MARCH 10, 2015 by ROD ARMSTRONG
Nebraska State Senator Colby Coash of Lincoln has introduced a bill, LB 226, that creates a framework for equity-based crowdfunding.
“This is designed to work like other crowdfunding platforms like Kickstarter,” Coash said. “But instead of being a donation that might get you a t-shirt, this platform gives investors a share in the company.”
The Nebraska Department of Banking & Finance would manage the program. Nebraska companies interested in using the program would be required to pay a $200 filing fee, submit documentation to be presented to prospective investors, and provide an escrow agreement with a financial institution where investments will be deposited.
Investors, who must be Nebraskans, will be allowed to make deposits in the escrow fund through a third-party web portal. The company must specify the fundraising time frame and investment target, and investors can cancel their commitment if the target amount is not raised by the deadline. The company must also disclose the terms and conditions of the securities being offered. The company cannot access funds until the target amount has been met or exceeded.
LB 226 is very up-front about the fact that these investments carry a high degree of risk.
“Venture capitalists and banks aren’t interested in this type of investment,” Coash said. “They do see the potential for companies that start in this way to eventually grow to a level that they would be interested.”
Under the bill, investors are required to certify that they understand the investment is in a high-risk, speculative business venture, and that they may lose all of their investment. Investment limits are also established for both accredited (high net worth/high income institutions or individuals) and unaccredited investors.
A baseball analogy
Senator Coash used a baseball analogy to describe his goals for the crowdfunding bill.
“A home run would be nice, but a couple of singles would be great, too,” he said. “Who knows where the next Valmont or Hudl might come from?”
LB 226 has not yet been reported to the full legislature, but Senator Coash said that the Banking, Commerce & Insurance Committee would be sending it out unanimously with one minor technical amendment.
Unlike another proposed bill this session affecting Nebraska entrepreneurs, LB 156, the crowdfunding bill has no financial impact on the state’s General Fund, and could potentially pass before the main budget bills. However, it still requires a priority designation, or else the bill must be scheduled for debate along with other bills with no committee opposition and no General Fund impact.