While a North Carolina crowdfunding bill awaits Gov. Pat McCrory’s signature in Raleigh, a Congressman from N.C. is pushing expansion and improvements in legislation at the national level. Impressively, he has bi-partisan support across a sharply divided government.
He’s Republican Patrick McHenry, who represents the 10th Congressional District just west of Charlotte. (He attended NC State, graduated from Belmont Abbey College, is an N.C. native, served in the N.C. House from 2002-2004, and has represented the 10th District since 2005.)
And his bills landed the support of the National Venture Capital Association.
Two bills sailed through the House, where nothing is ever simple:
- Fix Crowdfunding Act, HR 4855, passed this week 394-4.
- Supporting America’s Innovators Act, HR 4854, passed 389-9.
Now how often does any Congressman’s initiatives EVER receive that kind of support?
(BTW, House Majority Leader Kevin McCarthy is a big supporter, too. And Speaker of the House Paul Ryan is driving what is called an “innovation agenda.” President Obama and many Democrats also have been big supporters of crowdfunding, helping drive bipartisan support.)
The NVCA praised both bills, especially McHenry.
“Financial capital is the lifeblood of innovative, high growth startups. We are pleased to see Congress focused on proposals to help startups access the capital they need to scale and hire new workers, which is critical for the entrepreneurial ecosystem and the American economy,” said Bobby Franklin, President and CEO of NVCA, in a statement.
“More work remains on a comprehensive policy agenda that strengthens the entrepreneurial ecosystem, but these measures are helpful and we are thankful for Congressman McHenry’s leadership. Combined with the larger Innovation Initiative led by Leader McCarthy, we appreciate the bipartisan support these issues are receiving in the House. Because most net job growth occurs at the startup level, we need to do all we can to ensure they have every chance for success.”
After securing passage, McHenry said the bills help address what he calls a “capital crisis.”
“Small businesses and entrepreneurs are America’s true job creators, especially in communities like those I represent in western North Carolina. But today, they face a capital crisis,” he said.
“Small business lending from traditional banks is way down and America’s smallest communities are losing more jobs than they create.”
(Watch a video of McHenry discussing the legislation:
News site LocalInvesting.com noted that the “fix” bill “focuses on common sense fixes to the elements of Title III that have given many entrepreneurs, portals and potential investors pause. It would raise the amount that companies can raise from the current $1 million to $5 million, and slightly raise the amount that investors may invest.”
The Congressional research Service explains the bills this way:
- HR 4854: “This bill amends the Investment Company Act of 1940 to exempt from its coverage any issuer whose outstanding securities with respect to a qualifying venture capital fund (other than short-term paper) are beneficially owned by not more than 500 persons.” (Note: The previous limit was 100.)
- HR 4855: “The bill defines qualifying venture capital fund as one that does not purchase more than $10 million (annually adjusted for inflation) in securities of any one issuer.”
Assessing the bills
News site Crowdfunding Insider notes that the Fix Crowdfunding Act “as a scaled down version of a bill designed to improvetransparency and efficacy of Title III of the JOBS Act or Reg CF. This was the portion of the JOBS Act that legalized retail investment crowdfunding.”
The JOBS Act is the original federal legislation that has over the past three years received endorsement and guidelines from the SEC.
LocalInvesting.com says the Fix bill addresses a “big sticking point has been the barring of special purpose vehicles (SPVs) under Title III. The bill would eliminate the prohibition, allowing investors to be grouped into a single purpose fund that would count all the investors in the offering as one.
“The fund approach relieves the issuer from having to manage hundreds or even thousands of individual investors. And, by simplifying the “cap table” (a company’s equity ownership structure), it makes the company more attractive to follow-on investors such as angels and venture capitalists. That would open the door for syndicates such as on Angel List, where smaller investors could invest alongside established angel investors.”
According to Crowdfunding Insider, the Competitive Enterprise Institute – a non-partisan Washington think tank – also praised the bills.
“These changes will make it easier for entrepreneurs with small but high-quality companies to raise capital through equity crowdfunding,” John Berlau of the CEI said. “They will also give middle-class investors more opportunities to build wealth with promising startups.”
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