Challenge: Approximately 75 percent of all annual venture funding in the United States goes to three states: California, Massachusetts, and New York. Accordingly, the remaining states suffer from low levels of venture capital investment. This serves as a large barrier to technology innovation and business development.
Solution: Equity crowdfunding is a mechanism for early-stage companies to raise money from a large group of investors by issuing ownership shares. State leaders could enact a law that exempts unlisted companies from having to register ownership shares with federal or state securities regulators, reducing the cost and time associated with typical securities offerings. Twenty-five states and the District of Columbia have enacted intrastate securities exemptions in alignment with updates to the federal exemption for equity crowdfunding under Title III of the JOBS Act. Additionally, state leaders could create an online equity crowdfunding hub where startups can advertise their business ideas and gather small investments from investors across the world.
Examples: The Invest Georgia Equity Crowdfunding Exemption allows non-accredited Georgia investors to invest up to $10,000 in any company based in the state. Georgia also allows companies based in the state to raise up to $5 million per year via equity crowdfunding, one of the highest limits in the United States. By the end of 2016, 41 companies have filed notice for their intention to use this exemption.
The Oregon Intrastate Offering Exemption allows non-accredited Oregon investors to invest up to $2,500 in any Oregon business. These investments can be in the form of equity, notes, or debentures, giving businesses and investors greater flexibility in determining their capital structure. There are no escrow or portal requirements, reducing costs for small businesses. Since its inception in January 2015, thirteen companies have accessed equity crowdfunding via the exemption.
An example of a successful regional crowdfunding site is Indianapolis-based Localstake, which says it has helped Indiana and Michigan businesses raise over $3 million from more than 3,100 investors.