In the post-recession era, it’s become more difficult for start-ups and companies without a track record to secure traditional bank loans, so businesses have had to turn elsewhere.
“What has happened in Vermont is there has been an appetite to seek raising money directly from investors,“ says Commissioner of the Department of Financial Regulation Susan Donegan.
In response to the trend, the state last month rewrote rules for a program called the Vermont Small Business Offering Exemption.
"What has happened in Vermont is there has been an appetite to seek raising money directly from investors." - Susan Donegan, commissioner of financial regulation
It allows businesses to raise money from individual Vermont investors.
The new rules raise the cap on the amount companies can raise under the program and increase the limit for investments. The changes also simplify the process for companies using the program.
Donegan says response in the first month has been encouraging.
“We’ve had serious interest from about six to eight companies in Vermont: Small businesses, specialty foods, electronics and alternative energy,” she says.
Donegan’s department is also studying the feasibility of crafting state regulations for equity crowd-funding.
Crowd-funding typically involves soliciting online donations. Equity crowd-funding would allow people to invest, rather than donate, in hopes of realizing a return on their money.
For the past two years, the Securities and Exchange Commission has been in the process of writing federal rules for equity crowd-funding. In the meantime, some states have forged ahead with their own regulations.
Donegan says her department is preparing a study of equity crowd-funding that it will present to the legislature in January.
There’s another study underway that may open up another option for start-ups and small businesses.
Donegan says the department is looking at whether licensed lender regulations should be more flexible. That could allow more non-banking finance companies that make business investments to offer loans in Vermont.
Cairn Cross, who heads a venture capital fund in Shelburne, has long advocated for a revamp of the law.
“Why is it that we continue to talk about access to capital on a whole variety of levels, yet for 18 or 19 years we’ve had this licensed lender law in place?” says Cross.
Donegan says the state has to make sure the regulations protect businesses and weed out dishonest finance companies.
Her department’s review of the state’s licensed lender law will be completed in January.
