By Nancy Mathieson -
You may have heard about legislation on Intrastate Equity Crowdfunding. Crowdfunding is the practice of funding a venture by raising small amounts of money from many people, usually through the internet. In July 2015, Governor Rauner signed the Equity Crowdfunding Act (HB3429) which for the first time allowed non-accredited investors (“the little guys”) to invest in small businesses in Illinois without the historical red tape. The law allowed investors with net worth below $1 million and annual incomes under $200,000 to invest up to $5,000 per company in any given year.
In January 2017, Invest Local Illinois reported that three Chicago area business owners (CrossTown Fitness, Native Sons of Chicago and CardFrenzy) were the first entrepreneurs to be raising money under HB3429. The new law allowed Illinois businesses to raise up to $4 million in capital per year from Illinois investors large and small, one of the highest intrastate crowdfunding allowances in the country.
Why is this significant? The benefits are twofold: intrastate crowdfunding allows small business owners the chance to raise money from many people in their own state, while at the same time allows “the little guys” to own stock in these local companies. The rationale is the additional investment would be a driver of new job creation in Illinois.
At a January 17th press conference, Charlie Graff, principal of CrossTown Fitness discussed his company’s $500,000 crowdfunding offering: “Crowdfunding is something I wanted to do before there was the ability to do it, so when I was made aware this law existed I was thrilled. We are extremely excited to offer our members the ability to invest in our company.” Graff estimates that more than 20 new, sustainable, local jobs will be created by the development and operation of CrossTown’s new location, funded by the offering.
Proposed legislation HB3791, filed in February, takes the crowdfunding idea one step further. HB3791 would allow companies formed outside of Illinois (i.e. Delaware) who operate and employ people in Illinois to raise capital under the new crowdfunding laws. While current crowdfunding law has three requirements (80% of revenue, 80% of employees and 80% of use of funds must be within Illinois,) under HB3791 an Illinois small business would only have to meet only ONE of the 80/80/80 requirements. So, in effect, passage of HB3791 would open the door for additional crowdfunding investment to more companies employing people in our state.
*Nancy Mathieson has a 30-year career in business, securities regulation and public policy. Nancy held positions at the Chicago Mercantile Exchange (CME) and the New York Stock Exchange (NYSE), where she was a Director of Market Surveillance and managed a professional staff in the investigation of securities trading violations. She also served as Operations Director at Truth in Accounting, a Chicago think-tank whose mission is to promote transparency in government financial reporting. She was a Contributing Editor for WirePoints Illinois News, and is currently Communications Director for Vernon Township G.O.P. in Lincolnshire, IL. Nancy received her B.S. in Economics from the University of Illinois at Chicago and her M.B.A. from New York University.
