New Federal System Will Let Wisconsin Startups Seek Out-Of-State Crowdfunding

Crowdfunding for investors is getting a boost. Rules approved by the U.S. Securities and Exchange Commission broaden investment opportunities for startup companies by allowing the sale of securities to unaccredited small time investors and go into effect on Monday.

Wisconsin already has a crowdfunding law. But to use it, business startups have to find investors within the state’s borders and, so far, since being introduced in 2014, only four companies have used the system to find investors. It’s remains to be seen whether the new federal system will find more users.

Michael Altman, a corporate attorney in Milwaukee with Michael Best & Friedrich, said state law is very restricting.

“Anybody using the state crowdfunding law can’t use the Internet, which can be seen outside the state,” said Altman.

The new, federal crowdfunding rules allow everyday people without special certification to invest in startups.

Altman said it lets new businesses seek investors from outside the state, using a licensed portal to promote their offering after they’ve filed with the SEC.

“The SEC has always tried to protect non-accredited investors, everyday citizens, by requiring companies if they are going to raise money to follow very stringent disclosure practices and require a lot of information be provided so (investors) would be protected from what the securities laws were originally designed to protect people from which are fraudulent and those without a lot of information,” Altman said.

Madison attorney Dan Gawronski, also with Michael Best & Friedrich, said the federal crowdfunding rules are strict.

“They only allow companies to raise up to a million dollars,” he said. “And a lot of the individual investing limits of unaccredited investors are indeed lower in the federal law than the state would be.”

For instance, an everyday investor with an annual income of $30,000 and net worth of $105,000 would be limited to giving $2,000 under the new federal crowdfunding law. But, Gawronski said it gives small companies the opportunity to reach more investors than the state law.

Congress passed the federal crowdfunding law after seeing the popularity of Kickstarter. It was part of the Jumpstart Our Business Startups Act, or JOBS Act. The new rules allow businesses to raise up to $1 million in a 12-month period.