Last week, I wrote a post about about equity crowdfunding in Georgia. It was my most widely read post and has generated numerous emails and phone calls and has caused a number of hallway conversations at the Atlanta Tech Village where I have an office on the second floor. The general reaction to the news has been positive, but also with a sense of curiosity that this rule has existed for 18 months in Georgia with virtually no one noticing.
Let me first clear up some misperceptions:
- The Invest Georgia Exemption in the not the same as the Invest Georgia legislation that was recently signed into law (otherwise known as House Bill 318). Similar names, but very different and not related. The Invest Georgia Exemption(s) is a state security regulation, promulgated by the Georgia Commissioner of Securities (aka: Georgia Secretary of State) and the Secretary of State Securities Division “in the public interest”, that allows for-profit Georgia companies to raise a limited amount of capital through a public offering from accredited and non-accredited Georgia investors without the added expense of filing a registration statement with the state or federal government. The Invest Georgia legislation, signed in to law on April 29, 2013, allows for the structure of a $100M state-based venture capital program to be built out over five years.
Now let’s move on to how the Invest Georgia Exemption is allowed.
The Invest Georgia Exemption is possible as a result of federal exemption for intrastate offerings in section 3(a)(11) of the Securities Act of 1933 and the SEC rule 147, 17 C.F.R. 230.147. I will not go into an explanation of these pre-existing exemptions, but rather point them out so that you may review them. It is important to understand that the federal provisions that Georgia is relying on are pre-existing and are not “new”.
It is my opinion that these specific rules related to the Invest Georgia Exemption have not been used much over the last few decades for five reasons:
- Credit and capital for young companies has been relatively easy to access for a number of decades. This is no longer true.
- These specific rules are very obscure and have been underutilized.
- With the delay of the implementation of the JOBS Act, these specific rules are garnering more attention.
- Use of these specific rules and regulations have been perceived to be burdensome, costly and more time-consuming than traditional sources of capital
- It is quite important to note that another obscure rule, Rule 506 of Regulation D , which is often used to implement ”angel investing”, has turned angel investing into an asset class and has helped fund thousands of companies over the last decade–but only “accredited” investors can invest in these companies.
So, Georgia’s crowdfunding rules are actually based on pre-existing, but underutilized, rules and regulations. I wonder what other obscure rules and regulations are out there that could be used to help fund Georgia companies!
(Special thanks to Vince Russo for ongoing guidance related to understanding of the IGE and for serving as “copy editor” of this particular post.)
