Photo by University of Salford via Foter.com / CC BY
Gov. Jack Markell signed legislation that allows crowdfunding for startups
Sponsored by Rep. Bryon Short (D-Highland Woods) and Sen. Brian Bushweller (D-Dover), HB 327 permits the use of online crowdfunding platforms and allows Delaware residents to be investors in Delaware start-ups and small businesses.
The measure enjoyed had bi-partisan support and was passed unanimously in both houses of the General Assembly last month.
“At a time when small business and entrepreneurs have a bigger stake in our state’s economic future we want to make sure that those with ideas to start new businesses and expand their employment have the opportunity to succeed right here in Delaware,” Markell said. “By demonstrating support across state government for Delaware’s growing entrepreneurial sector, we’re taking another step to build on Delaware’s record-setting job growth in the years to come.”
It follows action by the Congress, through leadership from Congressman John Carney, which gives states the flexibility to permit citizens to more easily invest in startups. Around the world, crowdfunding allows companies to raise billions of dollars, and this year for the first time this amount of investment is expected to exceed funding provided through traditional sources like venture capital.
Through the legislation, Delaware-based companies will be permitted to offer equity stakes to Delaware residents or other Delaware businesses over internet platforms. (Due to Federal law, Delaware cannot permit investment from residents of other states.)
While the new statute requires certain disclosures to ensure the validity of the offerings, it does not require issuers to make detailed financial disclosures that might be prohibitively costly for many small businesses and start-ups. It permits a business to raise up to $1 million over a 12-month period and an individual to invest up to $5,000 in any one offering.
“This law is a recognition of the changing landscape of how businesses are conceived and financed in the 21st Century,” said Representative Lyndon Yearick, R-Dover South. “There are many examples of businesses that got their start through online crowdfunding. It’s time we allow Delaware entrepreneurs to tap into a resource that could help them turn a dream into a viable enterprise.”
The Delaware Attorney General’s Investor Protection Unit will maintain oversight of sale registration and equity offerings.
“This bill represents an economic development opportunity for small businesses in Delaware and encourages Delaware citizens to engage more directly with businesses they want to support,” said Rich Heffron, Delaware State Chamber of Commerce President. “This is exactly what we need to encourage growth and to expand Delaware’s entrepreneurial culture.”
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