It’s no secret that entrepreneurs and small-business owners who want to start up or expand in Michigan have had difficulty obtaining capital over the last several years. That could soon change if a bill I recently introduced, House Bill 4996, becomes law.
The concept behind it is equity crowdfunding. You may have heard about crowdfunding in various forms in the news. The type presented in this bill is a promising financing mechanism that would allow small-business owners and startups to secure funds from investors in exchange for shares of ownership in the company — and boost home-grown enterprises and Michigan’s economy.
Equity crowdfunding has been highlighted on the TV show “Shark Tank,” where entrepreneurs pitch their ideas to accredited investors who receive percentage ownership in the newly created businesses. Unlike “Shark Tank,” my legislation would open the same opportunity to non-accredited individuals.
In fact, any Michigan resident who is intrigued by a Michigan small-business idea will be able to invest in that company without having to worry about complying with federal SEC requirements or state regulations that would present an obstacle within the current securities landscape in Michigan.
House Bill 4996 is all about Michiganians investing in Michigan businesses.
Here’s an example of how this bill could benefit a real business in my district. Rob and Heather Hall own the Hudson Cinema. They opened the theater with two screens that used 35-millimeter projectors. Recently, the film industry announced that it will no longer be using 35mm film but instead will be distributing all movies digitally. For the Halls to continue to run their cinema, they will have to convert to digital projectors.
The total cost for both projectors is $80,000. But the Halls are small-business owners in a small town. They don’t have access to large amounts of capital. In order to raise the necessary funds, the Halls turned to the website Kickstarter.com. There, they are attempting to generate interest in and contributors to their project.
As things stand, the Halls can only offer tickets, T-shirts and other small giveaways to individuals in exchange for their investment. But if my bill passes, the Halls would also be able to offer investors shares in the company, increasing the attractiveness of investing in their projectors.
This bill would allow non-accredited individuals to invest up to $10,000 in a company. Accredited Michigan residents — those with income of at least $1 million or net worth of at least $2 million — may invest with no dollar limitation attached. On the flip side, small businesses and entrepreneurs will be able to raise up to $1 million under this exemption without audited financials from the previous year and $2 million if the business makes audited financials available. The bottom line is opportunities that before were closed to these entrepreneurs will now be made readily available: a win-win for businesses, individuals and Michigan’s economy.
Though economic opportunity is the focus here, so also is protection. To protect investors, all of the provisions against fraud currently listed in Michigan’s Uniform Securities Act would apply to this new type of offering. And to protect businesses from unwittingly violating the required intrastate nature of this legislation, and thus opening the entire offering to federal scrutiny, language has been added to the original bill that voids any contract entered into with a non-Michigan resident.
Other improvements to the bill are being discussed, with the very real possibility of creating a more expansive piece of economically promising legislation.
The development of equity crowdfunding in Michigan is only in the infancy stages, but this bill is already stirring excitement both inside and outside the state. While the concept is new, virtually everyone I’ve spoken with, whether they be entrepreneurs, financial professionals or government officials, are pleasantly intrigued. Small businesses are not only the backbone of America but also the backbone of Michigan. I look forward to seeing the excitement I have encountered surrounding this bill being applied to real businesses creating real jobs and real growth.
Rep. Nancy Jenkins, R-Clayton, represents Michigan’s 57th District.