Colorado Crowdfunding Act calls for licensing of online intermediaries to operate websites where Colorado businesses may offer securities for sale

A bill recently introduced in the Colorado Legislature would allow qualified individuals licensed by the Colorado Division of Securities to act as “online intermediaries” and operate a website where Colorado businesses may post offerings of securities for sale.

The bill, HB 15-1246, was introduced in the House by Representatives Pete Lee and Dan Pabon.

Under the proposed bill – dubbed the ‘Colorado Crowdfunding Act’ — the licensed individuals may charge a fixed fee – but not a commission – for posting the securities offerings but cannot take a financial interet in the offered securities.

Karl Dakin, director of Colorado Capital Congress PBC, said the bill is similar to the federal JOBS Act on 2012 in that it limits the dollar-size of the offerings and the amount that non-accredited investors may invest in any single offering.

Dakin said the maximum amount that could be raised in any 12-month period under the bill is $1 million without audited financials and $2 million with audited financials.

Dakin said dollar limits are also placed on non-accredited investors who may invest no more than $5,000 in any offering.

Dakin said the proposed legislation complements already existing “qualified” or “limited” registration offerings under Colorado law that authorize a business to conduct an offering of up to $5 million (CRS 11-51-304(6)).

“In both cases, businesses may promote the offering to the public and sell to an unlimited number of non-accredited investors,” Dakin said.

“This ability to make all possible investors aware of an offering and to sell securities to the 97 percent of the population who do not meet the wealth criteria for ‘accredited investor’ status overcomes the primary regulatory restrictions on the conduct of private offerings.”

The bill’s summary says current securities law restricts businesses’ ability to raise capital through crowdfunding.

“The bill enacts the ‘Colorado Crowdfunding Act’ to facilitate crowdfunding by authorizing online intermediaries to match a Colorado investor with a Colorado business that wishes to sell securities pursuant to a simplified regulatory scheme.”

The bill notes that startup companies play a critical role in expanding economic opportunities, creating new jobs and generating revenues.

It also notes that lack of access to capital to starting and expanding small businesses inhibits job growth and has “negatively affected the state’s economy.”

The bill requires the securities issuer to use “at least 80 percent of the proceeds” from the securities sale within the state.

“Creating a Colorado crowdfunding option, with limitations to protect investors, will enable Colorado businesses to obtain capital, democratize venture capital formation and facilitate investment by Colorado residents in Colorado startups, thereby promoting the formation and growth of local companies and the accompanying job creation.”

Dakin said the Colorado Bar Association and the state Division of Securities worked together to help draft the bill.

Hearings on the crowdfunding bill are expected in March and, if approved, the bill could take effect in August.

The bill has bipartisan support and is backed by the Colorado Technology Association, Blackstone Entrepreneurs Network, Colorado Cleantech Association and the Colorado Biosciences Association.

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