I am absolutely ecstatic to announce that, after more than a year of lobbying, this week the Illinois Intrastate Crowdfunding Bill (HB 3429) was approved. In fact, in a rare display of true bipartisan action (especially for Illinois), the bill received unanimous support in both the House and the Senate. As the Bill moves to the Governor’s desk for signature there is a lot of excitement building among entrepreneurs and investors as we usher in the age of Illinois Crowdfunding.
What the Bill Does.
The adopted Illinois Intrastate Crowdfunding Bill permits “investment based” crowdfunding between Illinois companies and Illinois residents. Pursuant to the adopted Bill, Illinois companies will be able to solicit crowdfunded “investments” from Illinois residents. Moreover, unlike some other available methods of crowdfunded investments that are limited to “accredited investors” (e.g. rich people), the adopted Bill will allow any Illinois resident to invest.
For those that don’t know, “investment based” crowdfunding is similar to the fundraisers you see on Kickstarter and Indiegogo, except that with “investment based” crowdfunding, the person giving the money will actually receive debt of/an ownership stake in the company in exchange for their money rather than a t-shirt or some other reward. So, put simply, the adopted exemption allows ANY Illinois resident to actually invest their money in an Illinois company in exchange for debt of/equity in the company.
While similar regulations currently exist in other states, with the governor’s signature, Illinois will become home to one of, if not the, most competitive Intrastate crowdfunding regulations in the nation.
If interested, here is a full copy of the final version of the Illinois Intrastate Crowdfunding Bill (HB 3429). For those looking for the “Cliffs Notes” version, here are some of the main points:
- Adds new definition of “accredited investor” which is now tied to the federal definition (see new 815 ILCS 5/2.34).
- Amends the transaction exemption provided by 815 ILCS 5/4(H) to allow for offers, sales and/or issuances of securities to any “accredited investor” and for the general promotion of the same (to the extent specified in the Bill).
- Provides new definition of “qualified escrowee,” which includes title insurance companies and banks authorized to do business in Illinois who maintain at least one (1) physical location in the state (see new 815 ILCS 5/2.35).
- Provides new Intrastate Crowdfunding Exemption (see 815 ILCS 5/4(T)). Highlights include:
- $1,000,000 funding cap unless the Issuer has made available to prospective purchasers audited financial statements, in which case the funding cap will be $4,000,000. – See subsection (2)
- Max amount received by an issuer from any particular purchaser (other than accredited investors) is limited to $5,000 per year. – See subsection (3).
- Requires use of a “qualified escrowee” for the collection of funds from potential purchasers. – See subsection (8).
- Requires the issuer, and each internet portal used, to establish commercially reasonable measures for limiting access to information to residents of Illinois. – See subsection (11).
- Allows for “general announcement” of offering by issuer. – To be in final administrative rules.
- Requires delivery (or electronic access to) internally prepared quarterly financial statements/business reporting of issuer. – To be in final administrative rules.
- Provides new definition of “registered internet portal.” (see 815 ILCS 5/2.36).
- Establishes new provision related to offerings made through a “qualified internet portal” (see 815 ILCS 5/8d). Highlights include:
- Provides for an exemption from registration as a “dealer” or “investment adviser” under the Act for an internet portal that meets certain requirements. Specifies certain actions which do not, by themselves, constitute offering investment advice or recommendations. – See subsection (b).
- The portal shall be owned by an entity organized, or otherwise qualified to do business, in Illinois and in good standing. – To be in final administrative rules.
- Allows for “general announcement” of offering by internet portal. – To be in final administrative rules.
As Elliot Richardson of the Chicago-based Small Business Advocacy Council (SBAC) put it best, “intrastate investment based crowdfunding can be an absolute game-changer for the Illinois small business community.” The approved Bill has the potential to give Illinois businesses access to vast amounts of new capital and to allow Illinois residents to invest in growing Illinois’ businesses (including, start-ups). Now it’s just a matter of educating people about this new form of capital/investment and how to use it.
Similar legislation has been enacted in several other states but the use of intrastate crowdfunding has been somewhat slow going (snail paced actually). While there have been some regulatory speed bumps in other states (which I believe we alleviated in the Illinois Bill), the primary reason for the slow use of intrastate crowdfunding is simply lack of information. Either entrepreneurs/investors get “investment based” crowdfunding confused with reward sites like Kickstarter or Indiegogo (and become disinterested) or they don’t even know it exists.
Given the tremendous support by entrepreneurs and local businesses here in Illinois, I am certain that we can overcome this knowledge barrier. The Bill was lobbied for by the SBAC (having over 400 small business members) and members of 1871 (a large local incubator). These are going to be some of the primary users of this Bill and they have already been made aware of its existence. Now the only thing is to educate them on HOW to do it. To help facilitate this, I intend to revamp my previous bill lobbying site (www.illinoiscrowdfundingnow.com) to be an information hub for all things Illinois crowdfunding, including information on: how to use investment based crowdfunding, where to find relevant service providers, etc.
The approved Illinois Intrastate Crowdfunding Bill is extremely balanced and flexible and I am certain that once businesses and investors are made aware of its benefits, use of intrastate crowdfunding here in Illinois will spread like wildfire. That being said, hopefully you will forward this post along to help spread the word….
Before I conclude this post, I would like to acknowledge and thank all of the people who helped get this Bill passed. I wrote the Bill but it truly would not have gone anywhere without the support and hard work of numerous people. While I don’t want this to sound like some type of Oscar acceptance speech, I do believe that special thanks should go out to the individuals below who went above and beyond in working to get this Bill passed. I know I speak for the entrepreneurs, small business and investors in Illinois when I extend my sincerest thanks to each of them for all of their hard work.
- Elliot Richardson, Michael Cavanaugh, Blanca Campos, Dan Johnson and all of the other members of the Small Business Advocacy Council (SBAC).
- House Representative Carol A. Sente and Senator Thomas Cullerton;
- Tanya Solov, Angela Ryan and the other members of the Illinois Secretart of State Securities Department;
- Michael Lucci and all of the other members of the Illinois Policy Institute;
- Howard Orloff of Zacks.com, Mandy Calara and the members of Crowdfranchise.com, and Jordan Fishfeld and the members of PeerRealty.com; and
- Howard Tullman and the staff of 1871.