Crowdfunding is a method for large groups of people to give small amounts of money for a particular purpose. Crowdfunding started as a way to raise money in exchange for the pleasure of supporting a cause or purpose one believed in. Some campaigns (or raises) later enhanced the incentive to give money by providing a reward; such as, a video game download, tickets to a concert, a watch, etc. The key to crowdfunding is the ability to advertise and solicit funds from a large number people; an ability that has been greatly enhanced by the growth of social media.
The success of reward crowdfunding led entrepreneurs and investors to ask why companies couldn’t just sell equity or part ownership in the company or alternatively, the company’s debt. The short answer was that federal and state laws restricted the ability to advertise and solicit the sale of securities generally and provided further restrictions on the number of “regular” investors that could make such purchases. Then, in March 2012, the Federal JOBS Act was enacted legalizing securities crowdfunding subject to a number of legal requirements and regulations. The JOBS Act allowed the Securities and Exchange Commission (“SEC”) to address crowdfunding for two different sets of investors. First, the SEC adopted regulations to allow for advertising and solicitation of offering where investment was restricted to accredited investors (i.e. high income or high net worth investors.) Second, the SEC proposed regulations to allow investment by the general public; these regulations have yet to be adopted. Additionally, Wisconsin and several other states have adopted laws that permit securities crowdfunding on an intrastate basis.
As of June 1, 2014, a new law created an intrastate exemption that permits Wisconsin businesses to raise money from Wisconsin investors through Internet crowdfunding sites. A Wisconsin business can solicit “regular” investors to raise up to $1 million dollars, or up to $2 million if the issuer has had audited financials in its most recent fiscal year, and has provided the audit to prospective investors and the Wisconsin Department of Financial Institutions (“WDFI”.) To qualify, the transaction also needs to meet the requirements of the federal exemption for intrastate offerings in section 3 (a) (11) of the Securities Act of 1933 and SEC Rule 147.
Investors, too, must be from Wisconsin. Under the law, any single purchaser may invest a maximum of $10,000 in a single crowdfunding offering. Accredited, institutional and certified investors are not subject to the $10,000 maximum nor are their investments counted in the overall offering limit. Certified investors are individuals or households with a net worth of at least $750,000 or individual income of more than $100,000 or household income of more than $150,000 in each of the two most recent years. For more information, please refer to the statute 551.202(26), Wis. Stats.
This change means that Wisconsin residents may now easily invest in Wisconsin businesses—start-ups and those with capital need for growth. Equity for Business Inc. has registered with WDFI to establish MoolaPitch.com as a crowdfunding site for Wisconsin entrepreneurs to undertake these offerings.