Intrastate Crowdfunding Bill Passed by Illinois General Assembly

By: Jordan Fishfeld

Back in March, I wrote about HB 3429, the proposed Illinois intrastate equity crowdfunding bill. The bill would allow Illinois companies to raise capital from Illinois residents through crowdfunding platforms in exchange for equity.

As I explained in my original article, I was excited about the bill’s potential to open up exciting new investment opportunities to Illinois investors while providing clarity for businesses and crowdfunding portals. Given the explosive growth of equity crowdfunding over the past three years, I was cautiously optimistic about the bill’s prospects. Never in my wildest dreams, though, did I imagine that the bill would fly through the Illinois General Assembly in only two months. Incredibly, that’s exactly what has happened. After being unanimously passed by the Illinois House on a 105-0 vote in April, the bill was unanimously approved by the Illinois Senate yesterday and will now go to Governor Rauner for his signature.

Having worked with Anthony Zeoli, who drafted much of the language of the bill, I know how gratifying its success must be for him. I also want to thank Elliot Richardson and the Small Business Advocacy Council for their tireless efforts on behalf of the bill. Finally, we all should thank Rep. Carol Sente who filed the bill and was a great supporter of it as well.
I have a few thoughts now that the bill has passed. I closely followed the debates surrounding the passage of the federal JOBS Act in 2012, and I can’t help but compare that debate to the relative lack of controversy over the Illinois bill. Three years ago, critics of the JOBS Act warned that equity crowdfunding and general solicitation would lead to unsophisticated investors being duped by crowdfunding platforms. The New York Times editorial board and then-SEC Chairman Mary Schapiro staunchly opposed the JOBS Act, yet it passed anyways.

Three years later, while it may be too early to say that their fears were completely unfounded, we know that none of their doom-and-gloom predictions have come to pass. Equity crowdfunding projects in the U.S. raised $662 million in the first quarter of 2015 alone. Investor interest is growing rapidly to join this transparent and easy way to diversify your portfolio. With the passage of the Illinois bill, all of the non-accredited investors that request access to our deals will finally be able to invest our offerings. This clear benefit to the average investor is a likely explanation as to how an intrastate crowdfunding bill was passed unanimously in Illinois (a state not particularly known for bipartisanship) in only two months.

As I mentioned, one of the main benefits of real estate crowdfunding is the portfolio diversification that it offers. While I am generally of the mindset that an open and transparent marketplace will do enough to protect investors, I do like the fact that the funding caps are in place because I see them not as a limitation on investment, but almost as an encouragement to diversify. The bill will allow non-accredited investors to invest in equity crowdfunding offerings, but they can invest no more than $5,000 in any individual company or platform in a given year. Zeoli confirmed my belief in the Chicago Tribune, stating that this provision is intended to encourage diversification. There’s no question that some equity crowdfunding can be speculative, and investing in unproven startups can be particularly risky. But a lot of the opportunities, like those at PeerRealty, are necessary components to a diversified portfolio that were inaccessible to the average Illinoian before this bill. I see the per deal funding cap as a great way to continue to encourage diversification.

While I believe the bill will benefit our company, I think the biggest beneficiaries will be other startups and tech companies in Illinois. One of the biggest reasons tech companies have clustered on the coasts is the ready access to capital found there. While the Midwest, and Chicago in particular, has made great strides in this department over the past several years, intrastate crowdfunding will provide another useful source of capital for Illinois companies.

In closing, the quick passage of the Illinois intrastate crowdfunding bill represents how far equity crowdfunding has come. Three years ago crowdfunding was a controversial concept; today, it is widely accepted. Done property, equity crowdfunding can provide greater transparency to investors than traditional forms of investment. With non-accredited investors soon able to participate in intrastate crowdfunding offerings, companies and platform operators should redouble their efforts to provide as much transparency as possible to investors. This is the best way to ensure that equity crowdfunding and real estate crowdfunding continue to grow.