Monday, March 9, 2015

2015 Can Be the Year for Intrastate Investment Crowdfunding in North Carolina

Investment crowdfunding is expanding at an explosive pace.

Let's take a look at a few of the investment crowdfunding sites. AngelList has just announced their 2014 results, where 243 startups raised $104M from 2,673 investors. On EquityNet.com you can see over 130 crowdfunding projects listed just in the biotech-pharma-healthcare segment. And that is just one of the market segments, and an important one for North Carolina. Another site, crowdfunder.com, already has over 83,000 investors, over 20,000 companies raising funds, and over $150M in funds raised so far. And investment fundraising is not just for tech startups, it works well for small business too, as shown here on circleup.com where a whole variety of small businesses have raised over $30M so far. That means small business and startups in market segments all across North Carolina can benefit from investment crowdfunding.
Crowdfunding Advocate Mark Easley

The North Carolina JOBS Act whch was passed in the NC House last session is the basis for a new bill coming to the legislature this year. The new bill is called Providing Access to Capital for Entrepreneurs and Small business Act (NC JOBS/PACES Act) and enables a new way of funding startups and small business in our state known as investment crowdfunding. This new version of the bill was reviewed and approved by the NC Secretary of State Securities Division, the NC Commerce Department, and the NC JOBS/PACES Act business team, and is now awaiting action by the General Assembly. The FAQs and other posts on the NC JOBS/PACES Act blog  provide details and analysis of what the bill does and how it will work. The NC JOBS Act legislation (H680) passed the NC House by an almost unheard of bipartisan vote of 103 to 1 in the 2013 long session. Unfortunately it got bogged down in the horse trading politics at the end of 2014’s short session, and was passed as part of two different larger bills, but was not brought up in the Senate as a stand alone bill before they adjourned. So we will have to try again in 2015, but if everything goes as expected, this year will be the year that intrastate investment crowdfunding will become a reality in North Carolina.

Over the last two years 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 fourteen states have intrastate crowdfunding exemptions in place, and several other states are in various stages of considering the idea. Here is the list along with their maximum allowed fundraising cap and maximum allowed non-accredited investor cap.

Georgia ($1M, $10,000)
Kansas ($1M, $1,000)
Michigan ($1M, $10,000)
Wisconsin ($1M, $10,000)
Indiana ($2M, $5,000)
Alabama ($1M, $5,000)
Colorado ($1M)
Idaho ($1M, $5,000)
Maine ($1M, $5,000)
Maryland ($100k, $100)
Oregon ($250K, $2,500)
Washington ($1M, $2,000)
Tennessee ($1M, $10,000)
Texas ($1M, $5,000)

Crowdcheck.com has a nice comparison chart 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 North Carolina Congressman Patrick McHenry, the original creator and sponsor of the the Federal JOBS Act, supports state based solutions like the NC JOBS/PACES Act.

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

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 and Japan.

Meanwhile, several types of investment crowdfunding have taken off like rockets in 2013 and 2014. 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 on sites like LendingClub and Prosper, and a third is real estate crowdfunding, where local real estate development projects are funded by the community crowd on sites like Realty Mogul and our own Triangle startup Groundfloor.

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.com 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 PACES Act investment crowdfunding exemption will be an important part of making it happen.

We ask you to support the NC JOBS/PACES Act when it comes up in the new session in 2015.


Support the North Carolina JOBS/PACES Act:

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