Entrepreneurs could have a new way to raise much needed funds thanks to legislation heard in the Commerce Committee Wednesday. This new method, called equity crowdfunding, gives entrepreneurs the opportunity to raise funds from a broader range of investors, and allows Minnesotans to make investments in business opportunities. This method can give new start-ups (who may lack access to traditional loans and capital from banks or venture capital firms) access to capital from investors interested in their idea.
Crowdfunding is not a new idea, and has been a successful way for many small businesses and individuals to get necessary funding for their projects. One well-known example of crowdfunding is reward crowdfunding, with websites such as Kickstarter or IndieGoGo offering perks or incentives for donors. However, as these are considered donations, reward crowdfunding is not well-regulated. Equity crowdfunding has specific regulations to help better protect the investments that people would make into these potential startups. Currently, 13 states have equity crowdfunding laws, including Indiana, Michigan, and Wisconsin.
The equity crowdfunding model allows a business to raise $2 million from crowdfunding if they agree to an audit by a public accountant, or $1 million if not audited (following the model currently used in Wisconsin). Investors would able to invest up to $10,000 in a 12 month period. Investments would be made through an internet portal, called MNvest, which would limit access to Minnesota residents and would have a verification system and a signed declaration affirming they are a resident. This would add strong consumer protections for both businesses and investors.
The Department of Commerce has raised some concerns about consumer protection issues, and proponents of the bill are continuing to ensure it has stringent protection for all parties involved. The bill passed and moved onto the State and Local Government Committee. (S.F. 138)