The Washington State Senate today passed a proposed crowdfunding law with a 46-2 vote, as House Bill 2023 now moves back to the House for a vote on amendments.
If the changes are approved by the House and HB 2023 is signed by Gov. Jay Inslee, Washington state businesses will be able 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.
“We’re putting our state in place to attract entrepreneurs – and to capitalize on their energy and brainpower,” the bill’s lead sponsor, Rep. Cyrus Habib, said in a statement. “And ordinary people can buy a piece of the action, too.”
As Joe Wallin wrote last month 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, 5:45 pm.
We just caught up with Wallin, who said that if passed, this bill will “transform the business climate in Washington.”
HB 2023 will enable Washington businesses who are raising money from Washington residents to get around a federal crowdfunding law that requires complex and more costly requirements, like accounting and broker fees. The Securities Act of 1933 notes that for securities offerings which are entirely within one state, federal law does not apply. Since the bill is structured in a way that includes only Washington businesses and residents, it escapes federal law.
This means that Washington entrepreneurs can raise money from non-accredited investors without having to spend a good chunk of money due to requirements imposed by the federal government.
There are only a handful of other states that have enacted similar laws.
“We’re going to be a leader in this thing,” said Wallin, an attorney at Davis Wright Tremaine. “We are a tech hub already and now we’re going to be able to say to the whole world, ‘Come to Washington state where we make it easy for you to raise money.’ You won’t have to hunt for millionaires. It’s pretty awesome.”
Wallin said he was nervous this week that the bill was not going to be voted on before a 5 p.m. deadline on Friday. If it had not been passed by 5 p.m. today, there would have been a delay until the beginning of next year’s session.
“The startup community in Seattle rose up,” Wallin said.
Interestingly, Wallin was the first person to come up with this whole idea and he proposed the new statutory provision in a post on GeekWire nearly 14 months ago.
“This just shows you, if we get motivated about an idea and get around it, we can do something,” Wallin said.