NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, May 28, 2014

More than two years after passage of the Jumpstart Our Business Startups (JOBS) Act, the U.S. Securities and Exchange Commission (SEC) is still writing the regulations that will govern equity crowdfunding in America.

Widely anticipated for its perceived potential to unlock hundreds of millions of dollars in capital, entrepreneurs and policymakers alike have been understandably upset by the slowness of the process. Equity crowdfunding was billed as a solution to economic malaise as startups across the country would now be able to raise funds from any interested American and not just venture capitalists and accredited investors.

While most entrepreneurs have been focused on the SEC, an interesting development has taken place: states – acting as the laboratories of democracy, as Justice Louis Brandeis described – are taking steps of their own to legalize equity crowdfunding.

Since 2011, 11 states have legalized equity crowdfunding through legislation or regulatory action. Crowdfunding and crowdfunding-related bills also have been introduced in more than a dozen states. This interest and activity holds promise for entrepreneurs, but important factors may limit the impact of intrastate equity crowdfunding.