Clarifying Crowdfunding: Promotion Via Web Won’t Be Quite So Tricky

By Danielle Woodward
The Record-Eagle, Traverse City, Mich.


The multibillion-dollar investment crowdfunding industry could see even more growth — new regulations are expected to make the process easier.

The regulations — adopted by the Securities and Exchange Commission in October — will take effect in May. They are part of the 2012 Jumpstart Our Business Startups Act, which aims to make investment crowdfunding more accessible by easing securities regulations.

“Investment crowdfunding has been leading the industry globally, but we should see a really startling growth in the U.S. once these new rules are effective,” said Kate Redman, attorney with Olson, Bzdok & Howard PC in Traverse City.

The regulations will clarify how crowdfunds can be advertised online and set limits to the amount of money an individual can invest.

The clarification is a relief for local entrepreneurs wary of the previously unclear guidelines. It inspired Bill Koucky, owner of Grand Traverse Culinary Oils, to try investment crowdfunding again after his initial attempt failed last year.

Grand Traverse Culinary Oils produces local canola and sunflower oil. Koucky hopes to raise $250,000 to build an oil refinery for his business to stay competitive with an international market.

“We’re dedicated to being local so it was important that local investment be a proponent of our project,” he said. “There’s so many options with investment crowdfunding and it really appealed to me.”

Koucky planned to gather loans through LocalStake — an Indiana-based online investment crowdfunding portal — but strict regulations made it difficult. He abandoned his crowdfunding efforts after receiving a cease and desist order from the state last February.

“We were proceeding with caution — we hadn’t even taken any money yet — and we still got a cease and desist,” he said.

Before that, Koucky found it hard to promote his crowdfund. Federal law prohibited him from using a website or any form of social media to advertise it. Michigan’s own law — Michigan Invests Locally Exemption — allows small businesses to seek investments from other Michigan residents, but each investor had to be vetted to ensure Michigan residency.

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