Corporate Finance & Securities

You Can Now Use Crowdfunding in Washington State

Seattle Skyline from Queen AnneAs of this month, you can officially utilize crowdfunding to raise money in Washington for your startup. This new opportunity allows companies to advertise their securities offering and raise money from all investors. Traditional securities offerings restrict advertising and limit offerings to those who satisfy the income and net worth standards to qualify as an accredited investor. This new opportunity is different from platforms like Kickstarter, because with Kickstarter campaigns you can’t offer stock in exchange for the donations; instead the donations are usually straight gifts or made in exchange for a product or promotional item. Crowdfunding is not yet available on a national scale despite a section in the JOBS Act directing the SEC to enact crowdfunding rules (Congress gave the SEC an unworkable bill).

Here are some of the details of Washington’s new law:

The Process
The process of using the Washington crowdfunding exemption has three main components:

  • First you file some paperwork with the Washington Department of Financial Institutions (DFI).
  • The DFI reviews the details of your offering. If they approve your offering, you’ll have a year to raise funds, and you might be able to get a one year extension.
  • After you raise funds, you’ll submit a final sales report. As discussed below, you’ll still have on-going quarterly reporting obligations.

Limitations on fundraising

  • You can raise up to one million dollars
  • You can raise a maximum of $2,000 to $100,000 from each investor, depending on their income and net worth
  • The company offering securities must be a resident of and be doing business in Washington
  • The investors must be Washington residents, and the company must obtain evidence of residency (a driver’s license works)
  • Certain entities are prohibited from utilizing the crowdfunding exemption, including holding companies, real estate investment companies, and companies with complex capital structures

Filing requirements
You have to submit the following documents to the DFI before you can begin crowdfunding:

  • The governing documents for your business including articles of incorporation and bylaws (for corporations) or certificates of formation and operating agreements (for LLCs)
  • Financial statements prepared in accordance with GAAP
  • A 22-page form that requests all of the pertinent information about your offering
  • A $600 filing fee
  • A copy of any agreement with a portal, if you’re using a portal
  • A copy of any subscription agreement for the purchase of securities in the offering
  • All advertising materials to be used in the offering
  • Anything else the DFI reasonably requests after reviewing your materials

Portals are intermediaries that help multiple companies complete their offering. Basically, a portal would be like the Kickstarter platform, but for equity offerings in Washington.

  • Only three types of companies can be a portal: (1) a port district (who knows why?); (2) a local associate development organization (again, who knows why?); and (3) a registered broker-dealer.
  • Portals have to collect, at least, the following documents before they can offer services to the issuer:
    • A description of the company, including a business plan, if there is one
    • The intended use for the proceeds to be raised from the crowdfunding
    • Identities of the officers, directors, managers, and major owners
    • A description of the outstanding securities of the company
    • A description of any litigation involving the company, its owners, or its operators
  • Portals can help with the development of a business plan, provide assistance completing the paperwork to be submitted to the DFI, provide a referral to legal and accounting services, and assist with submitting the materials to DFI. However, portals cannot provide investment advice, solicit offers to buy securities unless the portal is a broker-dealer, compensate employees for sales unless the portal is a broker-dealer, act as an escrow agent, or underwrite the offering.

Information Requirements
The issuer has to supply investors with the following information:

  • Initially, the issuer needs to deliver to investors the company’s most recent crowdfunding form that was approved by the DFI, along with all the exhibits to the form.
  • After the offering, the company is subject to ongoing quarterly reporting and ongoing inspection rights, which allow the DFI to review corporate documents upon request.
  • The ongoing quarterly reports must include:
    • Officer and director compensation
    • Identification of the company’s officers, directors, managers, and key owners
    • A brief analysis of the business operations and financial condition of the issuer
  • If the company fails to issue quarterly reports, it will be prohibited from utilizing the crowdfunding exemption for one year

Minimum Target Amount & Escrow Agreement
Companies must have a minimum target amount to raise. This requirement protects investors some protection from investing in an under-capitalized company. The requirement might also be helpful to companies as it makes it less daunting for investors to be the first investor in the offering. Until the company reaches the minimum target amount, if investors ask for their money to be returned, companies have to oblige. While the company is attempting to reach its minimum target, the funds need to be held in escrow.

Bad Actor Disqualifications
Last, if individuals and companies that have been found to have violated securities regulations are prohibited from participating in crowdfunding offerings.

We’re excited to see what companies can do with this new method of raising capital. Hopefully, it can be a helpful tool for Washington businesses. If you have questions about Washington’s crowdfunding laws please feel free to give us a call at (206) 745-5229 or to send us an email at

Photo: tiffany98101 | Flickr


Kyle Hulten

When I'm not in the office I enjoy cooking, gardening, and watching my toddler son explore his little universe.

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