A growing number of states have passed intrastate crowdfunding exemptions—as of this writing, 19 states have enacted laws and more than a dozen more have legislation in the works. Michigan joined this local investing movement relatively early, in December 2013, with the passage of the Michigan Invests Locally Exemption (MILE). Michigan’s law is among the least restrictive, allowing businesses to raise up to $2 million from an investment crowdfunding campaign and unaccredited investors to invest up to $10,000 in a business.
Yet, despite the enormous potential of this law to democratize investing and provide small businesses with much-needed capital, it has been slow to gain traction. (Michigan has had just one success story to date). That’s also been the case with most states (with the notable exception of Oregon).
In Michigan, there is a small but mighty group of investors, entrepreneurs and policy leaders working to change that, chief among them Chris Miller, the Economic Development and DDA Director for the city of Adrian, where the idea for MILE was born. As part of these efforts, Chris contracted three graduate students from the University of Michigan’s Ford School of Public Policy—my colleagues Kristina Campa-Gruca, Kimberly Rustem and myself—to study implementation challenges, identify best practices, and make recommendations. This process involved an extensive literature review and conversations with over 30 stakeholders.
Our report, Michigan and Intrastate Investment Crowdfunding: the Potential of the Michigan Invests Locally Exemption (MILE) to Rebuild Robust Local Economies, identified three major challenges to the implementation of MILE:
- overcoming hesitancy from key stakeholders, in particular concerns regarding the potential for fraud
- raising awareness among a large, diverse set of stakeholders
- creating a robust infrastructure to support investors and entrepreneurs in their use of investment crowdfunding.
To address these challenges, we offer six recommendations. We share them here in the hope that they can help catalyze crowdfunding not just in Michigan, but also in the 19 and counting states that have embraced this new form of finance and DIY economic development.
1. Cultivate Champions: Identify investment crowdfunding champions in communities across the state to connect like-minded investors, entrepreneurs and intermediaries.
In Michigan, a few individual leaders and organizations have stepped forward to help organize Meetups in their communities. The Southeast Detroit Crowdfunding Meetup, for example, was organized by Detroit real estate investors and entrepreneurs. Reconsider, a locally based consulting firm, organized venture LOCAL community gatherings in partnership with the Washtenaw County Office of Community and Economic Development. More efforts like this are needed.
2. Address the Need for Services: Support the development of organizations that provide a one-stop shop for entrepreneurs and investors.
Intrastate crowdfunding exemptions create demand for legal, financial, and marketing services. However, expertise and one-stop shops for investment crowdfunding services are scarce. In Michigan, a number of initiatives by financial planners, lawyers, and crowdfunding services are beginning to fill the need in local communities, but more is needed on a statewide level. Municipal governments, public officials, community foundations, meetup groups and crowdfunding platforms should provide facilitative, financial and community support to qualified experts launching new one-stop shops that provide investment crowdfunding services.
3. Explore Ecosystem Funding: Local governments should partner with philanthropic organizations and community foundations to offer matching funds to successful entrepreneurs.
The state of Michigan already provides matching grants to support community place-making projects through the Michigan Economic Development Corp.’s Public Spaces, Community Places initiative. This is a model that could be replicated within local governments to support promising local entrepreneurs and their local economies. A crowdfunding campaign serves as a natural mechanism for vetting an entrepreneur’s preparedness and ability to generate strong community support, suggesting later business success. Local governments and community foundations should take advantage of this and explore opportunities to create local matching funds for entrepreneurs who successful complete a campaign.
4. Collaborate: Coordinate mission-aligned organizations with the human and financial capital available to lead a statewide education campaign.
Individual organizations have stepped up. A next step would be to facilitate collaboration and partnership among government and business organizations—Small Business Development Centers, SCORE centers and economic development groups, for example—that allow each to focus on its area of expertise and stakeholder group while contributing to a broader effort. In Michigan, such a partnership might include Reconsider, the Michigan Municipal League (MML), MIQuest, the Office of Small Business Development Centers (SBDC), the Small Business Association of Michigan (SBAM), and/or SCORE to provide a “train the trainer” program for intermediaries interested in providing professional services to support businesses and entrepreneurs using MILE.
5. Educate Leaders: Educate state officials about the value of investment crowdfunding as a local and regional economic development tool and develop regional outreach programs.
Investment crowdfunding is a tool that can spur economic growth and should be incorporated into regional strategies In Michigan, the MEDC formed Collaborative Development Councils in 2011 to engage community and economic development organizations in the creation of regional strategies for economic growth. Organizations like this should be brought on board as valuable outreach and educational partners. Crowdfunding champions first must reach out to these groups and illustrate how intrastate crowdfunding adds value to existing programs and produces real benefits for local and regional economies and small business development.
6. Build Coalitions: Organize a state coalition for local investing to transfer knowledge across communities and regions and leverage political support.
By convening members from different organizations, government agencies, and local communities across the state, this coalition can create a space for identifying and sharing best practices, catalyzing innovative strategies for implementation, and coordinating resources regionally and statewide. While communities, organizations, and individuals around the state are pursuing new strategies for implementing MILE, and the website www.crowdfundingMI.com, there is not one central location for learning and sharing this knowledge. A state coalition or council will not only create this space, but it can also legitimize the presence of the local investing movement and leverage political support.
As further action steps, we recommend creating a map of active stakeholders in the state and identifying resource gaps; convening strategy meetings with faith and nonprofit organizations to develop investment communities and professional volunteers; and developing statewide surveys of investors, entrepreneurs, intermediaries and local governments.
Michigan is fortunate to have a handful of policy leaders, entrepreneurs, and investors dedicated to the cause, including the Michigan Municipal League as well as the state’s Sense of Place Council. We believe these recommendations will further the implementation of MILE and investment crowdfunding, enabling entrepreneurs to access new forms of capital to jumpstart small business development; residents to grow their wealth and shape their communities; and the state of Michigan to compete in the evolving global economy.
Erin Pidot is a Masters in Public Policy Candidate at the University of Michigan’s Gerald R. Ford School of Public Policy. She grew up in Maine and spent five years working in Boston and San Francisco as a housing advocate and social worker before returning to school. She has loved getting to know Michigan over the past two years.