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 or contact Representative Murry’s office at

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, 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:

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:

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.