Legislation that would allow Illinois businesses to take advantage of investment crowdfunding passed out of the Illinois House of Representatives in unanimous fashion on April 17. The bill will now move to the Illinois Senate for review.
If passed, Illinois would be home to the most competitive crowdfunding regulations in the nation.
Crowdfunding allows small investors to pool their dollars together to finance a new business or local project, and thus gain a debt or ownership stake in the project. It’s similar to fundraisers on Kickstarter and Indiegogo, except that investment crowdfunding is done as an investment rather than a donation.
This framework has a rich history of spurring American economic growth; it’s how Henry Ford financed the start-up of Ford Motor Company. However, investment crowdfunding was severely restricted in the U.S. from the 1930s until the passage of the bipartisan Jumpstart Our Business Startups (JOBS) Act in 2012.
This act dictated that investment crowdfunding could only be done intrastate – meaning Illinois businesses could only raise money from Illinois residents – and put the onus on state lawmakers to develop crowdfunding exemptions for their states before constituents could use this type of financing.
Eighteen states have passed exemptions, but the bill now on the Illinois Senate floor, introduced by state Reps. Carol Sente, D-Vernon Hills, and Tom Demmer, R-Dixon, would give Illinoisans the highest investment limits of any regulatory framework for crowdfunding in the country. It would also allow an especially broad pool of eligible investors while ensuring flexibility from the secretary of state's office to help with customizing the rules in order to avoid stumbling blocks appearing in other states.
This innovative form of funding is described by economist John Berlau as “finance of the people, by the people, for the people.” For this reason, as well as crowdfunding’s explosive potential for economic growth in a state with a moribund business climate, investment crowdfunding has been a key element of the Illinois Policy Institute’s legislative agenda for entrepreneurs, which was developed in September 2014.
When asked to grade the business friendliness of their state and locality last year, small-business owners in Illinois gave the state an F. Legislation like this is an important step toward government embracing the innovative, entrepreneurial culture necessary to earn a passing grade.
