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Colorado is now the newest state to approve intrastate crowdfunding allowing the state’s residents to be able to purchase stock in local, private companies without becoming an accredited investor. At this point, 24 states have passed laws or rules allowing for intrastate equity crowdfunding.
Under the Colorado law, businesses can raise capital [3] of up to $1 million with the potential to increase that to $2 million if they submit audited financial statements. Investments are limited to $5,000 per person, although other states have allowed up to $10,000. Generally, intrastate crowdfunding regulations limit investment size to ten around percent of a person’s annual salary. Accredited investors within the state have no limit to the amount they can invest.
Nationwide, only accredited investors can buy stock in a private company. These investors must earn at least $200,000 annually ($300K for married couples) and have a $1 million net worth, not including their primary residence.
Erik Mitisek, CEO of the Colorado Technology Association [4] – a group that supported the law – claims that despite the rule’s passing, crowdfunding won’t be for everyone.
"In the world of technology, the Colorado crowdfunding law will have the most impact on service and manufacturing companies in the technology arena," he said, or firms that need minimal capital to get started. "In addition, with the low barrier of entry for developing mobile apps and other online software, companies in these categories will likely emerge to take advantage of the new opportunity as well," he said.
Unlike some other states, it doesn’t appear Colorado has set limitations on the types of companies that can use this rule. Massachusetts for example, does not allow investment companies, hedge funds, blind pool offerings, and other types of pooled investment vehicles to use its intrastate crowdfunding exemption. Businesses involved in oil and gas exploration or production, mining, and other extractive industries are also prohibited.
Although these rules are now in place, no one in Colorado can use them yet. No one has launched an equity crowdfunding site registered with the state Securities Commissioner. The state is basically playing a wait-and-see game for interest from the public to do so.
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