This is about a new way to keep your dollars in the Oregon economy, stopping it from heading to Wall Street and into big banks, where you really don’t know what it’s being used for. We like to think that this is democratizing capital in Oregon.
In January 2015, the Oregon Division of Finance and Corporate Securities (DFCS, pronounced “difcus” for short) passed a set of rules known as the Oregon Intrastate Offering Exemption (OIO). You may see them referred to as ‘the rules’ or ‘the exemption’. These rules allow ALL Oregon residents, regardless of wealth or experience, to invest in Oregon businesses. Sounds sensible, right? Surely it was legal already? Well yes it is sensible, but this has never been legal before.
The rules allow for Oregon businesses to raise up to $250,000 from individual Oregonians (anyone living in Oregon, even children) in individual investments of up to $2,500. If you’re really interested, read through the FAQ on this page, head over to the main page, or, for the truly hardcore – head over here to read our annotated version of the rules in full.
Cannabis and cannabis-related companies can join the accelerator program, but will need to facilitate transactions themselves once the raise goes live. We cannot put cannabis company offerings up on the Hatch Oregon platform, because of the current difficulties with receiving and transferring money using federally-regulated banks (investments from investors, and payouts from the company).
The short answer is that up until this point, we haven’t been funded for all that we’ve done. We are now expanding our paid educational programming and adding a platform listing fee to cover our costs. We are also looking at sponsorship and grant opportunities.
Yes. Once you click through to our investment platform, you are on a secure site with an SSL certificate. All payments are handled by Stripe – we don’t ever hold your money in a bank account. Payments are directed to the account of the Entrepreneur’s choosing, whether that be an escrow account, or another type of bank account. Look at the individual offerings to find out where they are holding the money until their minimum is raised, and to find out their refund terms.
The Oregon Intrastate Offering Exemption, or OIO, is the official name for the collection of Oregon state administrative rules that allow Oregon businesses to raise capital from Oregon residents.
A Community Public Offering, or CPO, is the unofficial name for an offering made using these administrative rules. Think of it like an IPO (Initial Public Offering, i.e. what happens on Wall Street) for the rest of us.
You mean aside from the democratization of capital, vibrant and engaged local communities, and a more prosperous Oregon?
Hatch Oregon is run by Hatch Innovation, a 501(c)(3) nonprofit with the mission of helping citizens create enterprises that improve their communities. We saw a chance to create a new channel for capital in Oregon – one that would help small businesses get investment capital from their own community, and we figured that was right in line with our mission.
We’re doing this on a shoestring budget, and you’ll probably agree that writing the rules, creating an investment platform, creating educational resources, running meetups and creating a statewide network of supporters is quite an achievement with very few dollars.
We charge fees for our platform and programs so that we can continue this work around the state.
Ever noticed how the rewards on Kickstarter and Indiegogo are things like t-shirts, electronics, and thank you notes? That is because these sites are engaging in donation-based crowdfunding.
Offering monetary returns would be illegal, as that would then be a ‘security’. A security can be equity (an ownership position in a company, e.g. shares) or credit (e.g. a loan). The problem is that securities are governed by very strict regulations at both the state and federal level.
Due to a set of new administrative rules, all Oregon residents can now invest in small Oregon businesses. No longer are ‘backers’ donating money in return for a keychain or a piece of pizza; ‘investors’ are now providing real capital to local businesses to help them grow, and are able to receive financial returns.
Unfortunately right now there is no way to do this, but we’re hopeful in the future it may be an option.
No. Currently, the rules state that all investors must be ‘natural persons’, meaning that trusts, groups, companies, partnerships etc cannot be investors. This is another aspect we would be interested to see changed in some way, in future iterations of the rules.
No. No federal or state agency guarantees your investment. It’s up to you as an investor to do some due diligence! Have a thorough look at the prospectus. If you’re unsure about what to look for, come along to an InvestOR Meetup in your area. You will find friendly people who can answer your questions!
If you are ready to invest, and are a resident of Oregon, you can click here to view the current offers:
If you would prefer not to invest online, you can contact the companies and send them a check, or even meet them in person. The investment will be added to the totals on Hatch Oregon once we receive notice from the company.
A few things, actually.
Investing sounds like an intimidating proposition, and in the past it has been an activity reserved for the wealthy. Now, you can put as little as $100 into Oregon businesses to help them grow. But before you do, we recommend doing a few things:
1) Watch our ‘Let’s Be Frank’ video for an introduction to local investing.
2) Read, read, read. If you come across any terms you are unfamiliar with, head over to the glossary, and read up. We recommend starting with ‘security’.
3) Don’t rush into it. Read all offering documents carefully. While this is exciting, it can also be risky, and your investments are not insured or backed by by federal or state agencies. You are relying on the business owner to use the money wisely and to run a successful business! If you have any doubts, do some more research; you may even wish to chat with the owner directly. That’s the beauty of local investing – good luck calling the CEO of Microsoft to chat about their business plan!
If your principal place of residence is in Oregon, then yes.
For a more exact answer:
The residency requirements that need to be met come from under Section 3(a)(11) of the Securities Act of 1933 and Rule 147 thereunder. Under 147(d)(2), “an individual shall be deemed to be a resident of a state or territory if such individual has, at the time of the offer and sale to him, his principal residence in the state or territory.”
There is a fine balance between allowing citizens the freedom to put money where they like, and protecting investors from losing their money to bad business deals or fraud. These new rules protect investors in ways such as:
- An investment cap of $2,500 per company
- A set of disclosure requirements for each company
- Disqualifying people with certain convictions from raising capital this way
- Warnings in offering documents that investing carries certain risks
- Requiring companies to meet with technical service providers (TSPs) to discuss their business plans
- Keeping it within Oregon, and requiring companies post their contact details
Note that there are no guarantees from any state or federal agency, the offering documents are not assessed by the TSP or the state, and the company offering securities sets the terms of the deal. It is up to the investor to do due diligence: read the documents thoroughly, do your own research, and talk to the people offering the securities!
Whoa there! Take a deep breath. You may think you’re ready, but chances are there are a few things not quite finished. A ready company will have:
- A solid business plan (with numbers!), reviewed by a technical service provider
- A concise but complete offering document with a clear description of the business, the team, and the offering, including the terms (debt? equity? convertible note?).
- All ‘material information’ written into the prospectus. (Recently bankrupt? In trouble for employing children? Full time student? These are things that potential investors need to know.)
- All relevant documentation ready to be sent to the state, along with the $200 filing fee
- A large network of allies and supporters, ready to spread the word
- A comprehensive marketing and outreach plan
- A solid understanding of what you can legally say and do under this exemption
- The willingness to dedicate up to a year to raising capital!
Hatch Oregon runs informational seminars & webinars for those looking to do a community public offering, as well as our full InvestOR Ready accelerator program for those already with a business plan and funding goal in mind. This program is 2 hours a week for 10 weeks, and goes through every point in the list above. Your local SBDC Office can help with the business plan side of things too.
Finally, the Hatch Oregon platform is where companies who have completed the list above can list and sell their securities. Only companies that meet our criteria will be listed on the platform, to protect us, you, and the investors. Feel free to contact us for more information.
State Fees: $200 filing fee
Hatch Oregon platform listing fees: $50/month
Hatch Oregon transaction fees: 2.9% + 30c for each transaction
InvestOR Ready Accelerator costs: $500 upfront cost plus $1,000 – $2,000 success fee (depending on goal) if and when the minimum investment amount has been reached.
All ways of raising capital cost something – upfront money, success fees, consultant costs, legal fees, and most importantly, your time. This is generally called ‘cost of capital’. Kickstarter for example has no upfront costs, but you pay 5% of your raise, plus about 3% through payment processing, resulting in a cost of capital of about 8%. That’s actually similar to many loans. The cost of Angel and Venture Capital is an equity stake in your business, generally with some loss in control of the business.
The real costs when raising capital come in terms of time and support when preparing your business plan, marketing plan and prospectus, and your time during the raise. Our InvestOR Ready accelerator costs may seem high at first, but compared with going solo, not only would you be missing out on the peer support of other entrepreneurs in the cohort, but the costs of business consultants and lawyers would add up quickly. We’ve tried to keep these costs as low as possible in our accelerator.
Finally, keep in mind that offering securities isn’t a case of “post it on the website and watch the money roll in”. You need to work for it. You need to attend events, manage your social media, engage your investors, and reach out to all your networks.
No. You can sell securities directly to investors, or use another platform (once others are built). You could even create a platform to use, if you have some time on your hands. There are some pretty tight requirements for third party platforms under the rules though, so make sure you know what’s legal before proceeding.
From the Oregon Division of Finance and Corporate Securities (DFCS)
Businesses can raise up to $250,000 in total funding under the crowdfunding rules. Businesses cannot raise more than $2,500 from any one individual. Offers and sales of securities will be considered part of the same securities offering – even if they are not offered and sold explicitly in reliance on these rules – if all of the following apply:
- Sales are part of a single plan of financing.
- Sales involve the issuance of the same type of security.
- Sales are made at or about the same time.
- The sales were made for the same general purpose.
Generally, sales of securities made more than six months before or after sales under the crowdfunding rules will not be considered to be made under the crowdfunding rules.
From the Oregon Division of Finance and Corporate Securities (DFCS)
BTSPs are organizations that have been specifically organized to provide assistance to small businesses. The division has automatically approved the small business development centers and the economic development districts to act as BTSPs. A listing of small business development centers can be found at http://www.bizcenter.org. Oregon economic development districts can be found at http://www.oedd.org.
In addition, other nonprofit accelerators (such as Hatch Lab in Portland)and incubators may apply to be BTSPs.
Because the BTSP’s mission is to provide assistance to small businesses, the division anticipates that BTSPs will provide guidance regarding business plans and information Oregon small businesses need to succeed. A BTSP is typically not a lawyer, securities broker-dealer, investment adviser, or an expert in securities law. It cannot give advice regarding the securities offering (unless it is specifically licensed to do so).
The rules require a business wanting to use the crowdfunding exemption to certify that a person responsible for the business has met with a BTSP and the BTSP has reviewed its business plan.
From the Oregon Division of Finance and Corporate Securities (DFCS)
Under SEC interpretations of Rule 147, the issuer of a security may engage in general advertising, or solicitation, if it is made only to residents of Oregon.
In order to ensure that businesses comply with that requirement, Oregon’s crowdfunding rules require that before engaging in any general advertising or solicitation, an issuer (or a third-party platform advertising on behalf of an issuer) obtain an “affirmative declaration” from an interested investor that the investor is an Oregon resident. Such “affirmative declaration” can be accomplished by requiring an interested person provide his or her ZIP code or check a box on a webpage stating “I am an Oregon resident” before viewing any advertising materials.
Advertising under the rules is limited to no more than the following information:
- The name and contact information for the issuer.
- A brief description of the general type of business of the issuer.
- Whether the securities being offered are stock, notes, debentures, or a combination.
- The total offering amount.
- A brief description of how the issuer will use the funds.
- The duration of the crowdfunding offering and the funding deadline.
- The issuer’s logo.
A link to the issuer’s website or third-party platform in which the securities will be offered or sold and required disclosures made available.
The definition of “offer” under the federal and Oregon securities law is broad. Offers can include statements meant to “condition the public mind” or “arouse public interest in” a securities offering. In other words, promoting investment in your business, even if you are not expressly “offering” your securities. Be careful about what public statements you make during the period you are offering and selling securities in reliance on this exemption.
From the Oregon Division of Finance and Corporate Securities (DFCS)
Securities can be advertised on an issuer’s website or through a third-party platform’s website.
The circumstances under which an issuer or third party may advertise through the Internet are specific. Because federal securities law governs registration and sales of securities, issuers must make sure to sell their securities in accordance with the requirements of the crowdfunding rules and Section 3(a) (11) of the Securities Act. We urge you to read the rules carefully before advertising, offering, or selling securities over the Internet.
Businesses that want to offer securities through their website must remember that the offer and sale can only be made to Oregon residents and that a prospective investor must make an “affirmative declaration” before viewing any advertising or offering materials. This means that businesses cannot advertise or offer securities on webpages that can be viewed by everyone around the world. Businesses must use a separate webpage on their website that requires interested people to affirmatively declare that they are an Oregon resident before being able to view the page with the material that advertises or offers the security. A business can include a link to the Oregon-only webpage on its general website for interested Oregonians to follow to “learn more about supporting this business” or “to learn more about investing in this business.”
Because of the definition of “offer” is broad, businesses are encouraged to include only factual information about themselves on the generally accessible sections of their website. Under state and federal law, “forward looking statements,” such as talking about future development, product lines, or long-range plans, could be considered an offer to sell securities under Section (3)(a)(11) and should be made only to Oregonians if you are seeking to use the crowdfunding exemption.
Businesses can also post their advertising and offering materials on a website that is hosted by a third-party platform provider. Such third-party platforms may be used to post disclosures and advertisements, but they may not act as investment advisors or broker-dealers (unless they are specifically licensed to do so). This means that they cannot endorse specific businesses or securities offerings on their platform. The third-party platform provider must also ensure that prospective investors have provided some sort of affirmative declaration that they are an Oregon resident before viewing any advertising or offering materials. Third-party platforms may charge issuers a nominal fee for hosting a platform.
While an individual business can sell its securities on an “Oregon only” portion of its website, a third-party platform cannot sell securities unless it is a licensed broker-dealer.
If a website collects financial or personal information about prospective investors, it must take steps to ensure that information is kept secure and private.
There are a few ways you can receive payment:
- You can use a third party platform such as Hatch Oregon, where payments are taken online and paid out to bank or escrow accounts regularly.
- You can sell your securities in person and receive cash or checks.
- You could create your own website to sell securities, or use a third-party licensed money transmitter to accept payment.
Keep in mind, you should not use any of the money raised until you reach your minimum goal. For the sake of transparency and good business practices, funds should be kept in escrow or a separate bank account until this minimum is reached. That way, if the minimum is not reached, funds can be returned to investors. Because this can be a long process, full contact details of investors should be taken, so that checks can be sent if refunds are required.
From DFCS: While a business technical service provider (BTSP) cannot handle investor funds (unless it is a licensed money transmitter), a BTSP can also redirect investor funds through a licensed money transmitter.
The rules require that an issuer of a crowdfunded security have a reasonable basis for believing that a purchaser is an Oregon resident. If you use the internet to sell your securities, you will need to be able to accommodate investors uploading or otherwise sending you documentation demonstrating that they are an Oregon resident before a sale. If you choose to use Hatch Oregon, this process is automated.
Anyone accepting payment or collect personal information over the Internet, you have a duty to take steps to make sure the information is kept private and secure.
As part of the disclosures required, the rules state that:
“If an issuer needs to raise a minimum amount to achieve the stated funding goal, they must disclose that minimum offering amount and how the issuer intends to use funds raised through the offering if the minimum goal is not met, or if they intend to return the funds if the goal is not met”
This minimum amount is set by the issuer. If you need $50,000 for a piece of equipment, and you only raise $10,000 – what will you do with the funds? If this amount doesn’t let you purchase the equipment, can the money still be used to execute your business plan? If not, the funds should be returned to investors. This should be stated up front – transparency is key to investor trust. This is why it is good practice to keep funds in escrow or a separate account until the minimum is reached. It may mean returning funds to investors down the road.
Hatch Oregon’s third party payment processor will not hold funds for more than 30 days, so an account is needed to hold the money until either the minimum is reached, or the offer ends.
Any general advertising or solicitation is subject to the restrictions described under the question ‘Can I engage in general advertising or solicitation of my securities?’.
You may specifically direct Oregon residents to a page with more information, but if you’re tweeting/Facebooking to the world, keep in mind that what you can say is very limited.
Something like “Oregon residents – you can now invest in [company name]. Click here to learn more” would work. When people click on that link, they should reach a gateway (for example a popup or welcome page) that requires they affirm they are an Oregon resident (e.g. “Click here if you are an Oregon resident”. Then they can view the advertising materials.
No, and unfortunately, there is unlikely to be one.
The challenge here is that every business is different, with variations in the amount of capital needed, timeframe, level of experience, team size, number of employees, business type, etc. A template could end up restricting creativity, as well as restricting the types of offers that are made.
A good place to start is to read rule 441-035-0120, “Required Disclosures” (you can find a full copy of the rules here).
By and large, the offering document should explain very clearly the nature of the business, history, the team, what the money will be used for, potential risks and benefits, and the exact terms of the offering. This last part is the most difficult, and for those without any experience with securities, it is worth contacting an expert. We can point you in the right direction. Shoot us an email at email@example.com if you need assistance.
The exemption was designed to allow most Oregon small businesses to participate in crowdfunded securities offerings. Your business may qualify to use Oregon’s crowdfunding exemption if all of the following apply:
- It is registered with the Oregon Secretary of State as a domestic (Oregon) business and has 50 or fewer employees.
- Its principal place of business is in Oregon (see ‘What qualifies as an Oregon business’ below for details)
- It only offers and sells stocks (equity in a business), notes (secured debt), and debentures (unsecured debt).
The exemption is not available for any of the following:
- Blank check companies (i.e., development stage companies with no specific business plan or purpose).
- Companies that are involved in petroleum exploration or production, mining, or any other extractive industries.
- Investment companies under Section 4 of the Investment Company Act of 1940.
These types of companies are more speculative and carry higher risks to investors and therefore require a higher level of review by regulators.
The Oregon rules inherit certain restrictions from a federal rule: Rule 147 of Section 3(a)(11) of the Securities Act of 1933, known as the intrastate offering exemption.
Under Rule 147, an Oregon business is “resident and doing business” in Oregon if all of the following apply:
- It is incorporated or organized under Oregon law.
- It derives at least 80 percent of its gross revenues during its most recent fiscal year prior to the offering from the operation of its business in Oregon.
- At least 80 percent of the issuer’s assets at the end of its most recent semi-annual period prior to the offering are located in Oregon.
- The issuer intends to use at least 80 percent of the net proceeds of the offering in connection with the operation of its business in Oregon.
- The issuer’s principal office is located in Oregon.
Oregon’s Intrastate Offering Exemption was designed to promote compliance with the federal Securities Act, and specifically Section 3(a)(11). The rules require that the offer and sale of crowdfunding securities be conducted in accordance with the requirements under Section 3(a)(11). Because of the federal requirements, strict compliance with the state rules is important.
Your business must meet the requirements above and those detailed in the rules. Specifically, you need to:
- Meet in person with a business technical service provider (BTSP) to review your business plan;
- File a notice with the Division of Finance and Corporate Securities at least seven days before advertising, offering, or selling any security. The notice must include a copy of your disclosure and advertising materials. It must also include specific information about your business, its owners and officers. See Oregon Administrative Rule 441-035-0110 for the specific information needed.
- Offer and sell the securities in accordance with the requirements under Section 3(a)(11) of the Securities Act of 1933.
The division will have a form available in the near future that you can fill out and file. Watch this space.
In short, yes, but with a few restrictions.
During, before and after the raise, you must comply with Section 3(a)(11) of the federal Securities Act of 1933 (see ‘Does my business qualify to raise capital this way?’). That includes the condition:
“The issuer intends to use at least 80 percent of the net proceeds of the offering in connection with the operation of its business in Oregon.”
Also keep in mind that if any further investment is received within 6 months of the close of the offering, it will be considered part of the offering (and therefore is subject to all of the restrictions under Section 3(a)(11) and the Oregon Intrastate Offering rules).