New crowdfunding rules muddy biz use of social media
Crowdfunding was seen as a way to marry the worlds of social media and venture capital, but the U.S. Securities and Exchange Commission has issued new guidelines that largely ban social media from the relationship.
Michigan businesses that were planning to use sites like Facebook and Twitter to inexpensively get the word out that they are looking to raise capital for expansion projects or to get off the ground are now consulting with attorneys and trying to figure out their next steps.
"It's going to extremely limit, if not completely close, the ability for businesses to use social media," said Thomas Coke, an attorney who works in business development for Grand Rapids-based VerifyValid, which runs a business-to-business payment service.
Issuers must be headquartered in Michigan, and the offering may be made only to Michigan residents.
Social media use isn't referenced in the Michigan law, so investors have interpreted the law to allow for its use.
The maximum a company could raise is $2 million if it makes audited financial statements available to investors as part of the offering. If not, the maximum is $1 million.
Securities may not be resold within nine months to any non-Michigan resident.
The issuer must provide quarterly reports to its investors and the state of Michigan for as long as the shares remain outstanding.
In 2012, President Barack Obama signed the JOBS Act, which created the possibility for equity crowdfunding, which opens up investment opportunities for those who previously were not allowed to receive a request to invest -- their annual income or net worth was not considered large enough to be considered an accredited investor.
The SEC defines an accredited investor as someone with a net worth of at least $1 million, or who has income of more than $200,000 in the previous two years. An unaccredited investor falls below those financial thresholds.
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New crowdfunding rules muddy biz use of social media