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State Nears Adoption Of Equity Crowdfunding Rules

MNvest passed during the 2015 legislative session, but it has been in rulemaking since.

Minnesotans of all incomes might soon be able to make equity investments in local companies not unlike how they give money to Kickstarter campaigns.
 
The ability to do so is thanks to MNvest, legislation that “aims to provide wider, cheaper and faster access to funding for companies and entrepreneurs,” according to the organization by the same name lobbying the effort. MNvest was signed into law in 2015 as part of an omnibus spending bill, but it needed to complete the 22-step process of rulemaking that can sometimes takes years.
 
Finalized rules for the legislation have worked their way through the state Department of Commerce and are now sitting on Gov. Mark Dayton’s desk. Dayton has 14 days from the time he receives the rules to veto them. If he does not, the rules could go into effect five working days after they’ve been published in the state register.
 
The law permits interested parties to set up crowdfunding portals where investors can give money to entrepreneurs for money. Current rules permit most Minnesotans to give up to $10,000 per offering, while high net worth, “accredited” investors can give any amount up the $2 million annual cap. Last year, TCB looked into the legislation and profiled a brewery that was interested in crowdfunding.
 
“[MNvest] is a fantastic new opportunity for new investors and companies,” said Zach Robins, a cofounder of MNvest and attorney at Winthrop & Weinstine. “It finally permits companies to raise capital from the public and let the public decide what’s worth funding and what is not – it’s the democratization of funding.”
 
The legislation was made possible through the federal 2012 JOBS (Jumpstart Our Business Startups) Act, which directed the Securities and Exchange Commission to issue rules that permit crowdfunding for smaller investors, while also permitting states to issue their own rules. Until that point, businesses could only solicit money from friends and family or forgo them and purse “accredited investors” that had to fit stringent, Great Depression-era guidelines.
 
Federal crowdfunding rules rolled out earlier this month under the name Regulated Crowdfunding. Robins said it’s a good option for companies looking to raise money throughout the country, but it comes with lower investment caps (the total amount is determined by a formula based off net worth), stricter financial disclosures and significantly more rules—MNvest is 12 pages, while the federal law nears 700.
 
About a dozen different portal operators have been in touch with Robins as the potentially rollout nears. Assuming the state begins to take applications for portals by the beginning of June, he said some could be live by July 1 and taking their first offerings by mid-July or early August. But he stressed that such a timeline is likely aggressive.
 
Angel Tax Credit Expanded
 
During this session, legislators expanded the Angel Tax Credit in the omnibus tax bill to include MNvest and other equity crowdfunding sources. The program provides a 25 percent credit to investors in qualified startups.
 
Non-accredited investors hoping to take advantage of the program need to invest exactly $10,000—the minimum threshold for the credit and cap for those who aren’t accredited. Accredited investors can give as much as $500,000 that is eligible for the credit.
 
The tax bill is awaiting the governor’s signature.