Milk Money, a Vermont-only crowd investing portal, has been acquired, signaling a new phase for the platform—and perhaps the intrastate crowdfunding market as well.
The two-year old intrastate crowdfunding platform’s new owner is the Vermont Innovation Commons, a regional innovation hub in Burlington combining a startup accelerator, co-working space and residential units under one roof. The hub is a project of Vermont Works Management Co., an investment firm focused on creating jobs and economic opportunity in Vermont. It is also raising a $50 million venture fund from local as well as out-of-state investors to invest in growth stage Vermont businesses.
Milk Money adds a vehicle for funding earlier stage businesses to the mix. “Milk Money is an important component of the Commons toolkit and for the pipeline of resources envisioned there,” said Mark Naud, Executive Director of Vermont Innovation Commons.
The deal was a stock swap, with no money changing hands.
Louisa Schibli (pictured top left) and Janice Shade (top right) created Milk Money L3c (limited profit LLC) to fill a gap for early stage capital in Vermont using the Vermont Small Business Offering Exemption (VSBO), an intrastate crowdfunding exemption enacted in 2014. The platform went live in August 2016.
To date, nine Vermont businesses have conducted offerings on the platform, ranging from dairy farms and food co-ops to a maple syrup equipment maker. More than 100 Vermonters have invested $369,550. In addition, Milk Money investors pledged more than $700,000 to Keep Burlington Telecom Local cooperative in its ultimately unsuccessful bid to keep Burlington Telecom in local hands (the money was returned).
A challenging model
But the slow pace of deals and the small market—Vermont has a population of about 620,000—made for a challenging business model. In addition, securities laws forbid investment portals like Milk Money that are not registered broker-dealers from charging a “success fee” based upon the amount raised in a successful offering. That means they have to charge already-strapped small businesses an up front service fee.
As in other states, there was also little public awareness of the VSBO law. Schibli and Shade spent much of their time crisscrossing the state hosting events and workshops to educate entrepreneurs and potential investors about the law and the impact of investing locally. Earlier this year, Shade left the day-to-day operations of Milk Money to create a nonprofit, LocalCap, to deepen and expand those educational programs.
“It was a logical step to migrate the investor education efforts from Milk Money to a separate organization,” she says.
Schibli, meanwhile, set out to explore new strategies and potential partnerships to shore up Milk Money’s business model. With Rob Miller, CEO of the Vermont State Employees Credit Union (VSECU), an equity investor in Milk Money, she visited dozens of organizations across the state. In Vermont Works, she found a strategic partner and new home for the crowdfunding portal.
Schibli, who is now a partner at Vermont Works, is preparing to relaunch Milk Money. In addition to the existing intrastate crowdfunding portal, she is creating a new site that will aggregate a range of opportunities for supporting Vermont-based businesses, including rewards-based crowdfunding campaigns and publicly marketed accredited investor deals under Regulation D rule 506c.
“It’s exciting to have the physical, economic and networking assets of The Vermont Innovation Commons as we transition to Milk Money 2.0,” said Louisa Schibli, cofounder of Milk Money (and picture top, left). “We will continue to offer alternative funding sources for our Vermont businesses while broadening the scope of investment opportunities in Vermont.”
Other intrastate portals might take notice. The economics of running a crowdfunding portal are difficult given the amount of hand-holding needed at this stage of the market and the relatively small number of deals. Across the country, intrastate crowdfunding is flagging.
As of September 21, 2017, a total of 267 businesses had filed with state regulators, signaling their intent to use an intrastate crowdfunding law, according to the latest data from the National State Securities Association (NASSA). Of those filings, 230 were cleared (filings may not be approved if the notice filing is incomplete).
In comparison, 910 businesses launched crowdfunding offerings under Regulation Crowdfunding in its first two years, with more than 100,000 individuals investing roughly $120 million.
That translated to nearly four times as much activity in the first two years of Reg CF than all intrastate offerings across 36 states over a seven-year period (although many of the state law are relatively recent).
In Texas, crowdfunding portal NextSeed did a brisk business with Texas intrastate offerings, but has focused solely on Regulation Crowdfunding offerings since that law, which is open to investors in any state, went into effect in June 2016.
But even crowdfunding platforms operating under the JOBS Act are finding the market is developing slower than they had hoped. In one sign of potential consolidation to come, SeedInvest, a broker dealer and one of the more successful equity crowdfunding platforms, earlier this month was acquired by Circle, a Goldman Sachs-backed crypto-currency platform.