Ben & Jerry's Sold Stock in the Local Paper. Why Nobody Runs That Ad Anymore.

By Dara Albright, Board Member, ICAN Law

A scoop of the action

In 1978, Ben Cohen and Jerry Greenfield opened an ice cream shop in an old gas station in downtown Burlington, Vermont. By 1984, they had a product people would drive across the state for, and a business that had outgrown its kitchen. They needed a real factory, and they needed money to build it.

The big underwriters weren't interested. So Ben and Jerry did something I still think is one of the smartest moves in American business history. They went to their customers.

That spring they bought ads in Vermont newspapers. "Get a Scoop of the Action," the ads said. They offered 73,500 shares to anyone who lived in Vermont, listed a toll-free number to call for a prospectus, and held meetings so people could hear the pitch in person. Shares were $10.50 (about $34 in today's dollars), and the minimum was 12 shares, or $126 (about $410 today). You didn't need to be rich. You needed to like the ice cream and believe in the two guys making it.

Vermont believed. In about two months, they raised $750,000 (roughly $2.4 million today). Just under 1,800 households bought in. As Jerry has put it, roughly one in every hundred families in the state became part owners.

Then the company did exactly what those families hoped it would. It grew into a national brand. When Unilever bought Ben & Jerry's in 2000 for $43.60 a share (about $85 today), a Vermont family that had invested $500 in 1984 could have walked away with nearly $19,000 sixteen years later, after accounting for stock splits. That's more than 37 times their original investment. The neighbors who helped build the company got to share in its success.

I've told this story at conferences for more than ten years, and I keep telling it because neighbors investing in neighbors is part of what made America the greatest economic superpower the world has ever known. Two guys make something great. The people in their community back them with their own money. The company succeeds, and everyone who believed in it gets to share in that success. Not just the founders or some investment fund in New York, but the schoolteacher down the road, too. 

It should have gotten easier

This is the part that gets me. Forty years later, that story should be easy to repeat. Every small business in America has a website, an email list, and customers who follow it online. Reaching the people who love your product costs almost nothing. If Ben and Jerry could do it in 1984 with newspaper ads and a phone line, a brewery or a bakery or a bike shop ought to be able to do it today.

Instead, it got harder. To understand why, you have to know how Ben and Jerry pulled it off in the first place.

They used one of the oldest provisions in federal securities law. When Congress passed the Securities Act in 1933, it left room for local deals. Section 3(a)(11) says that if a company is based in one state, does its business there, and sells its stock only to people who live there, Washington stays out of it and the state regulator takes over. The SEC spelled out the details in Rule 147.

Intrastate offerings should make just as much sense in modern times. The people buying could drive past the factory. Most of them knew the founders, or knew somebody who did. Ben & Jerry's registered the offering with Vermont regulators, acted as its own underwriter, and gave every investor a prospectus. A local company raised local money from local people, which is exactly what the exemption was for.

The ad that turned into a liability

The trouble was in the fine print. The old rule didn't only control who could buy the stock. It controlled who could be offered it. Make an offer to one person outside your state and you could lose the exemption for the entire deal. Every investor could then demand their money back, and the company could be on the hook for a federal registration it never filed.

In 1984 nobody worried much about that. Plenty of out-of-state tourists picked up a Vermont paper that spring and saw the ad, and nobody at the SEC lost any sleep over it.

The internet changed that. A company website can be read in all fifty states. So can a Facebook post, and so can the link a happy customer forwards to her sister in New Hampshire. In 2014, the SEC said as much in its guidance. A crowdfunding portal that checked each investor's address might be fine. But a company promoting its offering on its own website or social media would likely be making offers to people in other states.

So the best tools a small business had for reaching its own customers were the ones it couldn't safely use. For the better part of two decades, the Ben & Jerry's playbook was off the table.

Here's the part that still makes my jaw drop.  April 2012, President Obama signed the JOBS Act (the Jumpstart Our Business Startups Act). Among other things, it instructed the SEC to lift the advertising ban for private offerings sold only to accredited investors, the people who pass the wealth test. The SEC adopted its final rules in July 2013, and they took effect that September. From then on, a company could advertise its deal anywhere: online, on social media, even on television, as long as every buyer was wealthy. A company that wanted to sell to its own neighbors still couldn't safely post its offering online. For the next three and a half years, federal law let you advertise to rich people anywhere in the country, but made it extraordinarily difficult to reach the patrons living next door. 

A partial fix that few people noticed

To its credit, the SEC listened. In October 2016, it amended Rule 147 and created a new rule, Rule 147A. Both took effect in April 2017. The goal was to encourage states to write their own exemptions for smaller, local offerings. In fact, ICAN’s Senior Legal Director and Policy Counsel, Mark Hiraide, used the amended rule as inspiration to write California’s crowdfunding law.

Rule 147A changed the question that mattered. A company can now advertise to anyone, anywhere, as long as it only sells to people in its own state. The website is fine. The Facebook post is fine. The sister in New Hampshire can read all about it. She just can't buy.

The SEC cleaned up a couple of other problems too. Under 147A, a company doesn't have to be incorporated in the state where it raises money, so a Delaware company headquartered in Vermont can use it. And under both rules, a company now has to meet one of four "doing business" tests instead of three.

On paper, Ben and Jerry could run their ad again. So why doesn't anybody?

Why nobody runs that ad anymore

People didn't stop wanting to invest in their neighbors. The federal fix just ran into everything else.

The states didn't keep up. Before the SEC acted, I watched state after state pass its own intrastate crowdfunding law. By mid-2017, about 34 states and the District of Columbia had one. Most were written around the old federal rule, and a federal change doesn't update a state law automatically. Each state has to amend its own. Months after 147A took effect, only nine states had updated their exemptions to use it. And apart from those early crowdfunding laws, states haven’t used 147A to create new exemptions of their own. The federal door opened, and the state door right next to it stayed shut.

Federal crowdfunding got all the attention. Regulation Crowdfunding went live in 2016. The portals, the lawyers, and the press all followed the national option, and local offerings became an afterthought.

Success gets punished. Federal law counts every intrastate shareholder toward the number that forces a company to register with the SEC like a public company. Investors who come in through federal crowdfunding are left out of that count, as long as the company keeps up with its filings and stays under $25 million in assets. So a business that rallies its whole town under a state law can grow itself right into a federal reporting problem.

And where you live matters a great deal. ICAN recently published a 50-state analysis grading every state on how easy it is for everyday people to invest in businesses in their own communities. Only six states do better than federal law. Twenty-nine do no better, and fifteen do worse. If you want to know whether your neighbors could back your business today, look up your state.

Letting people invest in themselves again

When I tell the Ben & Jerry's story, people usually hear it as a story about two clever founders. I hear it as a story about 1,800 Vermont families who were allowed to make their own decision. They read the ad, called the number, and decided for themselves.

Today the law usually decides for them. Outside a handful of narrow exceptions, the best early-stage investments are reserved for "accredited investors," which means people who pass a wealth test. A schoolteacher who knows a local business better than any outside investor can be told she isn't rich enough to be trusted with her own money.

That's why ICAN is pushing at every point where this breaks down. 

I've been making the Ben & Jerry's argument for a long time, and forty years on, it still holds. Americans used to be trusted to back the businesses on their own street. We took that away one rule at a time and called it protection. It's time to let people invest in themselves again.

Learn more about ICAN at https://www.icanlaw.org/

Author Bio: Dara Albright is a board member and Chief Outreach & Engagement Officer of the Investor Choice Advocates Network (ICAN), with more than 34 years of experience in the financial services industry. She is a respected writer and podcast host focused on fintech, decentralized finance (DeFi), and regulatory innovation, and holds a Series 65 license.