Public comment: Oregon explores equity crowdfunding under the JOBS Act, proposing $250,000 total cap and $2500 per investor

As Oregon startups continue to search for ways to secure capital, the State of Oregon is proposing a rule to cover the concept of “equity crowdfunding,” the idea that small chunks of equity can be sold to potential investors outside of traditional fundraising or venture capital methods. The proposed rule caps the amount of capital raised with this sort of process at $250,000 and caps individual investments at $2500. The State is seeking public comment on the proposed rule.

Title III of the Jumpstart Our Business Startups Act (JOBS Act), enacted in 2012, created a federal exemption for equity crowdfunding. Federal rules under the JOBS exemption have not yet been finalized. Under the federal intrastate exemption, Oregon may enact its own exemption from securities registration for purely domestic offerings unrelated to federal law. ORS 59.035(15) provides that the Director of the Department of Consumer and Business Services may create transactional exemptions for securities through rule. This proposed rulemaking establishes an exemption for small amounts raised by Oregon small businesses through a “community public offering” or what is generally referred to as “crowdfunding.” The proposed rules place certain substantive restrictions on Oregon businesses relying on the exemption, such as individual investor and total offering caps. The rulemaking activity also requires disclosures be given to prospective investors and places restrictions on general advertising of the securities to the public.

The Agency requests public comment on whether other options should be considered for achieving the rule’s substantive goals while reducing the negative economic impact of the rule on business.

I know what you’re saying, “Don’t we already engage in this sort of activity through Kickstarter, Indiegogo, CrowdSupply, and other services?”

Yes and no. While those services allow folks to gather funding for projects and products, they have generally been focused on an exchange of money for goods or services. In contrast, this rule proposes to allow the funding party to take equity—in other words, become a shareholder—in the company making the offering.

It’s the equity that makes it different. You’re not buying product. You’re buying a chunk of the company. Like a VC would.

A public hearing for the proposed rule will be held in Salem, Oregon, at 9:00AM on December 3, 2014, at 350 Winter St. NE, 2nd Floor, Conference Rm. 260. You can address written comments to rules coordinator Shelley Greiner at the Department of Consumer and Business Services, Finance and Corporate Securities, 350 Winter St. NE, Rm. 410, Salem, OR 97301. Written comments are due by December 10, 2014, at 5:00PM.

To read the proposed ruling in its entirety, see Rules in OAR 441-035: Establishes a securities registration exemption for community scale public offerings by Oregon small businesses (PDF). And if you have an opinion on the matter, I highly encourage you to submit comment to the Oregon Department of Consumer and Business Services.

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