
Colorado now allows equity crowdfunding - mooreds
http://www.denverpost.com/business/ci_27906349/hicklooper-signs-equity-crowdfunding-law-let-anyone-invest
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mikkel
First off, as a Colorado resident with a startup - this is great! There are a
few points that make it not so great:

You can only have investors from colorado, to a company formed in colorado and
80% of the investment has to be spent in colorado.

Still this is a move in the right direction, and I hope it helps some of my
CO-based peers get off the ground.

source:

[http://www.leg.state.co.us/CLICS/CLICS2015A/csl.nsf/fsbillco...](http://www.leg.state.co.us/CLICS/CLICS2015A/csl.nsf/fsbillcont3/E95B3E809BD0A27387257DA20080509A?Open&file=1246_enr.pdf)

(A) THE INVESTOR IS A COLORADO RESIDENT OR IS AN ENTITY FORMED PURSUANT TO
COLORADO LAWS;

(B) THE ISSUER OF THE SECURITIES IS AN ENTITY FORMED PURSUANT TO COLORADO LAWS
AND DOING BUSINESS IN COLORADO; AND

(C) THE ISSUER INTENDS TO USE AND USES AT LEAST EIGHTY PERCENT OF THE PROCEEDS
OF THE SALE OF SECURITIES IN COLORADO

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mooreds
I think that these constraints (at least the investors being in CO) is due to
SEC rules. I read Locavesting ( [http://locavesting.blogspot.com/p/about-
locavesting.html](http://locavesting.blogspot.com/p/about-locavesting.html) )
a while ago and seem to remember that state regulated stock exchanges operate
under a different set of rules.

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anigbrowl
I'd love if this existed in California. It would make it dramatically easier
to raise money for doing an independent film. Right now you still have to do a
regulation D filing and verify the accreditation status of investors, so
you're strongly incentivized to go after a small number of large investors,
which is not always optimal for the success of the project. The SEC is due to
issue new guidelines for Title III crowdfunding, but they're quite late on
this already and nothing is likely to happen before the end of the year. Of
course you can go the Kickstartter route and just ask for donations, but as
I've ointed out before this is much trickier to do if you don't have some sort
of existing fanbase, eg doing a sequel, involving a celebrity, or doing a
documentary on an issue with an existing activist base. All practical options
in their way, but it means a very amrketing-driven approach from the outset.

[http://www.filmfinanceattorney.com/page/483179582](http://www.filmfinanceattorney.com/page/483179582)
Typically a film production co. offers investors something like a 50% interest
in an LLP or LLC split into units keyed to the budget, first position, and 25%
interest, to reflect the high risk inherent in such a venture. And no, this is
not meant as a solicitation!

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somic
FWIW, personally I am not optimistic about this but would love to be proven
wrong.

Information asymmetry, risk mismanagement, chasing quick riches, etc - too
many reasons imho why startups are not a viable asset class for most people.

~~~
mooreds
Don't forget, this law doesn't let people bet their life savings on a whim.
From the article:

"The new law eases the process of raising that first $1 million by letting
people ask their neighbors for up to $5,000. While companies must inform
investors of the risk and provide quarterly reports, they can skip the audit
and other expenses typically needed to attract investors."

So, it is $5k at a time. The main difference between this and the normal
"friends and family financing" is that it can be a larger number of less
connected investors and the company needs to provide reports.

Being a member of an investment club (and being surprised at the lack of
uptake), I'll be interested to see whether or not the investments allowed by
this law are worth entrepreneurs' time.

~~~
somic
I hope you are right and I hope it works out but I am skeptical.

I will give you a simple example. If you get a random sample of people in the
US, I am afraid more than 90% of them won't even understand that investing 5K
in a neighbor's kid's shiny new startup is not a binary proposition (invest or
don't invest); one actually is buying N of something (shares, options,
warrants, etc) for those 5K, with all sorts of properties like seniority, etc,
etc, etc.

Regular people can understand a loan - I give a neighbor's kid 5K and get back
5K+3% in 1 year. But equity-based investment is significantly harder to grasp.

~~~
vonklaus
Damn, I thought I was cynical. You think that 90% of the US population
couldn't be made to understand equity investment?

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bhayden
I think this is a very bad idea. You're going to have a lot of fraud and
people getting taken advantage of. I think the accredited investor guidelines
are very practical.

~~~
leesalminen
Why punish entrepreneurs who want to start a company because of a few bad
apples? Anyone who invests in anything needs to do their research, understand
the risks and make the right choice for themselves.

~~~
bhayden
You could make that argument about anything. People who use credit cards need
to do their research and understand the 200 page card agreement, so we
shouldn't punish lenders by having consumer protection laws.

Startups are exactly this same sort of risk, except it's even worse - there
aren't even terms and agreements saying exactly what's being received in
return for money. There's no way crowd funded equity owners are going to get
access to due diligence that would make it a responsible investment. And
there's no way way, ever, that a startup makes sense from a responsible
investing perspective to a random Joe off the street. It's essentially a
lottery ticket because there's no way to accurately assess the value and risk
of what they're investing in, and even if there was any sane financial planner
will tell you it's a bad investment for regular people.

~~~
leesalminen
Outright deception is wrong and consumer protection laws are in place for good
reason. To remove that option completely for the 99% of a society is
ridiculous and harms innovation, entrepreneurs, and the notion of having a
"free" market.

As a small business owner in Colorado, I've had several friends, family, co-
workers, potential customers, etc... offer to invest small amounts in my
company ($500 - $5000). I've had to turn them away because of government
intervention. I wouldn't have accepted money from everyone that offered but
don't think that the government should remove that option from the table.

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jtchang
The rule says that you have to be an investor in the state. Could you start a
fund that takes money and invests in smaller Colorado startups using this new
law?

~~~
mooreds
I think the rules are still in flux. From the article:

"The state's Securities Commission must now create rules before the first
equity crowdfunding deal in Colorado is made. Draft rules will be completed by
the end of the month and must go through an approval process before becoming
official, according to deputy state securities commissioner Lillian Alves."

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teekert
I'd love to be able to pick nice projects on Kickstarter/Indiegogo and really
invest in things I find promising. Sure, getting the product eventually is
nice but more than once I thought, this will blow-up, if only I could invest
some money. I don't have much to spend so the gain will be little but still,
I'd give me some "practice" and trust in the method, who knows what I'll do
later.

