Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

On November 9, 2016, the Minnesota Department of Commerce approved the first crowdfunding portal operator,, under the crowdfunding legislation known as MNvest. As soon as the portal is populated with offerings, the online platform will allow companies to sell equity securities or promissory notes to Minnesota investors.  While online crowdfunding offers a novel approach to raising capital, the relative benefits and simplicity of other exemptions from federal and state securities laws may limit the appeal of MNvest among issuers (and their counsel).


As we have covered before, here, here, and here, the MNvest regulatory regime is fairly onerous on issuers.  MNvest is unavailable unless (among other things):

  • The issuer is organized under the laws of Minnesota;
  • The issuer’s principal offices are located in Minnesota;
  • At least 80% of the issuer’s assets are located in Minnesota; and
  • At least 80% of the issuer’s gross revenues from its business operations are derived in Minnesota.

The above list eliminates MNvest for companies that, for example, prefer to organize in Delaware or have more than 20% of its operations or assets located out-of-state. Other restrictions that limit the appeal of MNvest include the requirement that investors are Minnesota residents, the $1 million annual cap on funds raised via MNvest, the requirement to conduct the offering via a third-party funding portal (or take the time and pay the expense of registering your own) and the limited scope of permitted advertising that present traps for the unwary.

Rule 506(c)

In contrast to MNvest, any company (subject to the bad actor disqualifications of course) can raise an unlimited amount of money and use general advertisements to do so by utilizing the Rule 506(c) exemption of Regulation D. Such 506(c) offerings are, however, limited to accredited investors (among other things).  Nevertheless, since general solicitation is permitted under Rule 506(c), it is some ways easier to “crowdfund” an offering, albeit “the crowd” can only be comprised of accredited investors.

Revised Rule 504

For issuers who prefer to stay local, Rule 504 intrastate offerings also offer an alternative to MNvest. In fact, as we covered here, the SEC recently revised Rule 504 to increase the annual offering amount in any 12-month period from $1,000,000 to $5,000,000.  To top it off, in states that require registration of the securities and require the public filing and delivery to investors of a substantive disclosure document before sale, general solicitation methods may be employed.

From a legal standpoint, with the bevy of alternatives to crowdfunding currently available (including those not mentioned above), it will be interesting to see whether platforms such as MNvest flourish.


Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 13 cities, including Minneapolis, Mankato and St. Cloud, MN; Kansas City, St. Louis and Jefferson City, MO; Phoenix, AZ.; Denver, CO; Washington, D.C.; Decatur, IL; Wichita, KS; Omaha, NE; and Bismarck, ND.

Drew Kuettel is a member of the firm’s corporate finance group.  Drew works in the firm’s Minneapolis office and can be reached at or 612.335.1743.