Colorado Securities Commissioner testifies on behalf of proposed crowdfunding bill
DENVER (March 12, 2015) – Gerald Rome, Securities Commissioner for the Colorado Division of Securities, testified today in front of a legislative committee in favor of House Bill 15- 1246, which would allow small businesses to raise capital through equity crowdfunding platforms within Colorado.
“We all agree that start up companies play a critical role in expanding economic opportunities by creating new jobs. We can also all agree that traditional funding for nascent companies is often limited. This crowdfunding mechanism will allow small businesses to pursue an economical way to raise funds through localized securities offerings,” Rome testified.
The proposed bill, introduced by state representatives Dan Pabon and Pete Lee, provides an exemption to companies from registration of their securities, thus bypassing what can be a costly registration process and allows them access to the internet to market their securities to investors. HB 1246 also contains the necessary protections for investors. It would set specific limits on capital raised by emerging enterprises: $1 million or up to $2 million if the company has audited financials.
The bill also puts limits on investors deemed “unaccredited,” meaning they earn less than $200,000, or have a net worth less than $1 million. These smaller retail investors will only be able to put forth $5,000, a cap that, according to Rome, is necessary due to the high level of risk involved in start up ventures. Companies utilizing the crowdfunding option would be required to file with the Division of Securities, and will have to follow disclosure requirements.
Colorado is just one of many states to have introduced crowdfunding bills over the past year in response to a provision in the federal JOBS Act of 2012. While this provision set up the possibility for crowdfunding that would cross state borders, the U.S. Securities and Exchange Commission has been slow to outline specific rules. Many states have therefore opted to adopt intrastate rules to help small companies in the meantime.
“The bottom line is that successful capital formation must encourage entrepreneurs while protecting investors in a manner that best serves the public interest—this bill strikes that balance.” Rome stated.
Division of Securities