Equity crowdfunding , but so far no business has taken the state up on its offer.
Perhaps will be the first to see some investor action?
Invest Local Colorado comes from , who as part of Colorado Capital Congress PBC, a public-benefit corporation to promote access to capital in Colorado. He attended into law last April.
A crowd gathered for Gov. John Hickenlooper’s signing of House Bill 1246 into law to allow equity crowdfunding in Colorado in April 2015. Karl Dakin is the man in the brown suit coat standing behind Rep. Dan Pabon, D-Denver, who is to the immediate right of the governor.
The company is approved by the state’s Department of Regulatory Affairs to act as an intermediary between small businesses that want to raise money through crowdfunding and residents who want to support them. None of the others are up and running.
In Colorado, people who live in the state can invest up to $5,000 in a small business in exchange for equity. The goal is to help the community support a local restaurant, dry cleaner or other small business. The state law bypasses U.S. rules allowing only accredited investors to invest in a private company. Accredited investors must earn at least $200,000 annually and have a $1 million net worth.
The U.S. does allow equity crowdfunding as part of the JOBS Act passed in 2012. It had been on hold until the U.S. Securities & Exchange Commission , which it finally did in October. Those should go into effect next spring.
Of the by the state, two have “coming soon” websites. Another, , which caters to restaurant owners, to ditch equity for food and beverage credit.
The last site, EzyXchange Ltd., has not found a technology partner yet and “thus does not have an online platform to host crowdfunding campaigns for Colorado businesses,” said site owner Lucas Marquardt in an e-mail.
But, he said, he’s joining Dakin and Invest Local to offer crowdfunding to Colorado businesses.
Dakin says his company can help a small business start a crowdfunding campaign today if they are ready. The site gets interested businesses started with a quiz.
A business must first to register with the Colorado Division of Securities. Invest Local would then make sure the business meets state crowdfunding requirements — the business must be based in Colorado and seek no more than $1 million (or $2 million if it provides audited financial statements).
Invest Local also charges an upfront fee based on the maximum number of investors — or $2.50 per investor. Depending on the anticipated amount of money raised, the fee could be between 1 percent and 10 percent of the total. For example, if a business is trying to raise $100,000 and sets the minimum investment at $1,000, the maximum investors would be 100. Invest Local would charge a $250 fee, or a quarter of a percent. But if the business is trying to raise $1,000 and the minimum investment is $10, then the maximum number of investors is still 100, and also a $250 fee.
Popular non-equity crowdfunding site Kickstarter raised plus has payment processing fees of at least 3 percent.
Invest Local plans to vet businesses further than the state.
“We’re setting up our own criteria on whether we think you’re qualified or not to run (a campaign). Our primary interest is in the campaign being successful,” Dakin said. “We may discover issues that didn’t surface during the state review.”
But his firm isn’t here to promote or favor an individual campaign.
“We’re not vetting in a sense of saying this is a good investment, but vetting in that they’ve done everything they’re supposed to do,” Dakin said. “We’re here to reduce the cost of running a campaign by offering a common site.”
Invest Local does have some limits. Because it uses a technology from San Francisco-based , Invest Local cannot accept projects raising money for marijuana, multi-level marketing or .
Invest Local also wouldn’t handle any of the money. Funds raised would go from the investor’s account to an escrow agent or issuer of the business, Dakin said.
