As of January 15, 2014 Massachusetts is joining a host of other states that have taken on crowdfunding exemptions over the last few years. A few of those states include Texas, Washington, Indiana, and Georgia. William Galvin, Secretary of the Commonwealth, announced that the emergency regulation would deal with intrastate investment offerings online. This new regulation is effective immediately. In a statement, Galvin said:
“This exemption will enable Massachusetts startups and entrepreneurs to more easily use the internet to raise capital which I hope will, in turn, give a boost to the Commonwealth’s economy and foster job growth here. And a carefully crafted regulation such as this offers protections for investors and companies using this new form of generating capital.”
The exemption will be available to corporations, limited liability companies, and limited liability partnerships. They will be able to raise up to $1 million in one year, or $2 million if their financial statements are audited. On the investor side, an individual can invest $2,000 or 5% of their income (whichever is greater), or if their net income is over $100K they can invest $100K or 10% of their income or net worth. According to WWLP-22News:
“The crowdfunding exemption is not available to certain types of issuers: blind pool and blank check offerings; investment companies; hedge funds, commodity pools, and similar investment vehicles; and businesses involving oil and gas exploration or production, mining, or other extractive industries.”
The announcement surprised some people who are familiar with Galvin’s skepticism when it comes to matters like equity crowdfunding and the JOBS Act. A Bloomberg Businessweek post from May 2013 reported that William Galvin was putting together a team to monitor crowdfunding offerings:
“The new department, called the Internet Crowdfunding and Offerings Watch Department, or I-Crowd, will track how issuers of securities use general solicitation to market offerings, and monitor equity crowdfunding portals raising money in Massachusetts. (For the moment, equity crowdfunding is limited to sites working with a registered broker-dealer, but the SEC is expected to eventually pass more JOBS Act rules that will allow equity crowdfunding on a wider basis.)”
It seems that Massachusetts has decided to follow the lead of other states who have chosen to create their own crowdfunding rules in the hopes of boosting their economies. A ThinkAdvisor article pointed out:
“The North American Securities Administrators Association says that 15 jurisdictions in addition to Massachusetts have, either through legislation or regulation, offered similar crowdfunding exemptions.”
This trend has been referred to as “The Intrastate Crowdfunding Movement” in the US. These states believe that intrastate crowdfunding rules will benefit small to medium-sized enterprises (SMEs). Crowd Valley claimed that this was one of the reasons for New Mexico’s adoption of a securities crowdfunding exemption. Their exemption is quite lenient, allowing any New Mexican invest, and any New Mexican enterprise to raise an unlimited amount of capital. Now that investment and equity crowdfunding platforms are on the rise and experienced investors are participating in online offerings, more states seem to be warming up to the idea.
