BOZEMAN, Mont. — U.S. Senator Steve Daines today introduced legislation to better the way entrepreneurs raise funds through crowdfunding, a way that prevents expensive regulatory red tape from keeping startups from getting off the ground.
Crowdfunding is the basic idea of raising money by relatively small contributions from a large number of people – combining the best of microfinance and crowdsourcing.
The Securities and Exchange Commission (SEC) issued a rule last October to give entrepreneurs an important tool in their belt to get their dreams up and running. As a result, the crowdfunding rule allows entrepreneurs to raise up to $1 million annually without having to incur the costs of expensive SEC registration.
“Startups shouldn’t be penalized with costly paperwork by growing too fast,” Daines stated. “This bill makes sure startups do not fall victims to their success by reaching the current crowdfunding limits too quickly. This bill is a win for Montana and all our entrepreneurs. Enhanced crowdfunding can better give Montanans the tools they need to create more good-paying jobs and allow them to pursue their entrepreneurial dreams.”
Eric Fulton, CEO of Treasure State Internet & Telegraph: “Crowdfunding enables TSI&T to grow at the level our support and the need of our community, not just our debt to asset ratio. Raising the ceiling that triggers SEC reporting is incredibly helpful to grow our business. The cost of triggering those reports is extremely high, both in time and money, and while our company is so small, we have everyone working in all areas of the business. Burdensome reporting requirements can take your focus from growing your business.”
Matt Gorecki, COO of Treasure State Internet & Telegraph: “Being able to include third-party crowdfunding as a line-item group instead of a stack of individuals in our reporting not only streamlines the reports, but keeps our growth and investment information clean and clear. When larger investors review our current list, seeing that we use crowdfunding sources is a benefit, and they know the great work these organizations do for start-ups like ours.”
According to the Small Business Administration Montana has over 115,000 small businesses in the state, making up 97.4 percent of all businesses. These organizations employ nearly 236,000 Montanans, or 67.4 percent of the state workforce.
The bill passed the U.S. House of Represenatives with overwhelming bipartisan support on July 5, 2016.
Crowdfunding Enhancement Act:
- Allows for a startup to crowdfund through a combined interest entity. When a startup is ready to grow beyond the use of crowdfunding, this entity keeps institutional investors from being scared off. This is because instead of seeing potentially thousands of private individual investors with different ownership allocations, the institutional investors will only see the ownership interest of the combined interest entity. This provision ultimately allows for a simplified “cap table”, which shows the ownership interests of each investor.
- Increases the limits that require a startup to register with the SEC, which requires a significant and burdensome costs. This provision ensures that startups do not fall victim to their own success by raising $1 million and growing so quickly that they surpass the limitation threshold.