As Regulations Change, Interest In Equity Crowdfunding Grows

Jul 26, 2017

What’s often called ‘equity crowdfunding’ is giving businesses, especially start-ups, a way to raise money when they can’t access capital from traditional sources, like bank loans.

It's also giving Vermonters a chance to invest locally.

Equity crowdfunding was made possible by changes to the rules governing the Vermont Small Business Offering Exemption.

The rules set limits on how much money a company can solicit from individuals in the form of loans or shares of the business. Until recently the program allowed only wealthy individuals to invest.

In 2014, new rules simplified the process and increased the limit on how much a business could raise.  

But the most significant changes allow any Vermonter to invest up to $10,000 in a business making an offering under the small business offering exemption.

"They just need a bit of capital to get them up and over that hump and then they become bankable" - Janice Shade of Milk Money

This is especially helpful for new businesses that have trouble finding capital because they don’t yet have a track record.

The Vermont Evaporator Co. used capital raised from small investors to grow the business.
Credit Courtesy: Vermont Evaporator Co.

Kate Whelley McCabe started the Vermont Evaporator Company with her husband, Justin.

McCabe and her husband are producing back yard sap boilers with a firebox made from a 55 gallon drum. They started by making a dozen of the rigs, which they sold in less than two weeks.  

The McCabes saw it as proof that there’s a market for their product. But to make more, they needed money.

They couldn’t get a regular bank loan so they turned to Milk Money, a Vermont online platform that helped the McCabes apply for a small business offering exemption and find investors.

The company also got financial help from Community Capital of Vermont, which works with low and moderate income entrepreneurs.

The business has now raised enough capital from small investors to grow to a point where it can access more traditional lines of credit.

McCabe spoke at a recent event organized by Milk Money, featuring several of the small start-ups they're working with. 

“I’m pretty sure I can now get a $100,000 - $150,000 line of credit to buy things, to build things, to sell things, to make some money,” McCabe told the group, which included potential investors.

Janice Shade of Milk Money says McCabe’s company is an example of  how matching up Vermont businesses with small investors can help make the difference between success and failure.  

“They’ve got something going. They’ve proven some success and they just need a bit of capital to get them up and over that hump and then they become bankable,” she says. “We’re actually seeing that with a number of our campaigns.”

Milk Money launched just over a year ago and, to date, is helping seven businesses with their crowd-investing campaigns.  This month the company marked a milestone with the completion of its first fully funded campaign, for the Burlington Herb Clinic.

Shade says in the past year, Milk Money has helped companies raise $200,000 from 90 Vermonters.

We're still waiting to see a company go all the way through the cycle...and its just a little too early in the process to see that play out" - Dept. of Financial Regulation Commissioner Michael Pieciak

The Vermont Small Business Offering Exemption is unique because it gives small investors a chance to support a specific Vermont business that fits their own values.

Steve Chadwick is one potential investor who was on hand to hear McCabe and others make pitches.

“I’m really interested in Vermont businesses that help preserve the Vermont that we all know and love. The natural resources, the culture, the people. Those things all fit my goals,” he said. 

Since 2014, there have been several more changes to the small business offering exemption rules.

One created an option for businesses to seek investors outside of Vermont. So far, there hasn’t been much interest in that option, says Commissioner Michael Pieciak of the Department of Financial Regulation.

Pieciak says that’s partly because companies would have to navigate regulations in other states if they have out-of-state investors.    

He says the New England states are working on a regional solution to that problem.

According to Pieciak, “Essentially you’d get approved in one of the six New England states and then you’d be able to raise money from anyone living in those six New England states. All of the states would be buying into the same requirements.”

Another recent rule change allows companies to do more online and through social media to get the word out to potential investors.

Pieciak says since the rule changes 17 companies have made offerings to small investors. He says it’s still too early to measure the success of the changes made in 2014.    

“We’re still waiting to see a company go all the way through the cycle, where they’ve raised the money successfully, they’ve deployed it successfully and then they’ve paid their investors back and it’s just a little too early in the process to see that play out,” he says.

Pieciak believes interest in investing in local businesses will grow once some businesses complete the process and Vermonters see their small investments making a difference and producing returns.