After a measure introduced in last year’s legislative session allowing more investors to get in at the early stages of startup companies failed to become law, competing bills have been filed in the current session encouraging entrepreneurs to seek capital through options resembling kickstarter.com, gofundme.com, and other “crowdfunding” mechanisms.

The idea is to enable North Carolina entrepreneurs to raise capital from smaller North Carolina investors to start or expand their businesses without becoming entangled by many of the Securities and Exchange Commission regulations that larger corporations and professional investors must confront. Federal law allows for such exemptions from SEC regulations by small investors financing new companies.

But the competing measures take much different approaches to the level of regulation investors would face.

“What I’m going after is not just the opportunity to use the federal exemption for new startups, but for existing businesses if they want to get into a new venture,” said Rep. Chris Millis, R-Pender, whose House Bill 63 takes an expansive approach to crowdfunding.

In contrast, a separate measure filed by Reps. Brian Brown, R-Pitt, and Rob Bryan, R-Mecklenburg (House Bill 14) — and a companion Senate bill introduced by Sen. Rick Gunn, R-Alamance (Senate Bill 35) — would place tighter limits on potential investors.

Brown said his bill is similar to the “JOBS Act,” a crowdfunding bill filed during the last session that passed the House but did not get through the Senate. Brown said that his bill and Millis’ bill were filed to begin the dialogue on how to create “the strongest and most transformative” intrastate crowdfunding legislation.

Brown’s bill would place a $2,000 limit per company on nonaccredited investors participating in the state’s crowdfunding programing. A nonaccredited investor, as Millis puts it, is a “new guy off the block” who wants to make a return on his investment. The measure also would limit the amount of capital a company could raise through crowdfunding to $1 million if the investments were made using unregistered securities that were not subjected to audits and $2 million if the investments were audited.

Millis’ bill would up the nonaccredited investor’s limit per company to $5,000, place no limit on the number of companies a non-accredited investor could support, and set no limits on the amount of capital companies could raise through crowdfunding.

Accredited investors would have no limits in the amount of investment per company or number of companies, Millis said.

Instead of being regulated through the federal Securities and Exchange Commission, the state crowdfunding program in Millis’ measure would be regulated through the N.C. Securities Commission of the N.C. Secretary of State.

Both H.B. 14 and S.B. 35 are 16 pages long, spelling out a number of regulations and disclosures required by companies raising capital through the state crowdfunding program. The measures also include several unrelated economic development incentives, which may be one reason last year’s JOBS Act stalled at session’s end.

In contrast, Millis’ bill is only three pages long. Millis said the longer bill was inspired by laws in several other states. He said there are flaws in the approach — primarily that the regulations are too burdensome and discourage people from using the new crowdfunding strategies.

“The reason I filed a bill that’s different is we can see from other states that no one’s utilizing it,” Millis said. “I have a bill that has protections rather than preventions. This is going to create a market that hasn’t existed before because of the federal regulations.”

Millis said that his bill would allow both existing businesses and startups to use the new crowdfunding method.

“If you’re an existing business, you want to get into a new market. You want to raise capital to do that. You can solicit North Carolinians to invest in your company without going through a myriad of SEC regulations,” Millis said.

Investors would be notified of the process for investment, Millis said. They’d be given a disclosure brochure similar to the way Realtors provide brochures to people buying a home.

Brown said he and Millis are working, along with U.S. Rep. Patrick McHenry, R-N.C., on the federal level, to craft the compromise bill.

Brown said they wanted to counter bad actors that will inevitably pop up.

“We do not want to allow for the bad seeds to go out and exploit nonaccredited investors to invest in something that’s not a business, not an idea, not an investment,” Brown said. He said he wants the final bill to have clear expectations and reporting information that will be given to the business investor.

In an analysis of the Millis and Bryan bills provided to Carolina Journal, Raleigh businessman and investor Tom Vass says the Millis version would do much more to aid small, growing companies.

For starters, Vass said the Millis provision placing oversight in the hands of a state agency would clarify some of the potential legal and regulatory burdens businesses would face if they were required to scrutinize individual investors.

In addition, Vass said the Bryan bill, by limiting the amount of money companies could raise through crowdfunding, serves “no constitutional public purpose” and contains numerous restraints on trade.

“We’re not quite ready for prime time yet,” Brown said. “I think we’re very close. Our goal is to try to create some good, solid model legislation.”

“[Millis] and I are working on compromise language,” Brown said of the separate approaches.

Commerce Secretary John Skvarla isn’t ready to comment on the two bills, spokeswoman Kim Genardo said, but “Secretary Skvarla is on record as very much supporting the concept of crowdfunding.”

Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.