Illinois' crowdfunding bill now in effect: Here's what you need to know

January 4, 2016

On January 1, the Illinois Intrastate Equity Crowdfunding Bill (HB 3429) went into effect, opening the door for small and mid-sized businesses to raise funds from the general public.

Before you reach for your checkbook, know that it could be weeks to months before the administrative infrastructure is sound enough to actually invest in your favorite local company.

The bill passed in Springfield last May by an overwhelming bipartisan majority and cleared Gov. Bruce Rauner’s desk in July, preceding the SEC’s October approval of the functionally similar Title III of the JOBS Act.

Unlike crowdfunding platforms such as Kickstarter and Indiegogo, the new law allows companies to raise money from everyday Joes and Janes in exchange for equity. Under these regulations, Illinois residents can write a check to a local business (no more than $5,000 per company per year).

Meanwhile, Illinois companies are allowed to raise up to $1 million in funding (and in some cases, $4 million, so long as audited financial statements are provided to investors).

For Chicago’s growing tech sector, that means startups have new avenues to explore in terms of finding and securing capital.

The new regulations — which many crowdfunding pundits call the friendliest of its kind to small business — could allow residents to raise money as early as February, according to Zacks Group CMO Howard Orloff (pictured left).

Orloff added that crowdfunding is a tremendous opportunity for both businesses and residents.

“You’ll have no louder sounding board than the local customer who just invested $1,000 in your business," Orloff said. “You can get investments from a group of angels or from a fund for millions of dollars, but I can assure you that those folks will not profess their love for your business anywhere near the $1,000- or $500-investor.”

“The excitement that can be created by having your customers take an ownership stake in a business they believe in is going to be something incredibly powerful,” he said.

Still, only accredited investors (i.e. high-net-worth individuals) may make investments larger than $5,000 per year in any one company. Transactions are to take place through a qualified online portal.

The Zacks Group is already working to position itself as a leader among those portals. The company unveiled a new crowdfunding platform in early December at to provide investors a catalogue of privately held, early to mid-stage companies in the market for capital.

For now, the platform only takes investments on behalf of companies from accredited investors, but Orloff said the firm also plans to participate in intrastate crowdfunding offerings.  

Image via Shutterstock. 

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