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Dennis O'Malley

Supporters worry lengthy rulemaking could hurt MNvest

Sen. Terri Bonoff, DFL-Minnetonka, brought MNvest legislation to the Senate. (File photo: Bill Klotz)

Sen. Terri Bonoff, DFL-Minnetonka, brought MNvest legislation to the Senate. (File photo: Bill Klotz)

Legislative approval last week put more momentum behind the campaign to lighten restrictions on who can invest in Minnesota companies, but uncertainty over looming rulemaking could pose new challenges for the highly touted program.

The effort, known as MNvest, would tap into a federal securities law exemption to allow businesses to seek funding from all Minnesota residents. Now, companies can’t advertise investment opportunities to anyone other than accredited investors, typically high-net-worth individuals and funds.

Equity crowdfunding would present capital-starved companies with a wider swath of potential backers, a shift that bipartisan advocates in the Legislature hail as a boon for small and emerging outfits. The bill’s authors say it’s a good sign the legislation cleared both chambers, and they remain optimistic Gov. Dayton will greenlight the law after they smooth out differences in the House and Senate proposals.

But getting MNvest on the books is only the first stage of the program’s path to implementation.

From there, the Department of Commerce — the agency that will manage MNvest — needs to map out an oversight plan. A yet-undetermined timetable for that process, which can’t start until the governor signs the bill into law, threatens a lag that could carry significant costs, said Zach Robins, one of two Winthrop & Weinstine attorneys who helped craft the legislation.

“Entrepreneurs don’t have the luxury to sit and wait,” he said. “We live in a very competitive world and our Minnesota-based companies are fighting for dollars with other companies both inside and outside the state. It’s not easy for Minnesota-based companies.”

At a hearing earlier this month, the Department of Commerce laid out loose plans to finish rulemaking in the 2016 fiscal year, which begins June 30. Agency spokeswoman Libby Caulum declined to speculate on how long the process, priced around $130,000, could take.

“As far as timeline goes, we don’t have one at this point,” she said. “We would have to wait until after the bill passes to start the rulemaking process.”

The House and Senate bills each include a one-off earmark to cover rulemaking.

State guidelines estimate projects similar to the proposed MNvest require around 2,900 man hours to establish a framework. That covers program staff, a designated rulemaker and others, according to Minnesota’s rulemaking manual.

“This is state government at its worst, where the rulemaking process is lengthy,” said Sen. Terri Bonoff, DFL-Minnetonka, who brought MNvest legislation to the Senate. “They’ve said [it will take] as long as a year, but I’m going to be advocating for them to do it much faster. That just does not seem prudent.”

Of the nearly 20 other states with similar equity crowdfunding laws, several have struggled to parlay the broader investor pool into widespread gains for businesses. Wisconsin last year became one of the first states to adopt equity crowdfunding but so far only two companies, both breweries, have pounced.

A key holdup in Wisconsin is a lack of awareness in the business community — a snag MNvest organizers have tried to head off with a website and numerous speaking engagements targeting entrepreneur-focused groups. They say it’s paid off, but drawn-out rulemaking could dampen enthusiasm.

“This has generated a lot of interest and for me to then tell this audience who’s pretty excited about this new opportunity to raise capital that, I’m sorry, we’re going to have to wait until sometime in 2016 – that’s just unfortunate,” Robins said.

More than 275 people have signed onto a list in support of the legislation on the MNvest website. Proponents also include a slew of high-profile groups catering to Minnesota businesses and entrepreneurs, including the Minnesota Chamber of Commerce and LifeScience Alley.

Both groups said they’re hopeful the bill will pass, and told Finance & Commerce sooner is better when it comes to implementation.

“There are a lot of great companies and great, very smart entrepreneurs out there right now who could always benefit from any program that will help them attract more funding,” LifeScience Alley spokesman Ryan Baird said.

Bill advocates, including legislators from both chambers, plan to keep the pressure up.

Rep. Jenifer Loon, R-Eden Prairie, spearheaded the legislation in the House. She said she plans to stay in touch with the Department of Commerce to make sure it takes effect as soon as possible if the governor signs off.

“Clearly if our rulemaking process takes a very long time, it’s going to diminish the effect and the impact on small businesses who will want to try to perhaps raise capital through this avenue,” Loon said. “Investors are ready for it and individuals are ready for it, so I’m hoping this process won’t take too long.”

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