From: Kristin Wolff
Sent: January 11, 2016
To: rule-comments@sec.gov
Subject: File No. S7-22-15

Dear Mr. Fields, Members of the Commission, Staff & Advisors:

We are so pleased that you are taking action to modernize Rule 147 while also preserving its best intentions.

I have been pleased to serve as a member of the Board of Hatch Innovation, the non-profit organization responsible for enabling securities crowdfunding in Oregon last January. What an adventure it has been! In one short year we’ve seen over a dozen companies use the new law to raise capital — with the first to successfully complete its raise having done so in October (others are close). Our staff and board members have traveled thousands of miles all over the state meeting with companies, business support organizations, incubators, attorneys, and state, city, county and tribal elected officials in an effort to help them understand the new law — its potential, and its limitations.

The thorniest challenges we have encountered (over and over again) stem from Rule 147, which currently functions as a “safe harbor” under Section 3(a)(11), exempting securities offered to residents within a  state by a company residing in that state from registration requirements, and explains what is required to take advantage of this exemption. I will be delighted to see the language amended.

 My comments on three proposed changes to Rule 147 follow. 

1. Modernizing Rule 147 to reflect modern business practices including the use of the internet. 
I support the effort to amend Rule 147 to allow general solicitation (including the use of online advertising and communications) of securities while requiring that all sales of securities occur to residents of the state in which the primarily business operations are located and where the offering documents have been filed. This is simply common sense - restricting solicitation to in-state residents effectively prohibits the use of the internet, which is without question the most efficacious way to communicate. Such restrictions severely hamstring companies seeking to raise capital and prevent business owners from using their most potent assets - personal and professional social networks. The rule must be changed. General solicitation and restricted sales would suffice.

I would also express a strong preference for using the existing “safe harbor” rule rather than creating an entirely new one. A new rule would sever the link between Section 3(a)(11), Rule 147, and much of the existing legislation in the 30+ states that have enacted intrastate securities crowdfunding (or where such legislation is pending). This would add unnecessary process and delay across many states and undermine the goals the SEC seeks to attain. Maintain this link (“safe harbor”) by using the existing rule with amended language. 

2. Determining whether businesses are primarily state-based.
The current rule has been a source of confusion. Let’s make it simple and flexible, but also clear in intent. Securities crowdfunding using the intrastate exemption was envisioned as a capital access tool for local, small business. I support a preponderance of evidence. If business meets the majority of reasonable criteria commonly associated with local business, then it’s a local (strictly speaking, “state”) business. There are a number of versions of these criteria, I would propose a business meet 3 of 5 of the following:

a. 75% of funds raised to be used in-state
b. Primary administrative office is in-state
c. 75% of the company’s work is done in-state (manufacturing, packaging, distributing, etc.) (by value)
d. 75% of employees are in-state.
e. Majority owners’ primary residences are in-state.

I won’t quibble with levels, but there should be a clear intent and the criteria should be meaningful and not incent “work-arounds."

3. Maintaining the in-state registration requirement. I do not support the lifting of the restriction that companies register in state. Intrastate laws are intended to support local economic development goals - they are one of the few capital access tools available to nearly every small business and to the communities that support them. We have found that local investing (within a state) confers benefits that extend well beyond financial return and seek to encourage the spread of such benefits (social, economic, and otherwise). Lifting the restriction entirely changes the nature of the (intrastate crowdfunding) tool itself — making it more like all the other tools that already exist and focus exclusively on financial returns, regardless of their source. Let’s allow this one to enable greater aspirations and build community wealth - in a real geographically-bounded community.

Thank you for the opportunity to comment. 

Kristin Wolff
Business Owner, Investor