How equity crowdfunding could help grow startups in Delaware

When the Securities and Exchange Commission changed the equity crowdfunding rules last October,  the floodgates opened to allow states to devise their own rules for helping local small businesses and startups through crowdfunding investments.
Gov. Jack Markell and the Delaware General Assembly made the announcement Monday that they’ll be introducing such a bill next week, and it has support from both sides of the aisle.
But before getting into what the bill says (or reportedly says), let’s take a step back and look at the big picture. The SEC’s October announcement said securities can be bought and sold through a crowdfunding platform.
What’s particularly noteworthy from those new federal rules is that angel investing isn’t just for the wealthy anymore: If you make less than $100,000 a year, you’re now allowed to invest up to $2,000 or 5 percent of a lesser income. The old rules said you had to make at least $200,000 to be an accredited investor.
This was a good omen for Delaware as it’s widely known there are no billionaires in the state. (Forbes reports that Robert Gore and Elizabeth Snyder are the richest First State residents, each owning owning $675 million stakes in W.L. Gore & Associates.)
So back to the impending bill for Delaware.
It’s sponsored by Rep. Bryon Short (D-Highland Woods) and Sen. Brian Bushweller (D-Dover), and if passed, it’ll allow Delaware startups and small businesses to raise up to $1 million over a year’s time, while any Delaware citizens could invest up to $5,000 at a time. The Department of Justice’s Investor Protection Unit will oversee sale registration and equity offerings, according to a statement from the governor’s office.
The move has been made because, simply put, crowdfunding has changed how the world does business.
“This year, the amount of investment is expected to exceed the funding provided through traditional sources like venture capital,” the release said.
And Delaware small businesses do use crowdfunding. For example, the Wilmington women’s boutique entreDonovan raised its funding for a 3D body scanner through the women-oriented Plum Alley crowdfunding platform.
“We need to make sure our laws keep pace with technology so that our small businesses have access to new methods of raising much-needed capital,” Rep. Short said in the release.
But even if the bill passes, more details need to be ironed out that the government can’t control — like which platforms will agree foster such business. The New York Times reported popular crowdfunding site Kickstarter isn’t interested in equity crowd funding, while Indiegogo is pondering it.
SeedInvest, which has helped fund several deals for the past few years, has said it expects to cast a wider net for investment offerings.
“There’s no question that there’s a lot of pent-up demand from ordinary investors,” Ryan Feit, SeedInvest’s chief executive and cofounder, told the Times. “At the end of the day, that means there will be more capital available for small business.”