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Nadworny: Invest Local

We talk a lot about innovation and startups and entrepreneurship in Vermont. With good reason, too: as a small state, we will most likely grow jobs through new local companies.

When I talk to people in early growth startups they almost all talk about the challenges of raising money. In many cases, it’s not a lot of money; it’s usually on the order of tens of thousands of dollars, not tens of millions of dollars. Typically, the entrepreneur is spending savings, racking up credit card debt, or getting investments from family and friends.

Because we are a small state, we have really only one Venture Capital company here plus a limited number of angel investors. We do have wealth in the state, and according to one study I’ve seen, there’s a lot of money that could have been invested in local companies that isn’t. But some recent developments might enable Vermont startups to raise money more easily.

For one, the State of Vermont has changed a number of rules and regulations to allow companies to raise up to $2 million from Vermonters. Previously, the cap was a lot lower and you could only have 35 people investing. Now, an unlimited number of residents can invest up to $10,000 per company.

Another new rule allows startups to advertise, again only to Vermont residents, the opportunity for investing in a Vermont startup. Previously this was severely limited, so when you were raising money, you couldn’t really tell a lot of people about it. The Department of Financial Regulation oversees these new rules and regulations, collectively called the Vermont Small Business Offering Exemption, or VSBOE.

And lo and behold, two new Vermont startups now offer platforms for finding and investing in startups through VSBOE. Milk Money focuses on new consumer product startups while DesignBook targets people who are interested in investing in early stage businesses.

Unfortunately, the harsh reality is that most startups will fail. A typical Venture Capital firm will fund only three successful businesses out of ten investments. Milk Money founder Janice Shade calls local investments “Going to Vegas Money” – meaning people should only invest those amounts they’d feel comfortable losing on a trip to Las Vegas.

Still, the hope is to fund one or two of those small startups that get bought for billions of dollars after a few years. And in the meantime, these new rules should make it easier for startups to grow in Vermont and provide more great jobs for the people who live here.