By Karlee Weinmann, Finance & Commerce
“Minnesota entrepreneurs got a boost when lawmakers approved looser fundraising restrictions for the state’s businesses, but it’s unclear when they’ll be able to cash in on the rule change.
Gov. Mark Dayton approved the measure on Saturday as part of a reworked jobs bill that emerged in the special session. A new program, MNvest, taps into a federal securities law exemption to allow capital-hungry companies to seek funding from all Minnesotans, not just cash-flush accredited investors.”
Dayton’s endorsement capped a yearlong campaign, backed by business groups across Minnesota, to bring online equity crowdfunding to the state. When he introduced the special-session jobs bill last Friday, state Rep. Pat Garofalo, R-Farmington, singled out MNvest as “good investment reform.”
The program aims to drive gains for cash-strapped Minnesota businesses. But a potentially lengthy rulemaking process could push MNvest out of the spotlight, inviting the same publicity struggles that have held back similar pushes in other states.
“We have good momentum right now and it would be a shame to squander that,” said Ryan Schildkraut, a Winthrop & Weinstine corporate and securities attorney who helped shape the bill.
It’s up to the state Department of Commerce to map out a framework for the program before it can go online. The agency expects to start the still murky process soon after July 1, when the new fiscal year starts and a rulemaking budget of nearly $130,000 kicks in.
Commerce Department spokeswoman Libby Caulum declined to give a timetable, but said rulemaking would likely line up with state guidelines that estimate similar initiatives require roughly 2,900 man hours from program staff, a designated rule-maker and others.
“The department is going to move as quickly as possible,” she said. “We know this is an important issue to people and we have every intention to get it done as quickly and as smoothly as possible.”
Still, the shaky forecast is a sore spot for MNvest’s creators, who say they wrote comprehensive legislation specifically to avoid time-consuming rulemaking. The agency has to set standards for Web portals linking companies and investors, and develop a way for fundraisers to log their efforts.
“I’m confused about why that would take more than a few days,” Schildkraut said, noting several other states with equity crowdfunding use simple one- or two-page portal applications.
Caulum said the Commerce Department’s funding request and preliminary rulemaking plans align with other states’ processes.
Schildkraut and Zach Robins, another Winthrop & Weinstine attorney who helped mold MNvest, said they expect to rekindle a relationship with the agency during rulemaking. They previously met with officials to smooth out concerns that unsavory fundraisers could use the program to bilk inexperienced investors.
Bill sponsors Sen. Terri Bonoff, DFL-Minnetonka, and Rep. Jenifer Loon, R-Eden Prairie, have said they will push for speedy implementation, noting that delays could take a toll. In an April interview, Bonoff said the threat of protracted rulemaking was “state government at its worst.”
About 20 other states allow equity crowdfunding but some, including Wisconsin, haven’t seen widespread interest. MNvest organizers launched a website and routinely give presentations, but until the program takes hold, it’s a constant effort to keep people plugged in.
“If there are good companies with solid business plans listed on these reliable portals like we think there will be, we need a general awareness of the system so that potential investors are looking at portals and identifying the deals,” Schildkraut said.
For the last several months, Robins and Schildkraut say they’ve received one or two calls per week from people looking to learn more about MNvest. On top of that, they say they’ve seen plenty of emails from interested parties asking if the program is legal yet.
In addition, they’ve met with a handful of prospective portal operators, who would develop the online bridge that gives companies a chance to pitch themselves to a wider pool of investors around the state.
“It’s still frustrating but it’s a process so we have to take our wins as we get them,” Robins said. “With the signing of the bill on Saturday, that was a huge victory for companies, for founders, for investors, so we’re very excited. We think it’s a sign of the times.”