When the JOBS Act was passed, it sounded like a dream to many business people: laypeople would be able to invest in start-ups and reap the benefits of their rapid growth just like a venture capitalist can. We would jump-start the creation of thousands of companies that would bring jobs and wealth to everyday Americans. That dream, however, has yet to become reality. The so-called “Regulation Crowdfunding” made possible by Title III of the JOBS Act has been slow to catch on. In addition, many of the businesses making offerings on national crowdfunding portals are not flashy startups with high growth potential but small local businesses looking for operating capital.
Why are these small local businesses conducting nationwide searches for investors?
It could be because they aren’t aware of other options. In much of the country, locally focused investment crowdfunding has yet to gain traction. To date, over 35 states have passed intrastate investment crowdfunding laws that enable businesses to conduct local securities offerings (either via online portals or on their own). Of those states, many are still muddling through the administrative rule-making process. In several of the states where these rules have been finalized, there aren’t yet any state-level portals up and running, nor are there lawyers or professional service providers who know how to conduct such an offering.
What’s stopping the growth of intrastate investment crowdfunding?
According to Amy Pearl of Hatch Oregon and Janice Shade of Milk Money in Vermont—two of the organizations (a nonprofit and for-profit, respectively) that are leading the way with investment crowdfunding in their states—the problem is multifaceted. Intrastate investment crowdfunding has not received as much media attention as the JOBS Act and Regulation Crowdfunding, so many of the people who could be using these services don’t even know that they exist. Businesses aren’t aware that such portals can be a viable source of capital and investors don’t know that they can use these laws to support their local economies.
Unlike the JOBS Act, most intrastate investment crowdfunding laws don’t require funding portals to be run by registered broker/dealers or to be licensed by the SEC. In most states, this means that a funding portal could be started by any enterprising entrepreneur or organization. But this also means that intrastate investment crowdfunding portals are start-up enterprises themselves, and thus must also raise seed funding and develop sustainable business models of their own.
Pearl and Shade run two of the most successful intrastate investment crowdfunding portals currently in existence, and Hatch Oregon and Milk Money Vermont serve as models for entrepreneurs looking to launch similar services in other states.
In Oregon, Pearl was instrumental in lobbying for the creation of an intrastate investment crowdfunding exemption. She helped write the rules for the Oregon Intrastate Offering Exemption, which created the Oregon Community Public Offering (CPO). Oregon’s law allows businesses to raise up to $250,000 through such offerings over the lifetime of their business. To date, Pearl has facilitated almost $500,000 in local investments over the two years since CPOs were signed into law. Hatch Oregon is part of the same umbrella organization (Hatch Innovation) as Pearl’s successful statewide network of business incubators, Hatch Labs. She has been able to use Hatch Labs as a platform to teach entrepreneurs about these new financing mechanisms.
Pearl’s real challenge has been investor education. Teaching investors how to evaluate these new securities offerings is essential to the success of investment crowdfunding, and the state of Oregon did not have a plan to address this challenge when its intrastate offering exemption went into effect. Hatch Labs connects Pearl to a large pool of local entrepreneurs, but her efforts can only succeed if there are investors willing to invest in the companies she works with.
In Vermont, Shade and her partner Louisa Schibli have encountered similar problems in operating Milk Money. Schibli and Shade see themselves as ambassadors for this new model. They, too, have found that they have to spend much of their time on investor education. Shade and Schibli travel throughout Vermont presenting to community groups, teaching people about the ways in which local investing can help individuals, businesses, and communities.
To address these issues and support the development of intrastate investment crowdfunding portals, Pearl, Shade, and Schibli have joined forces with other local investing enthusiasts to create a new organization, the National Coalition for Community Capital (NC3). NC3 (which was born at Pearl’s 2016 ComCap conference) aims to coordinate investor and business education nationwide, collect data about the new field of intrastate investment crowdfunding, and identify best practices for investors, entrepreneurs, and portals.
 There are a handful of cases in which locally or regionally oriented portals have sprung up to fill this gap in locales in which state-level laws lag behind. But, with the local framework lacking, they’ve had to conduct offerings under Title III of the JOBS Act.
 I am a Fellow with the National Coalition for Community Capital.