On December 31st, 2013, while most of the Michigan government was seemingly on holiday, Governor Rick Snyder signed a law to enable intrastate, equity-based crowdfunding in Michigan. Public Act 264, which amends Article 2 of Michigan’s Uniform Securities Act, revises the definition of “institutional investor” and helps create new economic opportunities for Michigan residents. This law has many optimistic about its potential to help catapult Michigan to the forefront of the crowdfunding movement and drive investment and financing opportunities in Michigan. (For a detailed definition and explanation of crowdfunding, see What Is Crowdfunding?)
Michigan is the most recent state to pass legislation to enable crowdfunding for non-accredited investors – with certain restrictions. Other states like Georgia, Kansas, and Wisconsin have already moved on equity crowdfunding, either passing legislation or altering existing rules to make it feasible. Other states, such asAlabama and North Carolina will consider such securities exemptions in coming months.
This state-level trend helps bypass delays in federal action on the subject and – hopefully – will help lay the groundwork for a more overarching application of federal crowdfunding. At the federal level, the JOBS Act of 2012, Title III, the federal Securities and Exchange Commission (SEC) was directed to develop rules that will allow equity offerings to non-accredited investors. While the JOBS Act has had many excited, its progress has been slow and unpredictable, leaving state governments increasingly impatient to see the potential of crowdfunding realized in their state.
The SEC proposed rules on crowdfunding under the JOBS Act, which were published on October 23rd and made available for public comment. The rules are expected to be finalized by the end of the first quarter of 2014, but this timeline, along with the eventual utility of the rules, has been questioned by many. Beyond the potential for long delays, some have claimed the 585-page rules make the process to establish and engage in crowdfunding efforts cumbersome and costly to the degree that it may not be worth the effort.
As states across the country adopt intrastate crowdfunding, it is hard to predict what types of challenges may arise when the JOBS Act finalizes its crowdfunding rules for interstate crowdfunding. For example, Michigan’s law limits individual investments from non-accredited investors to $10,000, while the JOBS Act is more strict and slightly more complicated. It limits investments to 5% of an individual’s annual income or net worth or 2,000 dollars (whichever is greater) if their annual income or net worth is less than $100,000. That restriction shifts to 10% if an investor has an annual income or net worth of over $100,000.
Whether this crowdfunding law – or other state level laws – will be leveraged toward the implementation and investment in renewable energy is yet to be seen; to date, such laws have actually done little to stimulate equity crowdfunding. Still, particularly in states where renewable energy markets and the associated financing infrastructure are already robust, crowdfunding renewable energy projects could begin to take hold sooner than later.
While many questions remain, some states now have equity crowdfunding, allowing for creative experimentation in how to establish and successfully run such ventures – hopefully it can help provide new, sustainable, and socially responsible investment opportunities for residents in Kansas, Georgia, Wisconsin, Michigan, and future states.
Cory Connolly is a Research Associate at the Environmental Law Institute and is a co-founder of MiGrid Media – a Michigan-based clean energy communications company. Cory has worked on climate change and clean energy at the international, national, state, and local levels and is passionate about the rapid deployment and development of distributed clean energy systems.