Colorado now allows equity crowdfunding
denverpost.com
denverpost.com
You can only have investors from colorado, to a company formed in colorado and 80% of the investment has to be spent in colorado.
Still this is a move in the right direction, and I hope it helps some of my CO-based peers get off the ground.
source:
http://www.leg.state.co.us/CLICS/CLICS2015A/csl.nsf/fsbillco...
(A) THE INVESTOR IS A COLORADO RESIDENT OR IS AN ENTITY FORMED PURSUANT TO COLORADO LAWS;
(B) THE ISSUER OF THE SECURITIES IS AN ENTITY FORMED PURSUANT TO COLORADO LAWS AND DOING BUSINESS IN COLORADO; AND
(C) THE ISSUER INTENDS TO USE AND USES AT LEAST EIGHTY PERCENT OF THE PROCEEDS OF THE SALE OF SECURITIES IN COLORADO
http://www.filmfinanceattorney.com/page/483179582 Typically a film production co. offers investors something like a 50% interest in an LLP or LLC split into units keyed to the budget, first position, and 25% interest, to reflect the high risk inherent in such a venture. And no, this is not meant as a solicitation!
Information asymmetry, risk mismanagement, chasing quick riches, etc - too many reasons imho why startups are not a viable asset class for most people.
"The new law eases the process of raising that first $1 million by letting people ask their neighbors for up to $5,000. While companies must inform investors of the risk and provide quarterly reports, they can skip the audit and other expenses typically needed to attract investors."
So, it is $5k at a time. The main difference between this and the normal "friends and family financing" is that it can be a larger number of less connected investors and the company needs to provide reports.
Being a member of an investment club (and being surprised at the lack of uptake), I'll be interested to see whether or not the investments allowed by this law are worth entrepreneurs' time.
I will give you a simple example. If you get a random sample of people in the US, I am afraid more than 90% of them won't even understand that investing 5K in a neighbor's kid's shiny new startup is not a binary proposition (invest or don't invest); one actually is buying N of something (shares, options, warrants, etc) for those 5K, with all sorts of properties like seniority, etc, etc, etc.
Regular people can understand a loan - I give a neighbor's kid 5K and get back 5K+3% in 1 year. But equity-based investment is significantly harder to grasp.
I think in this case I'd think it should be up to individuals to determine how they use their money.
Startups are exactly this same sort of risk, except it's even worse - there aren't even terms and agreements saying exactly what's being received in return for money. There's no way crowd funded equity owners are going to get access to due diligence that would make it a responsible investment. And there's no way way, ever, that a startup makes sense from a responsible investing perspective to a random Joe off the street. It's essentially a lottery ticket because there's no way to accurately assess the value and risk of what they're investing in, and even if there was any sane financial planner will tell you it's a bad investment for regular people.
As a small business owner in Colorado, I've had several friends, family, co-workers, potential customers, etc... offer to invest small amounts in my company ($500 - $5000). I've had to turn them away because of government intervention. I wouldn't have accepted money from everyone that offered but don't think that the government should remove that option from the table.
not that these don't add value to the economy but average person is probably better off without them
"The state's Securities Commission must now create rules before the first equity crowdfunding deal in Colorado is made. Draft rules will be completed by the end of the month and must go through an approval process before becoming official, according to deputy state securities commissioner Lillian Alves."