States Clear Way For Crowdfunding

By Jenni Bergal

Creating a startup company takes a lot of time and effort. It also takes money, which is something that entrepreneurs like Henry Schwartz know all too well.

Schwartz is co-founder and president of MobCraft Beer, a craft brewery in Madison, Wis. His company recently became the first in his state to get approval from regulators to use crowdfunding to raise money from a large number of small investors online. It’s allowed under a new state law aimed at helping startup ventures.

“I think it’s awesome the state passed this law,” said Schwartz, 26. “There’s such a capital crunch in Wisconsin and people are a little apprehensive to invest in startups. So this is a great way for companies to start the first round, and then be able to attract some higher dollar-amount investors down the road.”

In the last three years, Wisconsin and 11 other states plus the District of Columbia have passed laws or regulations allowing startups to use crowdfunding to raise money from investors, without having to jump through all the regulatory hoops that companies with shareholders usually do.

Anya Coverman, deputy policy director for the North American Securities Administrators Association, which represents state securities regulators, said startups in the states where the laws have been changed still have to fill out some paperwork, disclose information to investors and pay a small fee.

But it’s not considered a full-blown securities registration, which can be expensive and time-consuming. The business also must operate in and sell shares to investors only within that state.

“This is a relatively new phenomenon that’s happening on a state level,” Coverman said. “States are really attuned to what local businesses need.”

Indiana passed its law allowing intrastate crowdfunding earlier this year. The goal was to give startups an opportunity to get funding in an easier way, said Republican state Sen. Travis Holdman, the bill’s sponsor.

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