The Colorado Capital Congress, a public forum on improving Colorado’s capital markets, has established its first action item for change. The initiative will be to authorize qualified individuals to facilitate the sale of Colorado securities between Colorado buyers and sellers and to earn a commission for their work. A task force has been established to develop this initiative into a ready-to-implement proposal for new legislation.
Steve Baker, Chairperson of the task force, stated, “At present, many Colorado businesses experience great difficulty in securing money needed to start or grow their businesses. This already difficult task is greatly amplified by the current recession and the reluctance of investors to put their money to work in this riskier type of investment. Business owners have two legal choices under Colorado law: (1) do it themselves, or (2) hire a broker/dealer licensed by the Colorado Division of Securities.”
Many business owners lack the skill and knowledge to best represent themselves when talking to investors and closing a commitment to invest. When faced with this situation, business owners may seek out a securities broker/dealer and engage them to provide services in finding and selling investors on the opportunity to put money into the business.
A common complaint by businesses about broker/dealers is that they want too high of a fee or that they simply won’t offer services on offerings that are too small. The response by Broker/dealers to this complaint is that they can’t afford to offer services on smaller investment opportunities.
Typical broker-dealer overhead pushes the cost of money received from a small offering too high. In a small offering, i.e, less than $2 million, fees and commissions may equal 20% to 30% of the money raised. Even if a business owner were willing to accept this high price, most investors are not. Investors want as much of their investment as possible directed to making the business successful and improving the probability that the investment will be repaid.
“Another problem is that of ‘finders’ illegally operating in the role of a broker/dealer,” said Mr. Baker. Unlicensed and unsanctioned by the State of Colorado, “…the practice of ‘finders’ taking commissions is quite common. Regulation of a large number of individuals will have its costs, but the power of the Internet makes possible the operation and administration of a sensible limited purpose broker/finder system for non-broker dealers. Although greater regulatory scrutiny is no guarantee against fraud, as has been demonstrated by Wall Street, everyone would benefit from this expansion to address small dollar investments.”
In response to these problems, the idea of a ‘Colorado Capital Agent’ has been advanced. As conceived, qualified individuals could do the same work as licensed broker/dealers. However, in order to lower the costs, the individual would be limited to the securities of Colorado businesses and to transactions between Colorado citizens and businesses. By limiting securities transactions to the State of Colorado, it is intended to avoid the regulatory requirements of the federal SEC and thereby lower costs.
This idea needs development and research that will be performed by the Colorado Capital Agents task force. Questions need to be answered, such as:
- Who may act as a Colorado Capital Agent?
- How would the State of Colorado regulate Colorado Capital Agents?
- How can the role of the Colorado Capital Agent be defined to avoid/prevent SEC regulatory oversight.
This new task force, as well as others, will be comprised of volunteers led by a chairperson and members of the Colorado Capital Congress. The task force will collect information on this initiative, including prior work completed by the SEC, from all sources. The task force will refine the original idea by considering different features and characteristics that set capabilities and conditions on the Colorado Capital Agent.
In the midst of a deep, nationwide, “winter of economic depression”, Colorado has a fleeting opportunity to simultaneously create a competitive advantage with regard to attracting new investors into Colorado businesses from other, less progressive states. These additional investment dollars would markedly improve Colorado’s economy. By establishing a first-mover advantage with creative ways to increase capital, Colorado may take a national leadership role in creating jobs, products and services that generate tax revenue without having to increase taxes.
The public is invited to join the Colorado Capital Congress and participate in initiative development and discussion.
On October 20, the initiative will be voted upon by all members of the Colorado Capital Congress. If it receives support of a majority of the members, champions will be recruited to sponsor the initiative as a bill before the Colorado legislature in the next session. Regis University will create and publish educational materials on the initiative.
It is anticipated that the Colorado Capital Congress will establish nineteen additional task forces on other ideas for making more money available to Colorado’s businesses. Ideas are still being solicited and considered as candidates for these initiatives. In addition, the Colorado Capital Congress is seeking additional people to lead initiative task forces.
The Colorado Capital Congress is a joint venture of the Institute on the Common Good and the Sullivan Chair for Free Enterprise of Regis University. All citizens of Colorado are invited to join in this effort to help local businesses start and grow. For more information on the Congress, go to: http://www.ColoradoCapitalCongress.com.