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Military Entrepreneurs - New Crowdfunding Rules

Posted by Michael Horn on Wed, Oct 03, 2018 @ 04:34 PM

As we discuss in Session 6 of class, Entrepreneurship for Transitioning Warriors, there are many forms of raising money that a military veteran must understand. Funding your business can be a complex challenge for military veterans. Crowdfunding is a viable source for some military entrepreneurs. Here Dave Williams and Urvaksh Karkaria at the Atlanta Business Chronicle describe the ever improving status of crowdfunding in Georgia. We encourage military entrepreneurs to research their respective States' crowdfunding laws early in order to evaluate the feasibility of using equity crowdfunding as a primary source of funding their businesses.  

Williams and Karkaria write---Georgia is expanding an initiative begun in 2011 to encourage investment in small businesses through crowdfunding.

Changes to the state’s crowdfunding rule that took effect last month will ease restrictions on companies wishing to use the Invest Georgia Exemption (IGE) to seek crowdfunding investments.

“It’s the government getting out of the way and allowing the free market to work,” Georgia Secretary of State Brian Kemp said.

Kemp created the IGE to allow companies to sell debt or equity securities to both accredited and non-accredited Georgia investors.

More than 50 companies have used the IGE since the Georgia program began, from medical technology and real estate financing firms to manufacturers, breweries and restaurants.

The list includes Groundfloor, a real estate lending marketplace open to non-accredited investors. With investments starting at $10, Groundfloor connects independent developers seeking alternative funding outside the traditional banking structure with retail investors who want the higher risk-adjusted returns associated with secured real estate lending. Easier access to capital led Groundfloor to relocate to Atlanta from Raleigh in 2014.

“We’ve seen first-hand how these rules benefit our state economy by fostering innovative ideas, jobs and investment opportunities that wouldn’t germinate here otherwise,” Groundfloor CEO Brian Dally said.

Intrastate crowdfunding rules such as the Georgia IGE allow companies to access a broader pool of capital more efficiently, Dally said. As more issuers start to utilize the IGE, individual investors in Georgia will have better prospects to access more and higher quality direct investment opportunities in small business, tech startups and real estate, he said.

Indeed, the changes to the state rule are aimed at allowing more issuers to use the IGE. The amended state crowdfunding rule Kemp pushed through embraced changes at the federal level to increase investment.

Under new rules the SEC adopted last fall, companies for the first time are allowed to solicit investments via social media.

Also in keeping with the SEC changes, the amended state rule will let companies headquartered outside of Georgia participate in the state program, as long as they do most of their business in Georgia. Originally, only Georgia-based businesses could use the IGE.

“The federal rule offers more flexibility,” Kemp said. “We’re just adopting it at the state level.”

Georgia also allows companies to raise up to $5 million a year from investors, up from an original cap of $1 million.

Topics: Entrepreneurs, alternative funding, Vets, investors