As someone who works with startups and small businesses and a member of the NationaL Crowdfunding Association, I am very interested in crowdfunding, especially equity crowdfunding. Many people involved in crowdfunding are waiting for the Federal Government to release the regulations that will govern equity crowdfunding in the U.S. However, more than two years after passage of the Jumpstart Our Business Startups (JOBS) Act, the U.S. Securities and Exchange Commission (SEC) is still writing the rules.
Startups have been crowdfunding products and services from movies, to e-bikes, to “solar freakin’ roadways” for years. You can even crowdfund real estate investments. Crowdfunding is also gaining popularity in philanthropy. Just look at the early success of HandUp, the San Francisco-based startup and winner 1776’s Challenge Cup, which is essentially a crowdfunder for homeless. This long history has many people are asking why is legislating and regulating equity crowdfunding so hard?
Among those asking that question are state and local policymakers. State and local officials see intrastate crowdfunding an important tool that can help boost economic growth and have grown impatient with the SEC. And so many states are starting to take legislating and regulating crowdfunding in their own hands.
According to the Kauffman Foundation, eleven states (AL, GA, ID, IN, KS, ME, MD, MI, TN, WA, WI) currently have legalized equity crowdfunding through legislation or regulatory action (source). Over half of the states states debated or are debating crowdfunding-related bills (search terms include “crowdfinance” “crowdfunding” “crowd sourcing” “funding portal” “small business equity”) in the last few years.
State considering such legislation in their current or most recent session include Alabama, Indiana, Maryland, Michigan, Minnesota, Tennessee, Washington and Wisconsin, which all legalized some form of crowdfunding this session, and Florida, where the bill that would have legalized crowdfunding failed in committee.
While most of these bills are focused on the private sector, Hawaii and Massachusetts have bills that looked at a new trend in state and local government, civic crowdfunding. State and local governments around the country are taking a look at this idea, as it promotes or proves public buy-in for government programs, promotes transparency in government, and in some cases even helps raise private sector dollars to fund public projects.
Are these new state laws and regulations working to fund startups and small business and spur economic growth? Unfortunately, many of the people involved in the crowdfunding industry and entrepreneurs looking to raise equity capital are so focused on the looming federal regulation, that these state level opportunities or challenges have gotten little attention.
To be fair, many of these state laws or regulations only passed or went into effect very recently. However, Kansas, which legalized equity crowdfunding in 2011 has had fewer than ten companies use the exemption (source). Why the disconnect? Well, that is a topic for another blog post (or two).
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