

Don’t get me wrong, matchmakers can serve a valuable purpose (in the love world and in the investments world).  A good matchmaker lives or dies on her reputation.  She learns everything about her clients and takes on the responsibility to make the best possible match for a family like Tevye’s -- or her livelihood suffers.  But is that really what is going to happen here?  Yes, there will likely be some form of recordkeeping and diligence obligations imposed on crowdfunding intermediaries, but will their services really add value?  Or will it be more like eHarmony or Match.com, where they present a list of companies that need capital and not much more, requiring investors to cull out the “cute ones” and take their chances on coffee or a “get to know you” lunch?   Only time will tell.

I get the challenge for the SEC.  Just like in Fiddler, the SEC is struggling to maintain the long-standing traditions that provide important investor protections in light of the modernizing world.  I’m just not sure its position limiting the ability to go it alone under Rule 147 really hits the mark. 

Irrespective of how it all plays out, I can’t help but chuckle as I imagine the SEC Commissioners, arms raised, fingers snapping, stomping around in full Tevye-style belting out:

If you have questions or comments, feel free to reach me by email at: benjisblog@smithlaw.com.

Benji Jones is a Partner at Smith Anderson, focusing on corporate and securities work (particularly private offerings). She also teaches at Campbell Law and lives with her family here in Raleigh.

Monday, May 5, 2014

Intrastate “Crowdfunding” – Thawing Frozen Capital Markets?

Benji's Blog by Benji Jones

The Deep Freeze.  This winter has been vicious.  Never-ending snow and icy roads leading to school cancellations, missed work and botched conference calls. Up until very recently we saw the claws of Old Man Winter scraping to hold out just a few more days against the sunny breezes and bright skies of spring.  This is unheard of in Raleigh, NC.  It’s been a frustrating winter, to say the least.

Benji Jones
For years entrepreneurs have faced similar frustrations in the quest to raise capital.  They claim well-established rules prohibiting the use of “general solicitation” and “general advertising” freeze them out of much of the market.  People are clamoring for the chance to use the web and social media outlets to not only promote their companies and ideas, but to raise the money they need to make those ideas come to life.  Initial excitement surrounding the “crowdfunding” provisions of Title III of the JOBS Act has waned.  It’s taking too long to get the rules from the SEC (it’s been two years!) and, weighing in at 500+  pages, describing them as “complicated” is an understatement.    

Roads are still icy and school is cancelled (again) -- the deep freeze seems endless.

Thawing Isolated to Local Areas. So, like winter bunnies, folks have gotten “creative.”  Over the past year or so, companies have begun using the (relatively unused) “intrastate” offering exemption under Section 3(a)(11) of the Securities Act of 1933 (and the related Rule 147 “safe harbor”) to “crowdfund” from residents in a particular state. The number of states that have adopted (including Kansas, Georgia, Washington) or are considering adopting (North Carolina, Florida and Texas) statutes and regulations permitting “intrastate crowdfunding” is snowballing.  Raising capital locally through the internet and social media seems to be a real possibility.

As with all novel solutions to complex problems, there are some nagging interpretive questions – spots of “black ice” to watch out for along this road.  For instance, Rule 147 stipulates that an offering may not be offered or sold to non-residents of the state in which the issuer resides and is doing business.   This begs the question of whether using the “world-wide” web to promote investments could ever really be viewed to be so isolated in nature.  Even if I’m only going to let people in Georgia invest, have I blown my exemption under Rule 147 if my tweet also reaches folks in North Carolina and Virginia (not to mention England or Brazil)? 

Roads are Clearing, But Watch Out for Potholes.  A few weeks ago, the SEC issued three compliance and disclosure interpretations (or C&DIs) which have the effect of clearing the road for using the internet and social media for intrastate crowdfunding.  But has one hazard been replaced with another? 

You see, the SEC said that companies can use a third-party internet portal to promote an intrastate offering if the portal implements specific measures to ensure that offers of securities are made only to persons resident in the relevant state or territory.  These measures include the use of disclaimers and legends to notify potential investors of the restrictions and actually limiting access to information about specific investment opportunities to persons who confirm they are residents of the relevant state.  But, the SEC also cautioned that an issuer’s use of its own existing website or social media presence to offer securities would likely involve offers to residents outside the state, making the offering inconsistent with Rule 147. 

So, based on this, it seems companies can hire someone else to help them crowdfund on the intrastate level but might not be able to do it themselves.  The SEC tells us that whether a company can “go it alone” under Rule 147 will be a “facts and circumstance” test.  That’s a fairly sizable pothole to watch out for.  As is the case with crowdfunding under the JOBS Act, it seems everyone needs a matchmaker . . .

More on that in my next post – in the meantime, if you have questions or comments, feel free to reach me by email at: benjisblog@smithlaw.com.

Benji Jones is a Partner at Smith Anderson, focusing on corporate and securities work (particularly private offerings). She also teaches at Campbell Law and lives with her family here in Raleigh.

Sunday, April 6, 2014

Why I Support North Carolina's Proposed Crowdfunding Law, the NC JOBS Act by Joe Wallin

In the post below, the highly respected crowdfunding legal expert Joe Wallin of Seattle explains why intrastate crowdfunding exemptions like the NC JOBS Act are needed and have several crucial advantages over the Federal JOBS Act. Joe recently led the effort to get a similar intrastate crowdfunding exemption signed into law in Washington State.

“Why I Support North Carolina’s Proposed Crowdfunding Law, The NC JOBS Act”
By Joe Wallin

The North Carolina General Assembly has a unique opportunity in front of it right now. It can pass a state-specific crowdfunding law known as the North Carolina JOBS Act.

You can read the bill here, which has already passed the NC House by a vote of 103 to 1.

The bill would allow North Carolina businesses to raise up to $1 million during any 12-month period from North Carolina residents in a crowdfunding campaign, and up to $2 million with audited financials. The funds could be raised from non-accredited investors, as well as accredited investors.

Joe Wallin
The bill has a good chance of passing in a form that would actually be usable. It also strikes the right balance between capital formation and investor protection.

The trouble with securities law exemptions on the books today is that many of them are not usable — except at great and impractical expense to businesses that want to use them. This puts entrepreneurs who want to raise money in a difficult spot, slows down or completely inhibits their ability to raise funds, and hampers economic growth.

This is the reason almost all startups raise money solely from accredited investors under what is known as Rule 506 of Regulation D. If you raise money under that rule, as long as you take money only from accredited investors, there are less complex and less costly requirements than other exemptions.

For example:

  • Rule 506 does not require companies to work with a registered broker-dealer (which is required under the federal crowdfunding law). 
  • Rule 506 does not require a company to have audited financials (which is required under the federal crowdfunding law if you are raising more than $500,000). 
  • Under Rule 506, you have to file a form known as Form D, but it is a short form, and you don’t have to file it until 15 days after you actually raise money. So, if you don’t succeed in raising money, you don’t have to file the form. 

Rule 506 is practical and usable, and that is why a very high percentage of financings fall under it. Other laws passed over the years to try to allow companies to raise money through the sale of securities languish on the books unused because they are impractical.

Of course, the trouble with Rule 506 is that you have to limit your offerings to accredited investors. There is no ability under Rule 506 to raise small amounts of money from lots of people, including non-accredited investors, in a crowdfunding campaign.

If you don’t know any accredited investors, raising funds can be tough. A real slog. Like persistence hunting.

Enter state level crowdfunding. Several states have realized that to support startups and small and emerging growing businesses, they need state securities law exemptions that are more usable and practical, yet balance capital formation with investor protection in a reasonable way. Wisconsin and Michigan passed state crowdfunding bills. Both Kansas and Georgia have regulations in place. (See Bill Carleton’s web site statecrowdfundinglaw.com for detail on the various state initiatives).

It is time for the North Carolina Senate to pass the NC JOBS Act in the short session beginning in May.

The North Carolina bill, H680, is sponsored by a bi-partisan group including Representatives Murry, Moffitt, Shepard, Hastings, R. Brawley, Brody, Brown, Cotham, Faircloth, Harrison, Jones, S. Martin, McGrady, R. Moore, Ramsey, S. Ross, Samuelson, Setzer, and Steinburg..

It is an important bill. It would send a signal to the entire world that North Carolina takes the business of starting and growing companies seriously, and is willing to amend its laws to bring them up to date with the 21st century.

You might ask: Isn’t a federal crowdfunding bill on the horizon? Shouldn’t we just wait for that?

The answer is no. The federal bill is too complex.

It will cost companies a lot to raise money in compliance with its requirements. For example, suppose you want to raise $1 million under the federal bill. You’re probably going to have to spend something on the order of $250,000 in legal, accounting and broker fees to raise the cash. That’s impractical. It doesn’t make sense. Unfortunately, the federal bill is going to go the way so many prior attempts to write sensible laws have gone. I suspect it will not be used nearly as much as advocates hoped. This is truly unfortunate.

But states have the opportunity to put their own laws in place that will actually work.

The NC JOBS Act would not put companies trying to raise money in such a difficult spot.

Joe Wallin is an attorney at Davis Wright Tremaine in Seattle. He’s the editor of the Startup Law Blog.

If you have not yet done so, now is the time to contact your state Senators with an email of your support for H680, the NC JOBS Act. It is very easy to do using the links we give below.
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.

Wednesday, March 5, 2014

CED Hosts Crowdfunding Panel at 'Raising the Dough' Series Event

The influential and respected North Carolina Council for Entrepreneurial Development (CED) will host a seminar called "Raising the Dough" for entrepreneurs looking for funding. A panel on crowdfunding including an overview and discussion of the NC JOBS Act will be included during the first session on March 11th. You can register for the event here.

About CED

CED's Mission: To identify, enable and promote high-growth, high-impact companies and to accelerate the entrepreneurial culture of the Research Triangle and North Carolina.

CED is a community of people inspired by entrepreneurship, and includes a wide range of members including start-up companies, more mature growth-stage firms, investors, service partners, academics, and individuals. All who wish to be part of this dynamic enterprise are invited to participate. CED  was founded in 1984, and later incorporated as a 501(c)3 nonprofit organization, to identify, enable and promote high-growth, high-impact companies and accelerate the entrepreneurial culture of the Research Triangle and North Carolina.  CED provides education, mentoring and capital formation resources to new and existing high-growth entrepreneurs through annual conferences, forums, workshops and programs on entrepreneurial management and finance.

Support the North Carolina JOBS Act:

If you have not yet done so, now is the time to contact your state legislators with an email of your support for  NC JOBS. It is very easy to do using the links we give below.
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.