Georgia investment laws make Atlanta the breeding ground for new investment sharks.
ABC’s “Shark Tank” is a reality-based television series in which a business owner pitch his ideas to investors who, in turn, negotiate for a percentage of the owner’s business, usually at a price less than that offered by the owner. Having run out of funding options, the business owner is left to choose between the price offered by the “shark” or move forward without an investment.
Sounds great, if you’re the shark.
The television shark investors are wealthy billionaires who add to their wealth by buying low into small businesses, like the ones on Shark Tank, then selling high once the business is successful. Who wouldn’t want to be a shark?
Georgia is doing its best to build more investment sharks through crowdfunding. If you haven’t heard by now, crowdfunding happens when individual investors each contribute small amounts of money to fund an idea, project or business.
Crowdfunding is not a new concept. Televangelists first used it to accept donations. Nowadays, the medium of choice is the Internet, but this time, contributors are looking for more than just a tax deduction.
Typically, when business owners require funds to start or grow, they reach out to friends and family, followed by banks. With Internet crowdfunding, the business owner can look for funding throughout the world.
But what do worldly sharks want in return?
Before 2012, U.S. crowdfunding investors were resolved to only receive a warm and fuzzy or a product sample should the fledgling business or project succeed. This is called reward-based crowdfunding, which means the only return on one’s investment is a token reward, even if the investor’s funds were used to launch a profitable, multi-million-dollar business. That’s not an attractive return to an investment shark.
In 2012, President Barack Obama signed the Jobs Act, which instructed the Securities and Exchange Commission to issue rules letting crowdfunding investors have an ownership interest in a business. This meant business owners could offer investors an actual stake in their companies instead of a donation or gift certificate.
The SEC has not yet issued its rules, so most crowdfunding investors sit on the sidelines, waiting to jump in the water.
Georgia is not waiting.
The Legislature adopted the Invest Georgia Exemption, which allows a state resident to go on the Internet, register as a crowdfunding investor, invest in Georgia small businesses and receive an ownership interest in the business or a return on the investment.
Since the exemption’s adoption, Georgia businesses have begun listing offerings on crowdfunding platforms or portals that provide investment information for potential investors. To date, most marketing related to the exemption has been directed toward business owners, and rightfully so, because businesses breed investors.
Most of Georgia’s crowdfunding investors are unaware, however, that a number of crowdfunding portals are available right now listing local Georgia and Atlanta businesses for investment, only for Georgia residents. In addition, Georgia and Atlanta crowd investors can minimize their risk by visiting a business or talking to its owner. Due diligence is key for any investor. It’s much easier to gather information about businesses when they are in your own pond.
The time is ripe for crowdfunding investors in Atlanta and the rest of Georgia to jump in the water, swim around and take a bite out of the investment opportunities offered by the state’s small businesses. After all, just like our eco-system, business owners need sharks.
David Walker is an Atlanta business attorney.
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