Forbes | Dane Stangler  | May 28, 2014

More than two years after passage of the Jumpstart Our Business Startups (JOBS) Act, the U.S. Securities and Exchange Commission (SEC) is still writing the regulations that will govern equity crowdfunding in America.

Widely anticipated for its perceived potential to unlock hundreds of millions of dollars in capital, entrepreneurs and policymakers alike have been understandably upset by the slowness of the process. Equity crowdfunding was billed as a solution to economic malaise as startups across the country would now be able to raise funds from any interested American and not just venture capitalists and accredited investors.

While most entrepreneurs have been focused on the SEC, an interesting development has taken place: states – acting as the laboratories of democracy, as Justice Louis Brandeis described – are taking steps of their own to legalize equity crowdfunding.

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• Saskatchewan Approves 'Startup Exemption'

• Sask leads pack in equity crowdfunding activity

Since 2011, 11 states have legalized equity crowdfunding through legislation or regulatory action. Crowdfunding and crowdfunding-related bills also have been introduced in more than a dozen states. This interest and activity holds promise for entrepreneurs, but important factors may limit the impact of intrastate equity crowdfunding.

Because state-based exemptions only allow companies formed in the state to raise money from residents of the same state, intrastate crowdfunding is restricted by geographic boundaries and the size of a state’s population. A startup in Maine is limited to a much smaller pool of potential investors, for example, than a startup in Georgia, a state almost eight times as large.

Anecdotal evidence also suggests that many entrepreneurs and potential investors may be unaware of the new intrastate exemptions. In Kansas, the first state in the country to legalize equity crowdfunding within its borders in 2011, fewer than 10 companies had utilized the exemption as of the end of April 2014. In other states, the changes are so recent that it remains unclear as to what extent entrepreneurs are informed and poised to raise capital in this manner.

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