Securities commissioner endorses Colorado crowdfunding bill

DENVER — Gerald Rome, securities commissioner for the Colorado Division of Securities, testified Thursday in front of a legislative committee in favor of a proposed bill that would allow small businesses to raise capital through equity crowdfunding platforms within Colorado.

“We all agree that startup companies play a critical role in expanding economic opportunities by creating new jobs,” Rome said. “We can also all agree that traditional funding for nascent companies is often limited. This crowdfunding mechanism will allow small businesses to pursue an economical way to raise funds through localized securities offerings.”

House Bill 15-1246, introduced by state representatives Dan Pabon, D-Denver, and Pete Lee, D-Colorado Springs, provides an exemption to companies from registration of their securities, thus bypassing what can be a costly registration process and allows them access to the Internet to market their securities to investors.

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HB 1246 also protects investors. It would set specific limits on capital raised by emerging enterprises: $1 million or up to $2 million if the company has audited financials.

The bill also puts limits on investors deemed “unaccredited,” meaning they earn less than $200,000, or have a net worth less than $1 million. These smaller retail investors will be able to put forth only $5,000, a cap that, according to Rome, is necessary due to the high level of risk involved in startup ventures. Companies using the crowdfunding option would be required to file with the Division of Securities, and will have to follow disclosure requirements.

Colorado is among several states to have introduced crowdfunding bills over the past year in response to a provision in the federal JOBS Act of 2012. While this provision set up the possibility for crowdfunding that would cross state borders, the U.S. Securities and Exchange Commission has been slow to outline specific rules. Many states have opted to adopt intrastate rules to help small companies in the meantime.

“The bottom line is that successful capital formation must encourage entrepreneurs while protecting investors in a manner that best serves the public interest—this bill strikes that balance.” Rome said.