In the jobs bill proposed by President Obama is a provision for reducing securities regulations for small dollar investments such as ‘crowdfunding’. Crowdfunding is a term that originated with online gifting of money for charitable causes, then morphed to include interest free loans through organizations like Kiva, and is now being considered for equity investments.
The Obama proposal is similar to an initiative of the Colorado Capital Congress for community investment funds. The Colorado Capital Congress provides for a relaxation of Colorado security laws when money is raised for a business within a community. Upon receipt of a letter from a local chamber of commerce or similar organization, the current limit on non-accredited investors would be increased from 35 to 250. However, investments under the waiver would be limited to total dollars in any single investment of $250,000 and no single investment by a non-accredited investor may exceed $5,000.
Both proposals seek to address the critical lack of capital available to small businesses. With the recession, common sources of investment money such as angel investors and banks are sitting on the sidelines and entrepreneurs can no longer use the mortgage of their house as a line of credit.
Without money, prospects for new job creation are extremely limited. Furthermore, innovation is particularly hurt since businesses that create new products and services cannot obtain the capital needed to move an idea through product development and tool up for production.
Deregulation or reduced regulation raises questions about protecting investors from liars, cheats and thieves. These questions need to be answered in any change of the securities laws, but there appears to be a lot of room for change.
Securities laws use a paradigm that less than 35 non-accredited investors represents a private offering – one limited to a circle of friends and business associates known to the person or business seeking funding. This limit was set decades ago before the Internet. Today, the average Facebook user has over 200 friends with whom they share information. A larger number appears reasonable.
Securities laws also use a paradigm where two sizes fit all: accredited and non-accredited. An accredited investor is a person with over $1 million dollars of assets (now excluding the net value of their house since passage of the Dodd-Frank banking act). A non-accredited is someone with less money. It was assumed that a wealthy person could afford to take a risk in a company or could afford to hire experts to advise them. This wealth standard conflicts with proposals of the Obama administration to charge extra taxes on households earning over $250,000 – people apparently wealthy enough to pay more taxes, but not to invest in businesses that will spur an economic recovery.
The Colorado Capital Congress is addressing all of these questions – a citizen led public forum and free enterprise to make changes in how securities are bought and sold in Colorado. The goal of the Colorado Capital Congress is to improve the quality of Colorado investment opportunities to make them more competitive in the world market, to use the Internet to improve effectiveness and efficiency in matching investors with businesses and to update and upgrade securities regulations that are impairing reasonable investing. The Colorado Capital Congress is currently soliciting public input and feedback on seven initiatives that have been developed by volunteers. Each initiative will be voted on in November with champions sought to implement those initiatives gaining a majority vote of members of the Congress.
The Colorado Capital Congress is hosted by the Institute on the Common Good and the Sullivan Chair for Free Enterprise of Regis University.
The public is invited to participate in the Congress. http://www.ColoradoCapitalCongress.com