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Legislation would pump crowd funded investment for small businesses

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Gov. Jack Markell and members of the General Assembly yesterday announced bipartisan legislation to give startups and small businesses access to capital.

The bill, which will be filed when the legislature returns to session next week, would permit the use of online crowd funding platforms for Delaware residents to be investors in Delaware startups and small businesses. It would expand the potential pool of investment capital for Delaware businesses and give Delawareans the chance to be early-stage investors.

State laws currently prevent citizens from using crowd funding to its full potential to help Delaware businesses. The bill is sponsored by Rep. Bryon Short and Sen. Brian Bushweller.

“We need to make sure our laws keep pace with technology so that our small businesses have access to new methods of raising much-needed capital,” said Short, the bill’s prime sponsor in the House. “Delawareans have a strong sense of pride in locally owned and operated businesses. This bill will take steps to help new companies by enabling Delaware residents to invest and participate in the success of homegrown Delaware start-ups.”

The bill would enable Delaware-based companies to offer equity stakes to Delaware residents or other Delaware businesses over internet platforms. Due to federal law, Delaware cannot permit investment from residents of other states.

Although the bill would require certain disclosures in order to ensure the validity of the offerings, it does not require issuers to make detailed financial disclosures that might be prohibitively costly for many small businesses and start-ups. A business can raise up to $1 million over a 12-month period and an individual can invest up to $5,000 in any one offering.

“We must strike the right balance between protecting the public from fraudulent activity and making sure our small businesses can access investment capital, and this bill accomplishes that,” said Bushweller, the bill’s prime sponsor in the Senate. “I look forward to working with my colleagues to pass this into law.”

The bill has received support from Republicans in the legislature as well.

“This bill is a recognition of the changing landscape of how businesses are conceived and financed in the 21st Century,” said State Rep. Lyndon Yearick. “There are many examples of businesses that got their start through online crowd funding. It’s time we allow Delaware entrepreneurs to tap into a resource that could help them turn a dream into a viable enterprise.”

“Any advantage we can give our home-grown companies is a benefit in the new economy,” said Sen. Greg Lavelle. “It’s important to give Delaware companies access to Delaware investors, and any time we can do that in a safe and responsible way, we should.”

““This is a good way to enable small businesses to more easily access the capital they need to grow,” said Rich Heffron, president of the Delaware State Chamber of Commerce. “We support this legislation, and hope to see it become law.”

The state Department of Justice’s Investor Protection Unit will maintain oversight of sale registration and equity offerings.

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