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Local Businesses: More on Crowdfunding

Is Crowdfunding Right for Your Business?

An interesting article in Crain’s Detroit addresses crowdfunding and whether its right for businesses. Check it out here.

The article is meant for small and large businesses alike to consider whether or not crowdfunding is a viable source of funding for their respective businesses. The article addresses “rewards based” crowdfunding and “equity” crowdfunding, but let’s just consider “equity” crowdfunding, particularly, Michigan’s intrastate crowdfunding Exemption – the MILE Act. For more on the MILE Act, check out some of my prior posts.

Crowdfunding and Local Community-based Businesses.

One point that came out of the article was that crowdfunding, if it is a viable funding tool, is best suited for small local businesses.

I certainly agree that local businesses, who intend to stay local, are well-suited for crowdfunding. In fact, that was a goal of the Federal JOBS Act.

As the State of Texas has recognized in promulgating its own rules on intrastate crowdfunding:

“The legislative history of this federal provision [JOBS Act] suggests that the exemption was intended to apply only to offerings genuinely local in character, which in reality represent local financing by local industries, carried out through local investment.”  You can check out Texas’ Intrastate Crowdfunding Rules here

The Michigan Municipal League stated in the Crain’s Article that long-standing community-based businesses can benefit from crowdfunding, since those businesses would have name recognition in the community, and proven track record to stick around.

Crowdfunding is Met with Skepticism.

Not surprisingly, most of the attorneys interviewed react to crowdfunding with some skepticism.

“It’s such a gray area that a lot of attorneys just say, “I don’t know’ and take a conservative approach,” said Kevin Hitchen, co-founder of Localstake. “That’s why you don’t see a lot of businesses (using MILE). It’s restrictive.”

Indeed, as a lawyer, my job is to protect my clients from liability, it is hard to fully protect clients from the unknown.

As I’ve previously indicated, the State of Michigan appears not to be anywhere near ready to propose rules to help guide the MILE Act Implementation. Without this guidance, it certainly makes life difficult for Michigan business lawyers advising their client’s on MILE Act compliance.

However, I don’t believe that justifies labeling the MILE Act as a fad that will soon fade away. At a minimum, it is a tool that local entrepreneurs should consider for local (and lasting) economic development.

As I’ve previously written, I believe crowdfunding is a useful tool for social entrepreneurs who want to invest in a local community. Detroit, Grand Rapids, and other urban communities are good examples of communities ready for entrepreneurs to “take the leap” into intrastate crowdfunding.

Michigan is Not Backing Away From Local Crowdfunding

On October 21, 2014 Governor Snyder signed into law HB 5273 which created a “Michigan Investment Market” to local intrastate crowdfunded securities. You can check out the legislation here

The intention  of the “Michigan investment market” would be to connect buyers and sellers of local securities. You can review the New York Times article titled “A Way for Local Businesses to Grow” about the new law here

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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