Michigan just joined the growing number of states that have passed crowdfunding exemptions. Intrastate crowdfunding is a way for states to circumvent the log jam in the federal government. By allowing local investors to invest in local businesses, states like Michigan are promoting the local economy without the oversight of the federal government or the SEC.
Michigan’s crowdfunding law allows accredited and non-accredited investors to invest in local businesses. Limits have been set at $10,000 a year for non-accredited investors. This is more straightforward than the SEC’s proposed limits which are based on a percentage of income. For example, the SEC rules would cap annual investments at 5% of a person’s annual income or $2,000 total. If the investor makes over $100,000 per year the SEC will raise that amount to 10% of their income. Michigan has simplified things by issuing the straight $10,000 a year cap. Accredited investors are not bound to these rules as they are free to invest in companies through existing Regulation D exemptions.
Michigan is looking to take their stance on local investments one step further. Their legislature is currently considering a bill that would allow for a Michigan only stock exchange. This would create additional liquidity within the state, helping to promote local businesses, create jobs, and hopefully improve the states economy.
The bill, HB 5273 is facing some opposition as law makers are concerned with how the SEC would become involved in the process, potentially creating regulatory hoops. They are concerned that the internet would create a means for the SEC to regulate these transactions but the SEC has not clearly issued a statement as such. The bill lays out the framework and guidelines for an instate only stock market, along with provisions to protect both parties.
Michigan is a good example of a state willing to take action to improve their economy. Crowdfunding is not simply a fad that novice investors want to participate in. Crowdfunding is a viable mechanism for growing small businesses and improving the economy. When a local investor puts money into a local business they will not only help them financially but are likely to support them by visiting their business and buying their goods or services as possible. They will also become cheerleaders for the business, telling their friends to become a customer as well. This is the beauty of an intrastate crowdfunding exemption. You are building a local echosystem where investors, consumers, and businesses all work together to make something a success.
Local investors are true stakeholders in the companies they support, just as they are with local charities and community organizations. We will continue to watch Michigan and other states like Kansas to see the level of success they are having with their intrastate crowdfunding platforms. Once the SEC has finalized the federal crowdfunding rules businesses will have to decide if they want to stay with local in state platforms or if they want to open it up to investors nationwide. Several things need to go into that discussion including acknowledging where your support is likely to come from and looking at the investment caps per person at the state and federal level.
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