Crowdfunding Law Change Could Widen Investor Pool for Restaurant Owners
A screen shot of the MNvest.org homepage, where people can sign an online petition to show their support for the legislation.
Many a good idea for a restaurant, craft brewery or other foodservice-related business has languished due to lack of funding. Kickstarter and other donations-based campaigns are used with mixed results. However, prospective project backers wanting more than a free meal or free daily beverage are out of luck.
That could change thanks to a push to make needed state law changes to allow more equity crowdfunding opportunities in Minnesota. Sen. Terri Bonoff (DFL–Minnetonka) and Rep. Joe Atkins (DFL–Inver Grove Heights) are lead authors on proposed legislation to allow equity crowdfunding here. The proposal will be introduced when the 2015 Minnesota Legislature convenes in January.
If the legislation becomes law, Minnesota would join more than a dozen states with broader equity crowdsourcing laws in place. Efforts to make the change, which would require changing state securities law, are being led by a group called MNvest. Attorneys Zach Robins and Ryan Schildkraut of the Minneapolis law firm Winthrop & Weinstine set up MNvest and are among those leading the change. That law firm has an active food and beverage division and has been involved in helping craft brewers with needed law changes.
As of press time, almost 100 people had signed an online petition supporting the change.
Restaurant owners contacted said they’d be interested in learning more about the proposed legislation and the MNvest effort and that they’d be watching the legislation with interest. While some like the idea of being able to more easily access investors, others cited the potential challenges of dealing with investors who’d want a say in how a restaurant is run.
Securities or equity crowdsourcing in one form has been available since 2012, when Congress passed the JOBS Act. The act was intended to make securities crowdfunding legal. It did—but only for investors who are accredited. That means only wealthy people, with net worth of $1 million or more, can take part. Two years ago Congress directed the Securities and Exchange Commission to develop means for non-accredited investors to take part in equity crowdfunding.
But even though advocates have hoped that funding option would be legal by now, that hasn’t happened. There’s also concerned that those federal rules could be overly complicated when they are released. A recent rules draft weighed in at 585 pages.
So states including Wisconsin, Michigan and Indiana have passed their own laws to broaden the investment opportunities. Advocates here contend that as surrounding states adopt equity crowdfunding legislation, Minnesota will be left behind.
While Minnesota’s proposed state law changes would help all types of businesses, attorney Justin Jenkins of Winthrop & Weinstine said it would be especially beneficial to restaurant owners. Some restaurant startups or expansion projects face resistance from traditional lenders, due to the potential risks of lending to such businesses.
Jenkins also said that updates to securities laws are long overdue. “Some of those laws were passed in the wake of the [1930s] Great Depression.”
The bill would create pass a securities exemption for intrastate crowdfunding in Minnesota, allowing the state’s companies to raise money from state residents. Investors would have some ownership stake in the business venture. Jenkins said one advantage is that prospective projects could be advertised to the general public.
When the crowd funds
Some donation-based campaigns have been successful, either run privately or through funding platforms such as Kickstarter, Smart Things and Zivix. In 2013, St. Paul’s Groundswell used donations of $1,000 per customer to move into a vacant adjacent Hamline-Midway neighborhood storefront and expand as a restaurant. In exchange for $1,000, donors were offered a free daily coffee or glass of wine for their or the restaurant’s lifetime. That same year Minneapolis mainstay Birchwood Café exceeded its $100,000 expansion funding goal through a successful Kickstarter effort.
In mid-November, Kickstarter had 39 active Minneapolis projects. Of those, four were food-related, running the gamut of the Herbivorous Butcher, a vegan butcher shop, to restaurant veterans Tobie Nidetz and Craig Johnson’s proposed Prairie Dogs hot dogs and handcrafted sausage restaurant. Nidetz and Johnson recently announced a lease at 610 W. Lake St. in Minneapolis. Those campaigns and others enjoyed varying rates of success.
One wrinkle with Kickstarter and some other donation-based crowdsourcing funding programs is that if a funding goal isn’t reached, the project gets no support at all. Donors’ credit cards aren’t charged, so there isn’t a risk there. But donors who want more than a T-shirt or food in exchange for a donation are out of luck.
“This allows people to be owners and have a stake in a business,” Jenkins said,
Bonoff, who brings more than two decades business experience to the capitol, said she’s long been intrigued by the Kickstarter model of business financing. She’s also well aware of how difficult it can be for businesses to raise funds.
Once the word gets out about the proposed legislation, Bonoff anticipates that there will be broad-based support from a variety of business and industrial groups. But she cautions that the bill could face questions from state commerce officials and fellow legislators concerned about adequate protections for investors. “I think we’ve built protections into the bill, but I know we’ll face questions about it.”
“People can be assured that the bill has been written with protections in place for investors,” said Jenkins. Issues of full disclosure have been vetted, along with the need to provide full business plans and spell out the risks involved, he added.
To learn more about MNvest and find links to information on the bill, go to www.mnvest.org.