New to Investing?  The State of Minnesota Wants to Help! Yes, you heard that right – the State of Minnesota has taken a friendly approach to rewriting state laws to help “first time” investors get involved in opportunities only previously available to more seasoned investors. In the past there has been strict legislation to ensure that only people with higher incomes or net worth’s could invest in certain investment opportunities. This in a way almost facilitated only the rich getting richer. But now that has changed.

 

STATE REQUIREMENTS – In 2016, investment crowdfunding became a law in Minnesota with the creation of MNVEST. This recent state law allows businesses to solicit and accept smaller investments, like those typically from first time investors, with a cap of $10,000. Until recently this type of investing was illegal. The Securities and Exchange Act of 1932 prohibited companies from marketing financial offerings to, and receiving investments directly from small, non-accredited investors. This has all changed with this recent Minnesota legislation.

 

ACCREDITATION – For those unfamiliar with the term non-accredited (or conversely, accredited) investors please allow us to explain. An accredited investor is defined as someone who makes in excess of $200,000 per year or has in excess of $1,000,000 in liquid assets. It also means that because they could afford to take more risks, they had access to investments that had the potential to provide an extraordinarily high return on their investment. The old laws banned non-accredited investors from these types of investments because they could not afford the risk of losing their money. MNVEST was signed into law in 2015 and was rolled out in the Fall of 2016. “We think there are a lot of Minnesotans that want to invest in the next great company,” says Ryan Schildkraut, director at investment bank Freeland Briese and cofounder of a MNVEST advocacy group that pushed the legislation.

 

INVESTMENT CROWDFUNDING –
Another distinction in the new laws is the concept of “investment” crowdfunding. As the concept of crowdfunding has evolved different types of crowdfunding have emerged. You could provide money to a company to help them build a new product and as a result of your “investment” receive a sample of that product when completed. But in that case you actually are investing in the production of products and not in the actual company. You don’t actually become a shareholder in the business or receive any capital gain from your investment. Then there is investment crowdfunding where your money goes to work making money. That is the gist of the new legislation.

 

NOW YOU HAVE MORE OPTIONS –
A first-time investor (or again, someone investing smaller amounts of money) faces many concerns and questions as he or she investigates where and how to invest. High on their list is risk, as well as the amount needed to start the process and, of course, what type of investment vehicle will suit your personal needs. In the past only accredited investors who could invest larger sums of money had access to higher risk deals. This was done to protect non-accredited investors. And while start up businesses can be exciting, they can be very risky. In fact investors must be aware that investing in high risk businesses could cause the loss of your investment in its entirety. So to minimize the impact a potential loss could have, in the past, investors had to be accredited. With the new regulations anyone that lives in Minnesota can now invest regardless of being accredited or non-accredited. The amount of investment has been kept lower so it is within reach of more investors, and will have less of an impact should the investor lose their investment. So please keep in mind the risk is still there. Always invest only what you can afford and be sure to conduct a thorough assessment of the business you are investing in.

 

The businesses featured on this portal are examples of investment opportunities that would not have been available to the average Minnesotan if it were not for the creation of these new regulations.