Minnesota has adopted an intrastate crowdfunding exemption referred to as “MNvest.” The legislation is meant to work in tandem with the federal exemption for intrastate offerings under Section 3(a)(11) of the Securities Act of 1933 and related guidance issued by the SEC in Rule 147.
The exemption is available only to “MNvest issuers,” which generally means:
- the entity is organized under the laws of Minnesota, and is not a general partnership;
- the principal office of the entity is located in Minnesota;
- as of the last day of the most recent semiannual fiscal period of the entity, at least 80 percent of the entity’s assets were located in Minnesota; and
- at least 80 percent of the entity’s gross revenues for the prior fiscal year or trailing 12 month period (depending on the timing of the offering) were derived from the operation of the business in Minnesota.
Because the legislation implements an intrastate offering exemption, offers and sales may be made only to Minnesota residents, and at least 80 percent of the net proceeds of the offering must be used for the operation of the issuer’s business in Minnesota.
The offering must be conducted exclusively through a “MNvest portal” which is an internet web site managed by a “portal operator.” A “portal operator” is an entity, including an issuer, that:
- is authorized to do business in Minnesota;
- is a broker-dealer registered with the State of Minnesota or otherwise registers with the Minnesota Commissioner of Commerce as a portal operator in accordance with the new legislation; and
- satisfies such other conditions as the Minnesota Commissioner of Commerce may determine.
The MNvest portal must take steps to limit web site access to the offer or sale of securities to only Minnesota residents when conducting MNvest offerings. MNvest offerings may not be viewed on a MNvest portal by a prospective purchaser until the portal operator verifies, through its exercise of reasonable steps, such as using a third-party verification service or as otherwise approved by the administrator, that the prospective purchaser is a Minnesota resident and the prospective purchaser makes certain acknowledgements.
In any 12-month period the MNvest issuer cannot raise more than:
- $2,000,000 if audited or reviewed financial statements are supplied to prospective purchasers; and
- $1,000,000 if the financial statements are not audited or reviewed.
The MNvest issuer must require the portal operator to provide or make available to prospective purchasers through the MNvest portal a copy of the MNvest issuer’s balance sheet and income statement for the MNvest issuer’s most recent fiscal year, if the issuer was in existence. For offerings beginning more than 90 days after the issuer’s most recent fiscal year end, or if the MNvest issuer was not in existence the previous calendar year, the MNvest issuer must provide or make available a balance sheet as of a date not more than 90 days before the commencement of the MNvest offering and certain year-to-date and other information.
- no single purchaser may purchase more than $10,000 in securities of the MNvest issuer under the crowdfunding exemption in connection with a single MNvest offering unless the purchaser is an accredited investor;
- all payments for the purchase of securities must be held in escrow (by a financial institution) until the aggregate capital deposited into escrow from all purchasers is equal to or greater than the stated minimum offering amount;
- a disclosure document that includes certain required information must be made available through the portal (in the nature of a streamlined private placement memorandum);
- purchasers must make representations regarding Minnesota residency prior to purchase;
- the issuer must provide the Department of Commerce with at least 10 days advance notice of its intention to conduct a MNvest offering, which must include a copy of the offering documents and payment of a $300 fee.
The legislation permits limited advertising and solicitation if certain required disclaimers and statements are made.