Here in the State of Washington, we lost our patience with the Federal government, it’s JOBS Act, and the lack of rules making progress at the SEC. In 2014, we passed the Washington Jobs Act, and starting November 1st, it is legal for Washington businesses to sell equity to any Washington residents. With some limits.
- Companies can raise up to $1 million
- Investors can invest the greater of $2,000, or 5% of their income/net-worth if it is under $100,000, or 10% of their income/net-worth if it is above $100,000
- Companies have to file for the right to do this with the Washington State Department of Financial Institutions (“DFI“), paying a $600 fee, and filling out some forms, including the Washington Crowdfunding Form.
- Many other rules and restrictions apply
The final version of the law is here, and the rules as adopted October 1, 2014 are here. Given the complexities of this new process, if you are considering raising money using this method, you should get some advice from a lawyer first.
In general, selling equity to investors is incredibly complex, full of regulations. It doesn’t hurt to know the Federal Securities Laws too, to help you make sense of what advice your lawyer provides.
I expect more information on this process will become available after November 1st. This blog will keep providing updates as they arrive. Amongst those of us working on this process since January, we’re eager to see how many entrepreneurs step up to use the new crowdfunding path, and to see how well it is received by investors.
DFI’s rulemaking: http://www.dfi.wa.gov/sd/rulemaking.htm#crowdfunding
Official web site for the bill/law: http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2023
More details from Joe Wallin, the startup lawyer muse who triggered the effort to bring crowdfunding to Washington State:
Yet more thoughts from Carter Mackley, another Seattle startup lawyer who helped the DFI see through to a usable set of rules:
And yet more from the team at Apex Law Group:
Luni, thank you for being such a great advocate for this legislation!
Do you know if there is a limit to the number of investors you can take on through ECF?
This blog post should answer your question: http://www.startuplawblog.com/2014/08/16/intrastate-crowdfunding-and-the-499-shareholder-problem/
No state law limit, but the Securities Exchange Act of 1934 still applies…and that will put limits on what companies want to do.
Thank you Joe!
That was great. I am curious why someone would go with crowdfunding over a DPO – it appears the DPO has less restrictions.
They each come with some restrictions, but both pass through the same regulators in the WA DFI. It very well may be that this new crowdfunding law simply leads to more DPOs.
Awesome. Thanks Luni! I’d love to get some time with you during next Intensive for BGI at Pinchot!