Home > business, Crowdfunding, Real Estate > Michigan Crowdfunding Law Update: Viable Tool for Social Entrepreneurs?

Michigan Crowdfunding Law Update: Viable Tool for Social Entrepreneurs?

I had a client come in yesterday  – a local restaurant owner. A startup business.

– quick comment – 

Gotta love local start up businesses. I love their value in being an active part of a local community – their entrepreneurial spirit –  willingness to take risks.

– Ok – back to where I was going…

One of the client’s concerns was (like every startup business) cash flow.

Question: If you are a startup local business where do you get funding?

It can be a challenge going to a commercial lender without having any track record of success and asking them to loan you money to start up a business. (Especially if you are restaurant).

Crowdfunding could be the answer.

The Michigan Invests Locally Exemption (MILE Act) MCL 451.2202a 

For local small business startups, the MILE Act could be the answer.

It allows any Michigan resident to invest up to $10,000 in a locally owned business seeking to fund a project up to $1 million ($2 million with audited financials). If the investor is an “accredited investor” that investor is not limited by the $10,000 cap.  I wrote an article about the MILE Act back in March for Grand Rapids Area Professionals For Excellence, you can view that article here.

Also, for more information, you can check out the State of Michigan’s Frequently Asked Questions Page

What I love about Crowdfunding.

What I love about crowdfunding can be illustrated in Charles Best‘s company DonorsChoose. Charles spoke today at the Grand Rapids Economic Club – great event! It isn’t every day a speaker gets a standing ovation. To date, Donors Choose has raised over $291,000,000 directly for specific needs in classrooms all over the U.S.. What an impact!

After the event, Charles Best gave every attendee a 50 dollar donation to give towards a school need.  I donated to Mrs. Sanchez’ 2nd grade class  at Stocking Elementary in Grand Rapids. Feel free to donate as well!

The whole concept of Donors Choose is for schools who have legitimate needs to connect with donors who care. Donors Choose “gets around the gatekeepers” (e.g. – government, foundations, knowing the right people, etc…)

This is what I love about crowdfunding.

Crowdfunding gets around the “gatekeepers” to connect worthwhile projects to “investors” who care about a project. Investors who care about a community.  This is particularly true of Intrstate Crowdfunding Exemptions – a pre-requisite is that both the investor and the business need to be Michigan based. What potential to impact a local community!

To learn about some local West Michigan businesses utilizing crowdfunding, check out these: Pilot Malt House,  Loquidity, LLC.

The Current State of Crowdfunding in Michigan.

There have been changes in the crowdfunding landscape since I posted back in March. Other states have enacted Crowdfunding Laws. Most of them have closely mirrored earlier states’ legislation.

Since January, there have been few local businesses to utilize the MILE Act in Michigan. Currently, Michigan has only a handful of registered portals, and only 1 project that was successfully funded using the MILE Act.

Why the lack of funded projects?

A few reasons come to mind:

  • The MILE Act is still new, and relatively unknown as a viable funding source.
  • Although not as cumbersome as securities registration, there are still several forms to file and hoops to jump through, and ongoing compliance with LARA.
  • Most importantly – there is a general lack of guidance on how the MILE Act is implemented.

The MILE Act provides that the Administrator (LARA) may enact rules to implement the Act, but currently no rules have been implemented. As relayed to me, rules have been proposed, but still need to go through the administrative rulemaking process of public hearing and comment, and then ultimately legislative review. These rules will help both investors and startups navigate this new landscape of Intrastate Crowdfunding. Some states have proposed rules, which provide some guidance to other states, like Michigan.

Conclusion: 

The MILE Act is a viable option to connect investors who care about their community with local startup businesses who seek to revitalize and play an active role in their community. Particularly investors who traditionally did not have access to invest (as non-accredited investors), and to business startups hindered from access to start up funds by “gatekeepers”

State legislatures and regulatory bodies are currently working to provide more guidance on implementing the crowdfunding exemption.

My take: there is plenty of room for good start up businesses (with a sound business plan) who want to make their local community a better place. The MILE Act could be a useful tool.

Questions? Comments?

Email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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  1. December 9, 2014 at 7:33 pm

    Great article We are a current Michigan business with over 10 years of growth that has been totally funded from within. We are currently looking to expand due to added growth and our next move will have to entail outside funding. Would the Michigan Mile project help in this situation?

    • December 9, 2014 at 8:53 pm

      Thanks for your comment, Harald. I would be happy to talk sometime if you would like to shoot me an email or give me a call.

  2. December 11, 2014 at 3:56 pm

    So great to see you writing about this Jeshua. I’m ex securities regulator that is pro-crowdfunding, especially at the state level. I speak around the state (and the Midwest) and always encourage entrepreneurs to consult with a local attorney.

    • December 11, 2014 at 4:00 pm

      Thank you for your comment, Tom. Much appreciated!

  1. January 20, 2015 at 9:10 am

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