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More Businesses Seeking Investors Under Revised State Programs

Vermont businesses have been taking advantage of a new rule making it easier to raise money from investors, and a new change will expand their options further.

A new rule implemented last year has caused a sharp upward spike in investment offerings in Vermont businesses, officials say. Another change instituted this month could present even more opportunities for local companies.

Last year, the state changed the rules for the Vermont Small Business Offering Exemption (VSBOE).

The changes essentially make it easier for  Vermonters to invest in local companies, and for those businesses to raise more money from more investors.

The Securities Division at Vermont Department of Financial Regulation oversees VSBOE and vets companies that apply.

Deputy Commissioner of Michael Pieciak says there's been a clear spike in the number of businesses making investment offerings under VSBOE since the rules were changed just over a year ago.

"Since that time we've had six offerings. When we look back at the period of time prior to the revisions, we had 14 offerings over 14 years," says Pieciak.

In most cases the new rules allow individuals to invest up to $10,000 and companies to raise as much as $1 million.

The limits are higher for investors with high net worth and businesses with audited financial statements.

"Since (the rule change) we've had six offerings. When we look back at the period of time prior to the revisions, we had 14 offerings over 14 years." - Michael Pieciak, Vermont Department of Financial Regulation

A more recent change, which went into effect this month, allows Vermont businesses to solicit and accept out-of-state investments under VSBOE.

The department has already received its first offering from a business interested in taking advantage of the change.

The changes are a response to growing interest in in equity crowdfunding, which was first authorized under the 2012 JOBS Act.

Unlike the more familiar type of crowdfunding popularized by sites like Kickstarter, which allows people to solicit donations, equity crowdfunding provides the possibility of a return on your investment. 

Vermont is one of a number of states where regulations have been changed to accommodate equity crowdfunding.

"I think that small businesses were having difficulty getting traditional financing and they wanted another avenue. I think also in Vermont in particular — like we see with Phoenix Books — there was an interest in getting local community involvement in the businesses," Pieciak says.

Phoenix Books in Essex and Burlington is using VSBOE to raise capital for an expansion into Rutland.

Eli Moulton, a corporate attorney who is working with the bookstore, says under VSBOE's revised rules, businesses can advertise and use social media and websites like Kickstarter to get the word out to prospective investors. 

Before last year, VSBOE was much more restrictive.

Moulton thinks the latest change is significant, but also comes with some challenges. For example, it could allow a Vermont business owner to accept out-of-state capital from, say, an uncle in New York. But now there are two states involved.

"The minute we have that uncle investing, if he's a New York resident, we have to make sure the offering is done in compliance with New York's securities laws as well as Vermont's," he says.

Businesses offering investment opportunities through the Vermont Small Business Offering Exemption can choose to sell shares of their company or solicit capital in the form of loans.

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