Crowdfunding isn’t a revolutionary concept. The idea that a lot of people can pool their resources to make something happen has been around for years. After economic disasters in the early 1900’s many securities laws became very restrictive in the idea that would protect the general public. This has forced people that want to pool resources to get creative with how they do that. Nearly a century later, the world has changed and we are finally seeing those previously restrictive laws are loosening a bit.
On December 30, 2013 Governor Rick Snyder signed the Michigan Invest Locally Exemption (MILE) into law. While this went relatively under the radar for most people, this law puts Michigan on the forefront of the crowdfunding revolution. This new tool for your business to use, while unfamiliar, should definitely be something you look into.
The Tecumseh Brewing Co. is looking to make its mark on the Michigan craft brew industry and it is the first Michigan business to leverage the new Michigan law to raise capital to complete its project. The owners have been working diligently for 3 years to make this business a reality and have been able to raise about half the funding they need over that time. They are using this new funding mechanism to obtain the second half needed. Once the funding is received they are looking to be open by October 2014.
This new funding legislation allows individuals, local groups and others to join community banks and invest in Michigan based businesses. Unlike reward based campaigns that you might find on sites like Kickstarter or Indiegogo in which you receive something directly in return for your contribution, these new crowdfunding laws allow you to receive debt or even equity in the business you are investing in.
As long as your business is formed under Michigan laws and meets certain other requirements to be considered based in Michigan, you are permitted to offer securities to Michigan residents. It doesn’t matter if you are new startup that is looking to get launched or if you are an established local business that is looking to expand. Crowdfunding can be a potential source of funding to achieve those goals.
There are plenty of caveats and requirements with these new laws such as there is a ceiling on the amount you can raise or the certain filings and disclosures that are required. It is advisable to speak with someone that can help navigate you through those necessities. These laws are not meant to replace traditional funding avenues such as banks or accredited investors. They just provide businesses with another option.
Under traditional laws it was easier for an individual to invest in a business in another country than it was to invest in the new brewpub that is looking to be built around the corner. These laws change that and businesses should take advantage. There are still details that are being worked out and platforms being created but your general counsel should be able to keep your business advised of these changes as they happen. But the ball is rolling already and it’s nice to have options.
To find out more about Michigan's new crowdfundiing laws and other funding options for your business click HERE.
Source: "Tecumseh Brewing Co. first customer of new crowdfunding law" by David Frownfelder of The Daily Telegram
Image provided by Kate Ter Haar under license.