Fostering access to finance for SMEs and thus encouraging job creation appear to be a common objective these days among US states. And one of the measures that many have taken lately is to allow intrastate crowdinvesting, which is seen as a method to facilitate capital collection for private companies. The last state releasing a draft proposal for a local Crowdfunding Act is Colorado.
- The maximum investment for non accredited investors is $5,000 per project. This cap is not valid for professional investors, for whom there is no stated limit.
- Investors must be residents of Colorado or entities formed pursuant Colorado laws.
- Issuers can raise a maximum of $1 million, unless they submit audited financial statements to the securities commissioner, in which case the cap is $2 million
- Issuers must inform investors that the he securities are subject to limitations on resale, and the investor must acknowledge the risks associated with the purchase
- A quarterly report must be sent to investors, informing them about business operations and financial conditions of the company.
Online investing intermediaries
- Intermediary platforms are forbidden to offer investment advice or handle investor funds or securities
- Their compensation must be in the form of either a fixed amount for each offering or a variable amount based on the length of time that the securities are offered by the online intermediary, or a combination of the fixed and variable amounts
- Records of securities transactions shall be kept and presented in case of inspection by the division of securities.
The proposed regulation has been criticized for not addressing two hot issues in the field, that is risk of loss and lack of liquidity. However, these two problems are common to the entire digital investing sector and, while the former cannot be completely eliminated -since investing is a risky activity per se -, but only mitigated in different ways, the latter is currently being discussed all over the industry and likely a good solution will sooner or later be proposed.
State of Colorado (2015). Crowdfund Intrastate Securities On-line.
About the author - Irene Tordera
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.