NC PACES Act Crowdfunding Law and Rules Now in Effect

By Mark Easley

Good news, the NC PACES Act crowdfunding rules have been finalized, and the act is in effect as of today, April 1^st 2017. The Secretary of State web site has the rules, forms, instructions and FAQs that startups and small businesses need to start using this new type of intrastate investment crowdfunding financing.

https://www.sosnc.gov/divisions/securities/crowdfunding

Mark Easley

Businesses ranging from brand new to mature can make use of the new law for financing. North Carolina based startups and small businesses that want to raise money using the NC PACES Act crowdfunding law (referred to as issuers of an investment offering) will follow the registration, reporting, escrow management, record keeping, promotion, and procedure rules of the PACES Act on the Secretary of State website. Once a registered offering is approved by state regulators, issuers can promote equity or debt offerings to raise up to $2M if they have reviewed or audited financials, and up to $1M if they do not. North Carolina accredited investors can invest an unlimited amount, and North Carolina retail unaccredited investors can invest up to $5000 per offering. Issuing companies can promote the offering using the internet including social media, email, a website and other types of advertising provided they follow the content and procedure rules for the PACES Act. The maximum length of time for an offering to be open is 12 months, and businesses may make one PACES Act offering every 12 months.

Local Public Offering

A very important new idea enabled by the NC PACES Act and the new rules is called the Local Public Offering, or LPO. This is a new and innovative idea that has not yet been tried at the Federal Level or in other states. By following the rules for an LPO, the startup or small business can raise up to $250,000 on their own, and they do not need to use a crowdfunding platform or registered broker/dealer. They can put together a simple equity, debt, or revenue share loan offering, set up an escrow account with their bank or lawyer, and then register the offering with the state. Once approved, they can promote the offering to their friends, family, customers, and community to get the funding. The LPO is a very cost effective way for small businesses and startups to do crowdfunding, and achieves a good balance between cost and risk for both issuers and investors.

Investor Protections  

The PACES Act and the rules also have some very important investor protections built in. All offerings are registered with the state, they must declare a target amount to be raised and a minimum amount to be raised, and they must include information about the use of the funds and other business plan details. Money collected for the offering is kept in a registered escrow account and cannot be distributed until the minimum is in escrow. If the minimum is not reached, all money is returned to investors without charges or fees. If the minimum is reached, the money is distributed to the issuer according to the terms of the offering. The PACES Act and rules also require the issuers to make regular reports to investors about the progress of the offering, and once it is funded, the progress of the business.

There are many other details to consider in the rules, and this summary is not legal or investment advice. Consulting with a business law attorney about your offering documents and the crowdfunding rules is a good idea, and for those raising larger amounts a crowdfunding platform will be a good option, as they can take care of many of the details for you.

The good news for today is that intrastate investment crowdfunding is now available in North Carolina. And yes, this is for real, not an April Fools!   

NC PACES Act Team and Leader Win WRAL TechWire Awards

Update: Mark Easley won the 2017 WRAL Techwire Award for 'Most Noteworthy Startup Founder or Investor', and the NC PACES Act Team including Mark, Benji Jones, and Jim Verdonik won the 2017 WRAL Techwire Editor's Choice Award for their work on the NC PACES Act. This honor is shared with everyone who worked on and supported the NC PACES Act.

Triangle startup advisor and investor Mark Easley Sr. successfully led a 4 year effort to get a North Carolina securities law exemption passed which will help finance startups and small businesses in North Carolina.

Mark Easley

The North Carolina Providing Access to Capital for Entrepreneurs and Small business Act (NC PACES Act) enables a new way to finance startups and small businesses in North Carolina using investment crowdfunding. Any North Carolina based company can raise up to $2M using equity or debt finance offerings from any resident of North Carolina by following the registration, reporting, and procedure rules for the NC PACES Act. North Carolina accredited investors may invest any amount, and non-accredited retail investors may invest up to $5,000 per offering. The NC PACES Act was passed unanimously in the North Carolina General Assembly and signed into law by the Governor in July 2016, and is expected to go into effect after the regulations have been finalized in March 2017.

WRAL TechWire has announced the finalists for the annual TechWire awards. NC PACES Act team leader Mark Easley Sr. was nominated in 2 categories, ‘Most Noteworthy Startup Founder or Investor’ and ‘Most Noteworthy Enterprise Founder or Investor’ for his work on NC PACES.

NC PACES Act Named One of the Top Startup Community Stories of 2016

ExitEvent.com is our excellent local media site that covers all things startup in the Triangle and around North Carolina. ExitEvent Editor in Chief Laura Baverman has named the passage into law of the NC PACES Act intrastate crowdfunding bill as one of the top Triangle Startup Community stories of 2016. In her year end summary titled "How the Triangle Startup Community Organized in 2016" Laura writes:

Yes to crowdfunding

Laura Baverman

A years long rallying cry to bring intrastate crowdfunding to North Carolina was successful this year, and a lot of the credit went to a group of investors, lawyers and entrepreneurs who held informational events, wrote thought leadership pieces and educated local legislators on this new funding opportunity for small and startup businesses. When rules go into effect next year, entrepreneurs will have another tool for raising capital to grow their businesses.
Watch Governor Pat McCrory's bill signing event here.

Read the full post on ExitEvent here. 

Marketing an Investment Crowdfunding Campaign in North Carolina

By Roy Morejon
Enventys Partners

In 2015, my agency ran an investment crowdfunding campaign for Digitzs, a new payment platform.

Digitzs is a groundbreaking, patent-pending platform and mobile app where merchants get paid next day and can choose their Visa or MasterCard fees (from 0 to 3 percent). The system caters to a trillion dollar marketplace: merchants in the middle who don't swipe cards or use shopping carts. Laura Wagner, founder of Digitzs, recognized that navigating the waters of a fast-growing and ever-changing equity crowdfunding space can be difficult, so she sought the expertise of our team.

Roy Morejon

We teamed up far in advance of the launch of Digitzs’ initial equity raise. The goal was twofold- Digitzs needed to garner support from investors, while also gaining name recognition to prove market viability.

Command Partners was able to offer a full range of services to help make the Digitzs campaign a success, including:

• Developing a pitch deck used for investor and media outreach throughout the campaign
• Managing Digitzs social media accounts
• Handling investor outreach across multiple platforms and coordinating meetings between investors and the Digitzs team
• Designing and developing landing pages for driving investor, media and general traffic
• Writing scripts and storyboards for videos specific to investors and the media
• Creating and distributing press releases to targeted media lists, pitching stories to journalists and securing media coverage
• Designing web pages, branded headers, press inserts and other graphics

While working with us, Digitzs exceeded their investment goal and went on to get over $8M in commitments.

This was our first equity campaign, which was exciting in and of itself, but it was exciting for another reason: Digitzs marked the beginning of a new era of investment crowdfunding for Command Partners.

The Future of Investment Crowdfunding in NC

On May 16, 2016, the SEC allowed Title III of the JOBS Act to go into effect, making investment crowdfunding legal throughout the country by allowing non-accredited investors to invest in startups and small businesses. Shortly thereafter, on July 22, the NC PACES (Providing Access to Capital for Entrepreneurs and Small Business) Act, was signed into law by Governor Pat McCrory. Now that there are federal and state laws regulating investment crowdfunding, my agency can begin to work with new companies raising capital through investment crowdfunding across North Carolina.

Now is an exciting time for these new investment crowdfunding laws to take place. In 2015, funding from investors for North Carolina companies grew 122 percent, to $1.18B. Here in Charlotte, the startup climate keeps getting better. The Kauffman Index of Startup Activity ranked the Charlotte metro area as the 25th best place for startup activity, up from number 28 in 2014. The rate of new entrepreneurs is also up from 2014, at 0.29% compared to 0.26%. This makes sense given the vibrant startup community within Charlotte.

Consider HQ Charlotte, for example, formerly known as Packard Place. HQ Charlotte at Packard Place caters to entrepreneurs and startups, offering co-working spaces, suites and more within their 90,000 sq. ft. space in the heart of uptown. Additionally, Packard Place is home to six world-class accelerator programs that help launch new companies right here in Charlotte.

With so many great opportunities for startups in North Carolina and here in Charlotte, we’re looking forward to a bright future for investment crowdfunding. If you need help marketing an investment crowdfunding campaign, contact us today.

Roy Morejon brings over 20 years experience in delivering integrated marketing services for B2B and B2C clients, helping transform companies by increasing online visibility and brand awareness through targeted digital marketing, corporate communications and data-driven search marketing campaigns. He is an expert at digital strategy, analytics, search engine marketing and crowdfunding. As a trusted advisor to dozens of global startups, Roy is a key player in the local Charlotte marketing community, serving as co-founder of the Digital Marketing Association, regional chair for the Business Marketing Association and founder of North Carolina Businesses for Social Responsibility.

FAQs About the New North Carolina Crowdfunding Law, the NC PACES Act

By Jim Verdonik

I am part of  the NC PACES Act team that provided advice to the State of North Carolina about enacting our new state crowdfunding law called the NC PACES Act. Below is a link to some FAQs I wrote that summarize the resulting North Carolina crowdfunding statute that was enacted in July 2016.

Jim Verdonik

There have also been some proposed changes to SEC Rule 147 which are important to allow more businesses to use state Crowdfunding laws, and these are also summarized in the post.

Click here to see my NC PACES Act FAQs post on my blog.


Jim is an attorney with Ward and Smith PA. You can reach Jim at JFV@WardandSmith.com.

Also check out his business related videos at www.YouTube.com/eLearnSuccess

Jim writes a column about business and law for American Business Journals.

You can purchase his book Crowdfunding Opportunities and Challenges at Amazon.