It will soon be easier for Tennessee startups to raise capital from individuals within the state following the recently finalized exemption rules made by state officials. The rules are set to be officially implemented on December 16. These rules provide regulation for the Invest Tennessee Exemption, which was implemented on January 1 earlier this year.
The Invest Tennessee Exemption is an intrastate crowdfunding exemption that allows startups to raise money from accredited and non-accredited investors within Tennessee in exchange for equity in their companies. The new rules provide regulations within which crowdfunding deals can be completed.
The new rules will make it easier for Tennessee startups and small businesses to raise money – something that had previously not been easily accessible either because of the difficulties in tapping accredited investors and angel investors, or the high costs that were associated with offering stock to the public. Additionally, the exemption will also provide more people with opportunities to invest on a smaller scale depending on their financial capability.
There are some potential downsides that are associated with using the Invest Tennessee Exemption. There are several laws that participants are required to obey. Startups using this exemption to raise capital may incur costs that are almost equal to those incurred during private placement offerings. Another possible downside is that since this exemption is new, many people do not understand how it will be beneficial to investors. It is likely that investors will be making choices on where to invest by assessing the accomplishment of individual companies. This may be disadvantageous to startups that do not have a business track record.
Since the exemption allows less savvy investors to contribute to companies in exchange for equity, these investors may want to be involved in the running of the company. That may not be favorable because making some decisions will become difficult due to the involvement of too many people. It is also important to note that people who invest in companies through this exemption will be allowed to complain in the event there is something wrong with the company.
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