Securities commissioner’s statement on Colorado Crowdfunding Act

DENVER (April 14, 2015) – Colorado Division of Securities Commissioner Gerald Rome has issued the following statement to prospective issuers or investors regarding the new Colorado Crowdfunding Act, which was signed into law yesterday. Prospective issuers or investors who have additional questions or require clarification on the new law are encouraged to contact Division of Securities at (303) 894-2320. Statement from Commissioner Rome:
 
The term “crowdfunding” is thrown around a lot these days. The term can refer to a wide range of strategies and methods for raising money. Up until April 13, 2015, crowdfunding in Colorado was limited to fundraising ventures on sites such as Kickstarter, where individuals contribute money to an idea, charity or business. These individuals may receive some kind of perk related to the amount they gave to such efforts, such as a t-shirt or chocolates.
 
However, this type of crowdfunding cannot legally offer forms of interest in the company or venture, or any financial incentive. That changed with the signing of the Colorado Crowdfunding Act into law yesterday. Now “equity crowdfunding” has become legal in Colorado, which provides small businesses with a mechanism to raise capital and give their contributors equity in the company.
 
With the new law, our state has joined the growing list of states that are opening up private company investing to everyone. But before small businesses begin using crowdfunding to solicit investments, there are some key aspects of the Colorado Crowdfunding Act that prospective business and investors should take note of:
 
  • First, before a crowdfunding offering can proceed, it must be properly registered with the Colorado Securities Division, a division in the Colorado Department of Regulatory Agencies (DORA). Online intermediaries, through whom the crowdfunding transactions will be conducted, must also register with the Colorado Securities Division. Rules for this process are forthcoming.
     
  • Second, there are limits to how much capital can be raised and how much individual investors can contribute. The act states that the issuer of the securities can raise up to $1 million in total assets. However, the cap can be raised to $2 million if the business submits audited financial statements to the Colorado Securities Division. Individual investors cannot contribute more than $5,000. If an investor is accredited, the $5,000 cap is removed. An “accredited investor” is defined as having an earned income that exceeds $200,000, or a net worth that exceeds $1 million. 
     
  • The final item to be aware of is that all aspects of the transaction must take place only between Colorado residents. Crowdfunding transactions that reach outside of Colorado run the risk of violating federal securities laws. The Jumpstart Our Business Startups (JOBS) Act of 2012 technically made equity crowdfunding legal at the federal level. However, the Securities and Exchange Commission has yet to outline rules that would permit national crowdfunding offers to proceed.

At the Colorado Securities Division we look forward to enabling Colorado startup companies and entrepreneurs to leverage the power of the internet to raise capital, boost the state’s economy, and create more jobs for our residents.

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Media Contact:
Jillian Sarmo
Division of Securities
p: 303-894-2878