Representative Patrick McHenry (R-NC), the driving force behind the H.R. 2930 crowdfund investing bill currently under consideration in the U.S. Senate, discovered crowdfunding the same way many of America’s college frat houses sate their thirst: through Pabst Blue Ribbon.
Scrolling through his twitter feed, McHenry stumbled upon a tweet by advertising executive Michael Migliozzi II asking people to invest in Pabst Brewing Company for as little as $5 dollars. By the end of February 2010, roughly five million Americans had pledged over $200 million dollars to own a stake the ailing brewing company. Of course, the five million funders ever-so-slightly surpassed the U.S. Securities and Exchange Commission’s 35 unaccredited investor limit, so the SEC put a stop to the purchase — but for McHenry, the PBR experiment demonstrated the massive potential of crowdfund investing.
In an economic environment where the dollar faces increasing pressure, where bank lending is scarce and expensive, where 25 million Americans are out of work, we cannot afford to “operate under the same rules and regulations … we used in the era of the rotary telephone,” said Representative McHenry Monday at the SoHo Loft Capital Creation and Crowdfunding Conference in Manhattan.
Representative Patrick McHenry, left, chats with event attendees (Photo: Eric Blattberg)
Onerous regulation is holding back businesses seeking to raise capital, argued McHenry, and nowhere is that more apparent than in state regulation. Under current state regulations on securities registrations, for example, “If you raise [capital] from 30 individuals in the state of Connecticut, you’re limited to only five in the state of Colorado,” scoffed McHenry.
After listening to testimony from the folks at Startup Exemption, McHenry drafted H.R. 2930, “The Entrepreneur Access to Capital Act.” Based largely on Startup Exemption’s proposed crowdfund investing framework, the bill creates crowdfunding exemptions for firms and businesses seeking to raise up to $2 million dollars through online platforms — or “portals,” as McHenry calls them. It also includes a threshold of $10,000 or 10% of income as the individual investment cap, removes the ban on general solicitation by preempting the Blue Sky Laws, and overrides state regulatory authority. McHenry feels that “light-touch regulation” from the SEC is sufficient, though he failed to specify precisely what actual mandates the organization plans to enact.
McHenry’s original H.R. 2930 proposal changed as it continued its journey to become law — he originally proposed a $5 million investment cap, compared to the modified $1 million limit (or $2 million if a company audits its financials) — but such is the nature of lawmaking. House Republicans and Democrats worked together to amend the bill, originally one and a half pages, to its the current dozen-page format. A result of rare bipartisan cooperation and compromise, the bill sailed through the House with an overwhelming 407–17 majority vote. It even garnered a statement of support from the Obama administration. “To get a bipartisan bill through the House of Representatives — and to get President Obama to sign on — is kind of the equivalent of getting [JPMorgan Chase CEO] Jamie Dimon down to Zuccotti Park to play in the drum circle,” joked McHenry.
Some senators weren’t satisfied with H.R. 2930, however, opting to introduce their own competing legislation. Jeff Merkley (D-OR) proposed S. 1970, and Scott Brown (R-MA) put forward S. 1971 (more details here). Even if H.R. 2930 flounders and dies in the senate — as McHenry worries it might — he would not support either of the senators’ proposals in their current forms. “They don’t open the space up enough,” said McHenry of the senators’ crowdfunding legislation. “They don’t preempt Blue Skies, they don’t allow enough dollar raising … and the Merkley bill still demands state regulation.”
As previously mentioned, H.R. 2930 is currently awaiting review in the Senate. “Most good things go to the Senate to die,” declared McHenry. “We have to make sure this legislation does not die so we can free this space up and actually get capital flowing. That’s what it’s all about.”