Saturday, April 1, 2017

NC PACES Act Crowdfunding Law and Rules Now in Effect

By Mark Easley

Good news, the NC PACES Act crowdfunding rules have been finalized, and the act is in effect as of today, April 1st 2017. The Secretary of State web site has the rules, forms, instructions and FAQs that startups and small businesses need to start using this new type of intrastate investment crowdfunding financing.
Mark Easley

Businesses ranging from brand new to mature can make use of the new law for financing. North Carolina based startups and small businesses that want to raise money using the NC PACES Act crowdfunding law (referred to as issuers of an investment offering) will follow the registration, reporting, escrow management, record keeping, promotion, and procedure rules of the PACES Act on the Secretary of State website. Once a registered offering is approved by state regulators, issuers can promote equity or debt offerings to raise up to $2M if they have reviewed or audited financials, and up to $1M if they do not. North Carolina accredited investors can invest an unlimited amount, and North Carolina retail unaccredited investors can invest up to $5000 per offering. Issuing companies can promote the offering using the internet including social media, email, a website and other types of advertising provided they follow the content and procedure rules for the PACES Act. The maximum length of time for an offering to be open is 12 months, and businesses may make one PACES Act offering every 12 months.

Local Public Offering

A very important new idea enabled by the NC PACES Act and the new rules is called the Local Public Offering, or LPO. This is a new and innovative idea that has not yet been tried at the Federal Level or in other states. By following the rules for an LPO, the startup or small business can raise up to $250,000 on their own, and they do not need to use a crowdfunding platform or registered broker/dealer. They can put together a simple equity, debt, or revenue share loan offering, set up an escrow account with their bank or lawyer, and then register the offering with the state. Once approved, they can promote the offering to their friends, family, customers, and community to get the funding. The LPO is a very cost effective way for small businesses and startups to do crowdfunding, and achieves a good balance between cost and risk for both issuers and investors.

Investor Protections  

The PACES Act and the rules also have some very important investor protections built in. All offerings are registered with the state, they must declare a target amount to be raised and a minimum amount to be raised, and they must include information about the use of the funds and other business plan details. Money collected for the offering is kept in a registered escrow account and cannot be distributed until the minimum is in escrow. If the minimum is not reached, all money is returned to investors without charges or fees. If the minimum is reached, the money is distributed to the issuer according to the terms of the offering. The PACES Act and rules also require the issuers to make regular reports to investors about the progress of the offering, and once it is funded, the progress of the business.

There are many other details to consider in the rules, and this summary is not legal or investment advice. Consulting with a business law attorney about your offering documents and the crowdfunding rules is a good idea, and for those raising larger amounts a crowdfunding platform will be a good option, as they can take care of many of the details for you.

The good news for today is that intrastate investment crowdfunding is now available in North Carolina. And yes, this is for real, not an April Fools!   

Friday, March 24, 2017

NC PACES Act Team Leader Named a Finalist for WRAL TechWire Awards

Triangle startup advisor and investor Mark Easley Sr. successfully led a 3.5 year effort to get a North Carolina securities law exemption passed which will help finance startups and small businesses in North Carolina.

Mark Easley Sr.
The North Carolina Providing Access to Capital for Entrepreneurs and Small business Act (NC PACES Act) enables a new way to finance startups and small businesses in North Carolina using investment crowdfunding. Any North Carolina based company can raise up to $2M using equity or debt finance offerings from any resident of North Carolina by following the registration, reporting, and procedure rules for the NC PACES Act. North Carolina accredited investors may invest any amount, and non-accredited retail investors may invest up to $5,000 per offering. The NC PACES Act was passed unanimously in the North Carolina General Assembly and signed into law by the Governor in July 2016, and is expected to go into effect after the regulations have been finalized in March 2017.

WRAL TechWire has announced the finalists for the annual TechWire awards. NC PACES Act team leader Mark Easley Sr. was nominated in 2 categories, ‘Most Noteworthy Startup Founder or Investor’ and ‘Most Noteworthy Enterprise Founder or Investor’ for his work on NC PACES.

Now the voting has started. Supporters of the NC PACES Act from the startup and small business communities can vote here, and this must be done by Friday March 31st:

This honor is shared with everyone who worked on and supported the NC PACES Act.

Wednesday, February 8, 2017

Don't miss your chance to help shape NC crowdfunding rules

This guest post was published by WRAL Tech Wire on Feb 6th. Click here to view the full post on WRAL Tech Wire.

WRAL Tech Wire Editor's note: Investor and entrepreneur Mark Easley, one of the driving forces behind the passage of intrastate crowdfunding legislation, spells out how the law will work in a special blog written exclusively at the the request of WRAL TechWire. He also says that N.C. residents can participate in the shaping of final rules - and urges entrepreneurs as well as interested investors to do so.

MORRISVILLE, N.C. - The long awaited North Carolina intrastate investment crowdfunding act, known as the NC PACES Act, was unanimously passed by the NC Legislature and signed into law by the Governor last summer. This new law allows North Carolina based startups and small businesses to raise either debt or equity financing from North Carolina residents, including both accredited and retail investors.

The law is implemented as what is known as a securities law exemption, which means it carves out some special definitions and rules for this particular type of financial offering, including the financial limits and the process for doing fundraising in this way.

One of the key points about the NC PACES Act crowdfunding exemption is that it allows entrepreneurs to create an investment fundraising campaign which can be promoted via the internet on crowdfunding websites, the company website, and a variety of other online and offline ways provided that the exemption rules on solicitation are followed.

The exemption also allows entrepreneurs to raise up to $2M in financing in any 12 month period if they have reviewed or audited financials from the previous year, or up to $1M if they do not. The crowdfunding campaign can raise up to $5,000 from any North Carolina adult resident, and an unlimited amount from North Carolina accredited investors.

These types of investment crowdfunding campaigns using several federal and state crowdfunding exemptions have become very popular and successful over the last couple of years, so now North Carolina is about ready to join over 30 other states that allow this type of intrastate crowdfunding.

This should be a big boost for our small business and startup communities who will be able to raise money in the form of debt (such as revenue share loans) or equity (such as 506 equity offerings) from their friends, customers, and community to open or expand a business and create jobs right here in NC.

NC rules

There is one more step in the implementation process in which you can participate. These securities law exemptions are regulated by the NC Secretary of State. So any new law like this has some securities related rules attached to it to explain and implement the disclosures, registration, reporting, and investor protection parts of the law.

A ‘Public Comment Period’ allows anyone to make formal comments in writing to the Secretary of State’s office to suggest improvements to the implementation of the exemption. The Public Comment Period for the NC PACES Act will run from Feb 7 to Feb 27 2017.

So if you are an entrepreneur or investor that is potentially interested in the investment crowdfunding option, or want to help those who are, please take a little time in the next week or two to review the PACES Act, the proposed rules, and if you have some ideas, provide some written comments to the Securities Division.

Here’s how you can proceed:

1)   Please see the Secretary of State web page regarding the proposed rules for all the links you will need:
2)   Take a quick look at the NC PACES Act. It is kind of dry legal stuff, but it will tell you what the legislature had in mind:
3)   Take a look at the proposed rules here:
4)   If you have any comments, you can send them in writing by following the instructions (Please note the date is wrong in this publication. Comments are due by 5:00pm on Feb 27th, 2017.)

With your help, NC will benefit from a new, well defined investment crowdfunding exemption for our entrepreneurs.


Thursday, February 2, 2017

NC PACES Act Proposed Rules Have Been Published - Public Comments Due by Feb 27th

The North Carolina Secretary of State's office has published the proposed rules for the NC PACES Act intrastate crowdfunding law. The PACES Act is a securities law exemption which is regulated by the Secretary of State Securities Division. The public comment period for the rules will be from February 7th to February 27th. Please see the Secretary of State Rulemaking page for instructions on how to submit comments and many other useful links on the rulemaking process and the NC PACES Act proposed rules.

Here is the Invitation Letter from Secretary of State Elaine F. Marshall

There will also be a Public Hearing on the proposed rules on February 15th.

Tuesday, January 3, 2017

NC PACES Act Named One of the Top Startup Community Stories of 2016 is our excellent local media site that covers all things startup in the Triangle and around North Carolina. ExitEvent Editor in Chief Laura Baverman has named the passage into law of the NC PACES Act intrastate crowdfunding bill as one of the top Triangle Startup Community stories of 2016. In her year end summary titled "How the Triangle Startup Community Organized in 2016" Laura writes:

Yes to crowdfunding
Laura Baverman
A years long rallying cry to bring intrastate crowdfunding to North Carolina was successful this year, and a lot of the credit went to a group of investors, lawyers and entrepreneurs who held informational events, wrote thought leadership pieces and educated local legislators on this new funding opportunity for small and startup businesses. When rules go into effect next year, entrepreneurs will have another tool for raising capital to grow their businesses.
Watch Governor Pat McCrory's bill signing event here.

Read the full post on ExitEvent here