Financial investment through Intrastate Crowdfunding

Brief Background:

In 2008, the United States witnessed the worst economic crisis since the Great Depression. It resulted in total devastation of the individual’s savings as well as investment plans. Capital markets suffered the maximum. It was a countrywide phenomenon without sparing any state. There was tremendous loss to the local economies. The financial stabilities too suffered a great deal. Nevertheless, the private sector made a recovery of sorts. However, small businesses faced a tremendous hit as they faced strict restrictions on capital lending. Hence, they were not able to upscale or self-sustain.

Enactment of the JOBS Act:

They were not able to tap the traditional capital markets. Banks were reluctant to lend them funds for business. Venture capitalists as well as angel investors too turned their backs upon them. In this scenario, the Congress felt the need to support the small businesses. They enacted the “Jumpstart Our Businesses (JOBS) Act” in 2012. This act allowed intrastate investment Crowdfunding. However, the US Securities and Exchange Commission (SEC) had to develop its guidelines for implementation of the JOBS Act. The Americans could reap the benefits once they do it. In 2014, President Obama signed the bill. However, the SEC was yet to publish the guidelines. However, in anticipation, several states such as Michigan started implementing this tool.

Michigan takes the lead:

You can find the maximum number of small business units in Michigan. In fact, the economy of Michigan is heavily dependent on these small businesses. Michigan State felt the need to implement the JOBS Act in right earnest. They found it extremely suitable and beneficial to them. The legislators passed the Michigan Invests Locally Exemption (MILE) bill allowing the Michigan residents to invest directly into their community. This allowed the much needed capital inflow into the units.

The necessity of Intrastate Investment Crowdfunding in Michigan:

This has opened the door for the non-accredited investors. It allows for a democratization of investments and capital fundraising. Until date, they did not allow the ordinary investors to participate in such investments. Now the doors are open for them to participate enabling the entrepreneurs to secure the requisite capital.

Crowdfunding has enabled many entrepreneurs to avail capital at reasonable costs. The most important beneficiaries of this intrastate investment Crowdfunding have been women and the minorities. Until date, this was the neglected sector. Now, bank loans would be easily available to this sector too. However, this development depends on the successful implementation of MILE. However, you have to agree that MILE has the power to transform the investor as well as the entrepreneur landscape in Michigan.

Potentiality of MILE:

MILE has the capacity to harness the power of Crowdfunding to the underprivileged sector. It can spur the local economic development as well as accumulate local wealth and create adequate number of jobs.

Michigan has some of the renowned universities in the country. Students graduating out of these universities now have an option of starting their business units in the state itself. MILE can help them achieve this objective.

Acceptability of the Intrastate Investment Crowdfunding:

As of June 2015, this concept is acceptable to about twenty-four states including Alabama, Maryland, Virginia, and Wisconsin. Two states, namely Nevada and Utah have rejected the proposal outright. States such as Arkansas, Ohio, and Connecticut and others are currently looking at the issue in a positive sense. Some states such as North and South Dakota, Wyoming, and New York have not started considering the concept until date.

Funding Cap:

Because of delay in complete implementation of the JOBS Act by the SEC, many states have started fixing their own funding cap. Now the standard funding cap is around $ 2,000,000. This is for the companies who are able to provide independently audited financial reports. Otherwise, the cap is $ 1,000,000. In most of the cases, the public can invest a maximum of $ 5,000 in a company.

Working of the Intrastate Crowdfunding:

The states have exemptions in place. Under these exemptions, companies can seek funding from investors located in the same state. Some states have passed the laws whereas some have not. There is freedom for the states to frame their own rules or follow the guidelines from the federal law.

Advantages of Intrastate Investment Crowdfunding:

There are certain advantages as well as disadvantages of the intrastate Crowdfunding. We shall go through the advantages first.

  • Many states have an exemption in place. In case the companies are located in such places, they can run without having to wait for the SEC rule making process.
  • As per the provisions of the JOBS Act, the overall cost of capital can go up to $ 39000 for a campaign costing $ 100000. However, the company should have audited financial statements of its own. Alternatively, they can go through a FINRA registered broker and produce the materials for the investors.

Disadvantages of Intrastate Investment Crowdfunding:

Naturally, every process has its own disadvantages. This one has too. They are as follows.

  • There is a rule that the domicile of the company should be in the same state in which they wish to run the campaign.
  • They should not offer the securities to investors located outside the state.
  • This restriction can curtail the reach of the potential audience. Moreover, in case the investors are nit located within the state, you have to comply with the SEC Rule 147. This rule is a technically challenging rule.

Criticisms of the Intrastate Crowdfunding:

Naturally, every kind of law would find its own level of criticisms. You cannot please everybody. Some of the criticisms are as under.

  • The compliance fees are in fact on the higher side for the $ 1 million annual limit. As per an analysis, the compliance costs should not exceed 15 to 25 percent of the raise. The maximum fundraising cap is $ 1 million though the other requirements have undergone a change.
  • Certain states such as North Carolina are contemplating a repeal of the Crowdfunding provision in the JOBS Act.


We have seen the basics of the intrastate investment Crowdfunding procedures in the article. This is a beneficial way of attracting financial investment.


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