Why I support Washington’s proposed crowdfunding law

Joe Wallin  | Geekwire | Feb 11, 2014 – The Washington state legislature has a unique opportunity in front of it right now. It can pass a state-specific crowdfunding law.
You can read the bill, which has already unanimously passed out of a House committee here.
The bill would allow Washington state businesses to raise up to $1 million during any 12-month period from Washington state residents in a crowdfunding campaign. The funds could be raised from non-accredited investors, as well as accredited investors.
The bill has a good chance of passing in a form that would actually be usable. It also strikes the right balance between capital formation and investor protection.
The trouble with securities law exemptions on the books today is that many of them are not usable — except at great and impractical expense to businesses that want to use them. This puts entrepreneurs who want to raise money in a difficult spot, slows down or completely inhibits their ability to raise funds, and hampers economic growth.
This is the reason almost all startups raise money solely from accredited investors under what is known as Rule 506 of Regulation D. If you raise money under that rule, as long as you take money only from accredited investors, there are less complex and less costly requirements than other exemptions.
For example:
Rule 506 does not require companies to work with a registered broker-dealer (which is required under the federal crowdfunding law).
Rule 506 does not require a company to have audited financials (which is required under the federal crowdfunding law if you are raising more than $500,000).
Under Rule 506, you have to file a form known as Form D, but it is a short form, and you don’t have to file it until 15 days after you actually raise money. So, if you don’t succeed in raising money, you don’t have to file the form.
Rule 506 is practical and usable, and that is why a very high percentage of financings fall under it. Other laws passed over the years to try to allow companies to raise money through the sale of securities languish on the books unused because they are impractical.
Of course, the trouble with Rule 506 is that you have to limit your offerings to accredited investors. There is no ability under Rule 506 to raise small amounts of money from lots of people, including non-accredited investors, in a crowdfunding campaign.
If you don’t know any accredited investors, raising funds can be tough. A real slog. Like persistence hunting.
Enter state level crowdfunding. Several states have realized that to support startups and small and emerging growing businesses, they need state securities law exemptions that are more usable and practical, yet balance capital formation with investor protection in a reasonable way. Wisconsin passed a state crowdfunding bill. Both Kansas and Georgia have regulations in place. (See Bill Carleton’s web site statecrowdfundinglaw.com for detail on the various state initiatives).
Washington could be next.
The Washington State bill, HB 2023, is sponsored by Representatives Habib, Ryu, Zeiger, Maxwell.
It is an important bill. It would send a signal to the entire world that Washington takes the business of starting and growing companies seriously, and is willing to amend its laws to bring them up to date with the 21st century.
You might ask: Isn’t a federal crowdfunding bill on the horizon? Shouldn’t we just wait for that?
The answer is no. The federal bill is too complex.
It will cost companies a lot to raise money in compliance with its requirements. For example, suppose you want to raise $1 million under the federal bill. You’re probably going to have to spend something on the order of $250,000 in legal, accounting and broker fees to raise the cash. That’s impractical. It doesn’t make sense. Unfortunately, the federal bill is going to go the way so many prior attempts to write sensible laws have gone. I suspect it will not be used nearly as much as advocates hoped. This is truly unfortunate.
But states have the opportunity to put their own laws in place that will actually work.
The Washington Bill HB 2023 would not put companies trying to raise money in such a difficult spot.
This bill needs the support of the startup community, or it is not going to get a vote on the House Floor. This is an urgent matter, as time is running out in this short legislative session.
Joe Wallin is an attorney at Davis Wright Tremaine. He’s the editor of the Startup Law Blog. Related posts: Crowdfunding: Current Legalities & Proposals… The President Favors Crowdfunding, But Is It Good Enough?…The Troubles With The New Crowdfunding Law
read more: http://www.geekwire.com/2014/support-washingtons-proposed-crowdfunding-law/

HEADLINE NEWS

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news [...]

NPRAfter Outcry, Crowdfunding Site Patreon Backs Off Plan To Raise ...NPRThe popular crowdfunding service Patreon has backed off plans to change its payment structure, after widespread, vocal and passionate opposition from creators and their fans. Last week, the site announced it woul [...]

EntrepreneurWhy Some Small Business Owners Are Turning to Crowdfunding to Save Their CompanyEntrepreneurMany owners of beloved local businesses, especially in pricier cities, have been forced to swallow their pride and appeal to their customers in times of crisis -- a process streamli [...]

TechCrunchHow hate speech crowdfunding outfit Hatreon crept back online ...TechCrunchIf you want to make a living creating white supremacist content, you're probably not going to do it via sites like Kickstarter and Patreon, which prohibit hate speech. Fortunately there's Ha [...]

ForbesCrowdfunding Do's And Dont's From iFundWomen's Karen CahnForbesDuring our conversation, she was transparent in sharing that her first software company, VProud, failed because she “did everything backwards” and spent too much time trying to perfect the product. “Pe [...]

CoinDeskKickstarter ICO? Don't Count On It Says Crowdfunding Leader ...CoinDeskThe company most widely associated with crowdfunding, Brooklyn-based Kickstarter, has no plans to get into the initial coin offering (ICO) business. Coming in response to the news yesterday that compet [...]

Crowdfunding bid to cut car cover for millennials | Business | The ...The TimesAn insurance start-up that claims it can reduce premiums for millennials will launch a £15m initial coin offering (ICO) next month in another sign of the growin.and more » [...]

TechCrunchFormer Gawker employees are crowdfunding an effort to buy Gawker.comTechCrunchWhile Univision acquired most of Gawker Media's sites last year (and renamed them as the Gizmodo Media Group), the deal didn't include Gawker itself. In fact, BuzzFeed reported last month [...]

Crowdfunding For French CastlesNPRYou too can own a French chateau, in part, anyway. Romain Delaume, CEO of Dartagnans, tells NPR's Scott Simon about a crowdfunding effort underway to preserve La Mothe-Chandeniers. SCOTT SIMON, HOST: What if I told you that for about $60, you cou [...]

CryptoCoinsNewsCrowdfunding Giant Indiegogo Looks to Make ICOs MainstreamCryptoCoinsNewsCrowdfunding platform Indiegogo has a plan to help initial coin offerings (ICOs) break into the mainstream, even as the U.S. Securities and Exchange Commission (SEC) is ramping up its oversight of [...]

CFB Finance

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |