AB 1517 was the third attempt to legislate crowdfunding investment in California. It was also the third time it failed.
The Tech Caucus supported the "Securities Transactions: Qualifications by Permit: Liability" bill, which was written by Los Angeles securities lawyer Mark Hiraide and co-authored by state Sen. Ben Allen because it opens up more options for investment in startups, Allen told Techwire.
“We know it addresses an issue that has proven to be an impediment to the generation of startup capital for tech companies," Allen said. "So we want to make sure that ... we can figure out a way to protect investors while also giving them some more investment freedom while firms generate the capital they need to get off the ground.”
Assemblymember Al Muratsuchi, who authored the bill, told Techwire in an email that the bill died in committee because it could cost about $1.5 million a year to administer the program. Hiraide said the fees included in legislation would make the law cost-neutral or revenue-positive.
The bill would have expanded on the federal JOBS Act 2012, which created general solicitation exemptions. Title III created equity crowdfunding regulated under the FCC, including portals registered with the FCC and members of the Financial Industry Regulatory Authority.
StartEngine and Wefunder are examples of federally compliant crowdfunding platforms.
But California is creating legislation that would qualify each offering, meaning the state can decide whether the offering is legitimate and meets all required parameters.
“Some of the reasons that states on their own have adopted their own intrastate crowdfunding exemptions are that people have criticized Title III of the JOBS Act as being too restrictive,” Hiraide said.
The California legislation could allow startups to crowdfund up to $2 million. Allen said the companies seeking investors will build compliant platforms to enable intrastate crowdfunding.
Allen and Hiraide plan to author similar legislation again.
“I’ve tried now for three years," Hiraide said, "and I’m not going to give up, because it's legislation we think is needed in California in one form or another.”
