We hear from many small businesses that traditional financing can be challenging to obtain, or, without the right collateral it's simply not enough. Although we know some lenders are working hard to increase flexibility and close this gap, crowdfunding websites like Indiegogo and Kickstarter have become game-changers for financing small businesses. If you haven't crowdfunded before, here's how it works: You pledge a donation in exchange for a reward, like a product or special event. For a farm, you might get to choose from an exclusive CSA box offering or tickets to a farm dinner. This model has a proven track record -- some of our favorite food businesses and farms have raised hundreds of thousands of dollars online.
Crowdfunding has worked for some businesses, but not everyone can offer the right mix of rewards to entice donors. Fulfillment can be onerous, particularly for a fledgling business with unpredictable cash flow. With the limitations of a rewards-based system, it is often only useful as a supplement to more traditional financing. However, that may soon change. The proposed MNvest legislation has the potential to blow the lid off of crowdfunding in Minnesota.
Just over a week ago, the MNvest bill was introduced in state legislature with broad bipartisan support. The law would clear the way for new online crowdfunding sites that offer interest and equity instead of goods and services. Instead of giving up funds as a donation, your crowfunding investment could maintain or hopefully grow in value as the business prospers. And, doubly exciting, MNvest would also allow non-accredited investors a seat at the table. This is a huge change! To be accredited, investors must show that they earn at least $200,000 a year or have a net worth over 1 million dollars. Anyone (read: most of us) who does not meet that criteria is typically barred from investing directly in a company. We're seeing a great boom in support of sustainable farms and food producers. A mass of non-accredited investors, buying private equity in small amounts, could fuel a burst of vitality for Minnesota businesses while sharing in their prosperity.
The MNvest bill was introduced in early January and may take some time to work its way through the legislature. We're going to watch it closely and be ready to lend support if it passes into law. Its passage is not certain, but take a look at the number of other states who have recently put similar laws in place: Alabama, Colorado, Georgia, Idaho, Indiana, Kansas, Maine, Massachusetts, Maryland, Michigan, Tennessee, Washington, and Wisconsin. We'll keep you posted!