Washington House passes proposed crowdfunding law

Crowdfunding image via Shutterstock

Crowdfunding image via Shutterstock

The Washington State House today passed a proposed crowdfunding law with a 89-9 vote, as House Bill 2023 now moves to the Senate.

HB 2023 would allow Washington state businesses to raise up to $1 million during any 12-month period from Washington state residents in a crowdfunding campaign, with the funds being raised from non-accredited investors, as well as accredited investors.

As Joe Wallin wrote earlier this week on GeekWire, state-level crowdfunding would help those looking to raise money who may not know any accredited investors. Currently, almost all startups raise money solely from accredited investors under what is known as Rule 506 of Regulation D.

“The trouble with Rule 506 is that you have to limit your offerings to accredited investors,” Wallin wrote. “There is no ability under Rule 506 to raise small amounts of money from lots of people, including non-accredited investors, in a crowdfunding campaign.”

HB 2023 could change that, if passed.

“It is an important bill,” Wallin noted. “It would send a signal to the entire world that Washington takes the business of starting and growing companies seriously, and is willing to amend its laws to bring them up to date with the 21st century.”

Read more about the potential implications of the bill here.

Update, 2:05 p.m.: This story originally noted a unanimous House vote, and we’ve since corrected that to show the 89-9 vote.

  • Slaggggg

    I don’t understand why Washington businesses can’t do this today with Kickstarter et al. How is this proposal different from what’s possible today with Kickstarter?

    • balls187

      As Ali said below, Kickstarter, and other traditional crowdfunding campaigns aren’t investments. The money are basically donations and pre-orders. You don’t receive any stock, debt, or other security instrument for your money.

      The law being referenced, just updates the WA State securities law with the new Federal SEC laws.

      Until recently, the SEC had limited the number of non-accredited investors you could take investment from. This was Exception rule 506 in Regulation D, and set the limit to 35.

      WA had a companion regulation, which further limited the federal exemption, stating that at up to $1M, you could only raise from 20 non-accredited investors.

      Recently, however, the SEC, as part of the JOBS act, lifted it’s restriction on selling securities through crowd funding (while simultaneously increasing the restrictions with making an offering to accredited investors).

      This new WA law, allows raising up to $1m from basically an uncapped number of non-accredited investors, which makes this more inline with the new SEC laws allow.

      • Slaggggg

        Excellent detail and makes sense, thank you Balls.

    • http://startuplawblog.com/joewallin Joe Wallin

      As explained below, Kickstarter is not equity crowdfunding. Companies on Kickstarter are pre-selling goods or seeking donations. They aren’t selling securities.

  • Ali Alami

    I’m not 100% sure but my understanding is with Kickstarter you raise funds for products or just as a donation. The funders aren not investors and can’t get equity in the company.

  • lunarmobiscuit

    Thank you Cyrus Habib (of Perkins Coie when he’s not representing entrepreneurs in Olympia) for making this happen.

    Do note that this is just halftime for this effort. To make this a law, we still need the Olympia Senate to pass it too, and we need that to happen in the next 30ish days, before the legislative session ends.

    If you dream of raising money for the crowd, or dream of investing in the companies you read about in GeekWire, then please take a moment to help this bill through the Senate.

    Lookup your Senator at http://www.leg.wa.gov/senate/, tell them you support HB 2023, and ask them how you can help ensure it gets through the committees and passed by the Senate this term.

  • http://startuplawblog.com/joewallin Joe Wallin

    Thank you Taylor for writing about this!