It’s been more than a year since President Obama signed the JOBS Act into law, and the Securities and Exchange Commission has yet to finalize rules that would allow companies to sell shares over crowdfunding platforms. Often overlooked amid speculation about when the SEC will conclude its rulemaking process: equity crowdfunding to nonaccredited investors is already legal under certain conditions in two states.
In March 2011, the Kansas Securities Commission adopted the Invest Kansas Exemption, which allows companies formed in Kansas to raise up to $1 million from nonaccredited investors, so long as they’re state residents. In November of the same year, Georgia adopted a similar rule. So why haven’t you heard more about these exemptions? Probably because hardly anyone is using the not-so-new rules to crowdfund.
In Kansas, only six companies have claimed the exemption in more than two years, according to Lynn Hammes, director of finance and administration at the Kansas Office of the Securities Commissioner. “We don’t look at it as a crowdfunding vehicle,” he says.
At least one company in Georgia has launched an equity crowdfunding campaign. A website called cMEcompete, which helps endurance athletes track achievements and interact with each other, announced a campaign to raise $400,000 on the crowdfunding portal SterlingFunder in May, though it has raised only $2,000 so far. David Lilenfeld, who runs SterlingFunder, says that cMEcompete has yet to really trumpet its fundraising efforts and that more companies are getting ready to raise money on his portal.
Equity crowdfunding under the Invest Georgia Exemption has been slow to gain momentum because it took time for entrepreneurs to understand the rules, says Knox Massey, co-founder of the Atlanta Tech Angels and host of the Georgia Crowdfunding Community Meet Up. Six companies have claimed the Invest Georgia Exemption in 2013, according to the state’s securities regulator.
The lack of activity in Georgia and Kansas hasn’t stopped Washington State and North Carolina legislatures from considering intrastate crowdfunding laws.
Nick Bhargarva, co-founder of the startup Groundfloor and part of a group working to get an intrastate crowdfunding provision through the North Carolina legislature, says there are two main reasons for states to write their own rules: “Part of it is impatience waiting for the SEC, part of it is to create exemptions that better reflect the circumstances within the state.”
To that end, the SEC is likely to take a stricter approach to regulating crowdfunding than individual states.