Crowdfunding is Dead...At Least for Now - 1

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Intrastate crowdfunding might not have hit the NC Senate floor last session, but it's increasingly top of mind for local lawyers.

Together with some local firms, startup founders and crowdfunding enthusiasts, Campbell Law Review will base next Friday's annual Symposium on the topic. And the college is flying in a handful of national experts like Faith Anderson, chief of registration and regulatory affairs for the securities division of the Washington Department of Financial Institutions, Ryan Flynn, who is using Indiana's intrastate exemption for his startup Localstake and Nick Bhargava, co-founder of Groundfloor  the real estate crowdlending startup that moved from Raleigh to Atlanta last year. Keynote speaker is North Carolina Secretary of State Elaine Marshall.

Campbell Law School's academic journal annually plans a daylong discussion for local lawyers, students and the larger community. It's always centered on a topic with significant legal implications for the community—last year's was municipal bankruptcy. 

Crowdfunding has grown in popularity despite that the Securities of Exchange Commission has dragged its feet in creating rules for the practice of retail equity crowdfunding and many states have yet to allow it within state bounds. According to a report by Massolution, crowdfunding is expected to outpace venture capital investing in 2016. $34 billion in deals are expected in 2015, up from $16 billion in 2014. Those include Kickstarter, Indiegogo and other sites in which money is traded for goods or future purchases rather than shares.

Locally, entrepreneurs like Justin Miller of WedPics and Justin Benson of Spreedly have used AngelList to raise investment dollars. And a pair of recent NC State University graduates have launched a site called Malartu that allows smaller and newer startups to raise funds from accredited investors. Four companies have used the site to raise funds so far.

Groundfloor, which found its early adopters in Georgia, where intrastate crowdfunding is permitted, has since become the first company in the U.S. to get SEC approval to do six-month-old RegA Plus offerings, another way for non-accredited investors to put money into real estate deals. The company is rolling out its platform in eight additional states.

According to Symposium organizer Lillie Seifart, the topic was chosen because of the uptick in litigation surrounding it in Raleigh.

"We want to talk about practical approaches and best prepare our students to be practitioners in the community," she says. 

The event is open to anyone interested in crowdfunding—Campbell hopes to attract startup founders and investors—and it's free as long as you register by Tuesday, October 13. 

But back to the state of crowdfunding in North Carolina. Mark Easley, another Symposium speaker and the local angel investor who led a lobbying effort in recent years blogged about the legislature's lack of action this week. His hope is that federal rules will be released soon, which might open up North Carolina to crowdfunding despite its lack of an intrastate law. If not, our state might continue to lag without action.

Here's what he wrote:


Unfortunately, the NC JOBS/PACES Act investment crowdfunding exemption bill (S481) has once again failed to make it through the NC legislature. They adjourned without taking up the bill for discussion, and it languished in the Senate Finance Committee all year. This despite the fact the bill had the support of the Governor, the Lieutenant Governor, the NC Commerce Secretary, the NC Secretary of State and the Securities Division, and the startup and small business communities all over the state that would have benefited from this new form of financing. 
 
As of May this year, 19 other states have already passed a similar exemption, and an additional 20 other states have one in process. States like Indiana and Texas are already successfully helping small businesses get started and grow using both debt and equity crowdfunding based on these exemptions. So this represents a huge missed opportunity for North Carolina to join the 21st century and wake up to what is happening in the financial industry. There was no opposition to the bill, and it didn't cost taxpayers a penny. The exemption was a grass roots effort to help solve the lack of financing that has tortured the small business community ever since the 2008 banking collapse. While investment crowdfunding will be working well in many other states, the small business and startup communities here will continue to suffer. 
 
As one supporter said on hearing the news, "I think we need a new motto: first in flight, but last in crowdfunding!" Sad but true.