This article appeared in the November 2016 issue of the Georgia's Cities newspaper.
There is a little-known and underutilized tool available in Georgia designed to help new businesses and new projects raise capital. This tool is called the Invest Georgia Exemption (IGE).
IGE is an exemption to the 1933 Securities Act, which regulates securities in the U.S. The reason states are able to be exempt through the Act is because the transactions are intrastate (within state lines).
IGE is a way of using the crowd (i.e. “crowdsourcing” or “crowdfunding”) to find investors who can invest a certain amount into a project or business based on their income level and/ or net worth. In exchange for their investment, they receive equity. Compare this with other large crowdfunding platforms like Kickstarter where the investment is typically rewarded with something along the lines of a discounted product.
Intrastate is the key—no part of this transaction can occur across state lines. So long as the investors have residence in the state of Georgia and are investing in a Georgia corporation utilizing a bank authorized to do business in Georgia, the transaction is subject to the state’s regulations rather than the federal Securities and Exchange Commission.
Georgia became the second state, behind Kansas, to enact this intrastate exemption in 2011 and has since raised the limit of the allowable investment from $1 million to $5 million through this program. With this change, Georgia has one of the highest limits in the country.
According to member of the Georgia House of Representatives and Attorney Dar’shun Kendrick, “Georgia leads the country with an increased cap of $5 million and, unlike other states, does not require a crowdfunding portal in order to raise funds, although for several reasons I would suggest it.”
Kendrick works with companies looking to raise capital for their business through private investments through federal or state exemptions.
In an online interview with metroatlantaceo.com, Georgia Secretary of State Brian Kemp said, “There are a lot of different sectors where I think you will see [IGE] grow—the construction and real estate industry…potentially healthcare, and even our booming movie industry as well.”
Secretary Kemp also stated, “We had a company GROUNDFLOOR that left North Carolina’s Research Triangle to come to Georgia because our rules (regarding IGE) were the most progressive in the country.” GROUNDFLOOR is a real estate lending marketplace that utilizes IGE for investors in real estate development projects.
Owners of Bohemian Guitars have funded their unique guitar-making business with Invest Georgia Exemptions.
In addition to the business sectors mentioned by Secretary Kemp, small businesses have begun to explore IGE as a way to raise capital for a new venture. In fact, one of the successful IGE crowdfunding campaigns includes a small business named Bohemian Guitars. A Georgia-based manufacturer that makes decorative guitars from oil cans became the first business in the country to successfully utilize equity crowdfunding.
In a 2013 Wall Street Journal article, Adam Lee of Bohemian Guitars stated of the six weeks they spent laying the groundwork for their IGE offering, “it’s not just throwing up a profile on a website and investors swarm at you. It’s a lot of effort. I had to educate them on crowdfunding and the Invest Georgia Exemption, and had to explain why we were raising money on this unique format,” Lee said. “After all those educating points, I had to then move into courting the investors by sharing my business plan and investor deck.”
To date, there have been 41 companies to file notice with the Secretary of State’s office of their intention to use the exemption.
“Of the challenges I hear working with clients, one is knowing that crowdfunding is even an option and two is getting investors to the investor portal,” said Kendrick. “Georgia’s compliance is simple and the paperwork is three pages long. Most of the work I provide is consulting with them about the pros and cons between federal crowdfunding (under Title III of the JOBS Act) and intrastate crowdfunding (IGE) as well as creating the paperwork provided to investors in order to protect their company.”