Updated August 2019
Raising Capital for Minnesota Businesses
Raising capital for a Minnesota business through crowdfunding with small investments from a large number of investors' In Minnesota, beginning June 20, 2016, eligible businesses can use a crowdfunding exemption from securities registration to raise investment funds by selling securities to Minnesota residents. The exemption is known as the “MNvest Securities Registration Exemption”—or, simply, “MNvest.”
MNvest is not administered by the Minnesota Department of Commerce or any other state agency. MNvest is only a shorthand reference to a 2015 amendment to the Minnesota Securities Act (Minnesota Statutes, section 80A.461).
Small Business Guide from the U.S. Securities and Exchange Commission
Business Guidebooks and other resources from the Small Business Assistance Office, Minnesota Department of Employment and Economic Development.
Want to know more about MNvest?
Important Notice Regarding Changes to MNvest
During the 2017 legislative session, the statute that regulates MNvest was changed effective as of: April 20, 2017.
The MNvest exemption is available only to an entity that:
is organized under the laws of Minnesota;
has its principal office in Minnesota;
is not a general partnership;
otherwise satisfies the requirements of Minnesota Statutes, section 80A.461 and Minnesota Rules 2876.3050 – 2876.3060.
The MNvest exemption is not available to:
Offerings involving petroleum exploration or production, mining, or other extractive industries;
Offerings relating to investments in virtual, digital, or crypto currencies;
Offerings conducted concurrently through multiple MNvest portals;
Offerings involving an investment company as defined by the Investment Company Act of 1940;
Offerings which propose to issue stock or other equity interest in an entity that has not yet defined its business operations, has no business plan, has no stated investment goal for the funds being raised, or plans to engage in a merger or acquisition with an unspecified business entity.
Securities sold in Minnesota must be registered with the Commerce Department, unless they are “federal covered securities” or are exempt from registration. Most securities sold in Minnesota are also subject to federal registration requirements (which also include several exemptions). MNvest is an exemption from state registration requirements based on the assumption that the offering is also exempt from federal registration.
To use the MNvest exemption, a company must first demonstrate that its offering qualifies for the federal exemption from registration under Section 3(a)(11) of the Securities Act of 1933, Rule 147 and Rule 147A adopted thereunder.
Section 3(a)(11) provides an exemption from the securities registration requirements under federal law for offers and sales of securities that are made to residents of a single state where the issuer is organized and doing business within that same state.
In other words, Section 3(a)(11) exempts “intrastate” offerings from federal registration requirements. Rule 147 provides further guidance as to the availability of this intrastate exemption. In summary, Rule 147 and Rule 147A provides that this exemption is available where:
The issuer of the securities is incorporated or otherwise legally organized under the laws of the state in which the offers or sales of securities will take place;
The principal office of the issuer is located within the same state;
The issuer must derive at least 80% of its gross revenues from the operation of a business located within the same state;
At least 80% of the issuer’s assets are located within the same state; or
The issuer uses at least 80% of the funds raised in the offering for the operation of the business within the same state.
The above language is only an abbreviated summary of federal Rule 147 and Rule 147A. All of these requirements must be satisfied to rely on the federal intrastate exemption and to structure an offering under the state MNvest exemption.
If the offering qualifies under the federal intrastate exemption, the next step is to understand the state-level requirements for offerings under the MNvest exemption. Some of these requirements are discussed below.
However, all issuers relying on MNvest are responsible for reviewing and complying with the Minnesota Securities Act (Minnesota Statutes, chapter 80A) and implementing rules (Minnesota Rules, chapter 2876). Issuers should specifically focus on Minnesota Statutes, section 80A.461 and Minnesota Rules 2876.3050 – 2876.3060.
Issuers using MNvest to offer securities should first review Minnesota Statutes 80A.461 and Minnesota Rules 2976.3050 -2876-3060 to familiarize themselves with requirements applicable to issuers.
Issuers eligible for the MNvest exemption are required to complete a MNvest Issuer Notice Form to provide notice of the offering to the Commerce Department. This form is intended, in part, to also assist the issuer in compiling information it must provide or make available to prospective purchasers when offering securities.
The form, accompanying documentation and a $300 notice filing fee (made payable to the Minnesota Department of Commerce) must be completed and submitted to the Commerce Department at least 10 days prior to the commencement of the offering. If notice is complete and the offering otherwise complies with the MNvest exemption, then the offering becomes effective 10 days after Commerce receives the notice filing.
Portal Operator Requirements
All securities sales using the MNvest exemption must be made through a MNvest portal operated by a registered portal operator. To register as a portal operator, entities should first review Minnesota Statute 80A.461 and Minnesota Rules 2976.3050 -2876-306 to familiarize themselves with the requirements applicable to portal operators.
To apply for registration, portal operators must:
Submit a complete MNvest Portal Operator Registration Form,
Accompanying documentation, and
A $200 registration fee (made payable to the Minnesota Department of Commerce).
A portal operator registration does not become effective until the Commerce Department has declared the registration to be effective. Issuers are permitted to operate their own MNvest portal. However, they must register as a portal operator before submitting a MNvest Issuer Notice Form to the Commerce Department and before offering securities to potential investors in reliance on MNvest. Issuers acting as portal operators are required to pay both the notice filing fee and the portal operator registration fees.
Under the MNvest exemption, the issuer is required to provide certain financial statements to Commerce when filing notice of its reliance on the exemption, as well as to prospective purchasers in the offering. The amount the issuer is permitted to raise under the MNvest exemption is determined, in part, by these financial statements:
If the issuer’s financial statements have been audited or reviewed by a certified public accountant according to the requirements of Minn. Stat. 80A.461 Subd. 3(5)(i), the issuer may raise up to $2,000,000 in any 12-month period;
If the issuer’s financial statements have not been audited or reviewed by a certified public accountant, the issuer may raise up to $1,000,000 in any 12-month period.
In addition to the above limits on aggregate investment amounts, issuers are not permitted to sell more than $10,000 in securities to any individual investor in connection with a single MNvest offering, unless the investor is an accredited investor.
An “accredited investor” is defined in federal law to include a natural person with (1) an individual income of more than $200,000 per year (or, jointly with a spouse, more than $300,000 per year) in each of the past 2 years and a reasonable expectation to maintain the same level of income; or (2) a net worth exceeding $1 million, either individually or jointly with a spouse. (The full definition of accredited investor is in Rule 501(a) of Regulation D adopted pursuant to the Securities Act of 1933.)
An investor may cancel a MNvest investment commitment for any reason until the target minimum offering amount has been raised. The minimum offering amount must be included in the disclosure documents made available to prospective purchasers and filed with Commerce.
Title III of the JOBS Act of 2012 required the U.S. Securities and Exchange Commission (SEC) to adopt rules creating an exemption for equity crowdfunding at the federal level. The SEC announced final Regulation Crowdfunding rules in October 2015, and the rules went into effect on May 16, 2016.
MNvest and Regulation Crowdfunding present two separate options for business owners who want to raise money through equity crowdfunding. As described above, issuers who want to rely on MNvest must comply with the Rule 147 and Rule 147A exemption for intrastate offerings and limit securities sales to Minnesota residents only. Issuers utilizing Regulation Crowdfunding are permitted to sell securities to residents of multiple states but must comply with the Regulation Crowdfunding requirements.
Below is a summary of some of the key differences between MNvest and Regulation Crowdfunding. The information provided here is a summary of only some of the requirements. Issuers considering whether to use MNvest or Regulation Crowdfunding to avoid registering securities should conduct their own analysis of MNvest and Regulation Crowdfunding, and should consult an attorney for assistance, if needed. More information and guidance on complying with Regulation Crowdfunding is available on the SEC’s website.
Disclaimer for crowdfunding
Equity crowdfunding offerings are different from donation-based crowdfunding campaigns through websites like Kickstarter or GoFundMe. Unlike donation-based crowdfunding, equity crowdfunding involves the issuance of securities - meaning investors expect to receive something in return for their investment.
Undertaking a securities offering is a serious matter. It can be costly and will take time away from running your business. While business owners and personnel can prepare the information requested on the MNvest notice form and file the appropriate documents with the Commerce Department, it is often beneficial to seek the assistance of counsel experienced in securities law to fully understand options and obligations surrounding the sale of securities.
The purpose of the information on this website is to introduce small businesses to the concept of raising capital through the MNvest crowdfunding exemption. It should not be relied upon to actually make a securities offering. There are many additional important issues that should be considered before making a securities offering. This information summarizes only some of the issues involved in conducting a crowdfunding offering.
Learn more about MNvest at the Minnesota Department of Commerce.
Information on other regulations and exemptions: