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ATLANTA (AP) — If Georgia is any measure, it will take years for Americans and companies vying for investment through crowdfunding to get comfortable with the practice.
Nearly three years after Georgia began allowing individual residents to invest in small businesses, 35 companies have registered with the state to try it.
At least a dozen states have passed similar laws or rules as the Securities and Exchange Commission continues working on interstate crowdfunding rules designed to open the practice up nationally. Backers complain the U.S. Securities and Exchange Commission is slowing down a viable way to get more money into small business owners' hands, while the agency has said it's seeking the best ways to protect investors and companies.
The slow but steady interest in Georgia's version could be a sign that the federal process is just one hurdle facing the much-hailed crowdfunding concept.
"Like any new technology, you have early adopters who spread the word," said Brian Dally, co-founder and CEO of real estate investment portal GroundFloor. The company, which connects investors with builders pitching specific projects, moved to Georgia from North Carolina this summer because of the state's flexible crowdfunding rules.
"Equity crowdfunding," as the strategy is known, isn't as simple as donating $5 on the popular site Kickstarter — where people have contributed toward albums, movies and products including a smart watch.
Georgia's Secretary of State's office created the rule — known as the Invest Georgia Exemption — in December 2011. Without it, companies can only raise money from individual investors who are "accredited," with $1 million net worth or at least $200,000 income for at least two years according to federal rules.
You don't get your money back if the company doesn't meet their crowdfunding goal like on typical crowdfunding sites. People wanting to invest in Georgia companies must live in the state and have to provide plenty of personal and financial information.
The latter has been a stumbling block for some who like the idea of investing locally or crowdfunding in general but get skittish when faced with long legal documents, said Megan Johnson, a co-founder of SparkMarket. The site features companies' crowdfunding investors in Georgia, including a manufacturer of guitars from oil cans and a TV network targeted at men.
"You own a stake in the business, and you're on board for the good, bad and the ugly," Johnson said.
Vincent Russo, the Secretary of State's general counsel when the crowdfunding exemption was created, said plenty of small companies could use it but have to find the crowd.
"It has taken longer than I would have liked, or than anybody would have liked," Russo, who now works as a commercial attorney, said. "But Georgia is leading the conversation."
Richard Swart, director of a University of California Berkeley program on finance innovations, supports crowdfunding generally but said companies have to generate enthusiasm in many investors. That equals more valuable time and effort from people already stretched thin.
Georgia business and investment types in metro Atlanta are trying to boost interest. Well-known investor Knox Massey recently founded a MeetUp group that brings companies in almost every month to talk about how crowdfunding might benefit them. Most attendees know little about Georgia's exemption, but that's to be expected with any new form of financing, he said.
Rodney Sampson was one of those people a couple years ago. He and three co-founders launched a crowdfunding campaign in January for Opportunity Hub, an incubator that gives new companies work space and access to experienced mentors. They've raised about $50,000 so far, with 90 percent coming from people who don't qualify as accredited investors under federal rules.
He figured success is the best way to spread awareness.
"What better model for it to be tested on than a company that helps other companies?" Sampson asked.