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 reap the benefits of 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. But now with the new vetting process set up by the state and cap on investment dollars, not only are these investments accessible to first time investors. 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 provide the best return. Investing through banks provides a safe option but it can mean a low rate of return, locking up your money for long periods of time with many rules and requirements. The most common place to find a safe return is with a conventional CD. Today, a typical “high interest savings rate” on a 2 year term CD with a minimum $2,000 investment is 1.15%. Until recently this first time investor had few options to realize a greater rate of return without exposure to a higher risk.
The new legislation has also affected the number of and types of new businesses that have emerged. The laws allow more flexibility and greater access to funds for businesses that might not previously been fund-able. All of a sudden these businesses have the potential to be successful and yield a return on investment for this new breed of investors. So the laws are actually having a positive effect on bringing forth new commerce and benefiting new investors as well. It’s a win/win situation.
As you review the businesses featured in this portal you will find a variety of exciting alternatives to more common investment opportunities such as bank CDs. These businesses are typically willing to provide you higher rates of return in exchange for you taking on the risk of investing to help build their business. Of course each opportunity has its own business model and anticipated return on investment. Be sure to review them all to find the best match to your personal investment criteria and approach.
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.