Editorial: Make equity crowdfunding a reality in Illinois

A simple, forward-thinking and safe way for Illinois small businesses to grow, and for everyday people to invest in them, could be coming to the state soon.

A bill to allow for equity crowdfunding in Illinois for the first time — connecting entrepreneurs with small-time investors online — is pending in the Illinois Legislature. The bill is well drafted, balancing the need for entrepreneurs to raise capital while also protecting investors from getting scammed or losing their nest eggs. We urge its quick passage.

Through online portals, the bill allows Illinois-based small businesses and entrepreneurs to seek up to $4 million in capital from Illinois investors. Unlike traditional online reward-based crowdfunding, where people donate to companies and may get a gift in return, equity crowdfunding allows small-time Illinois investors to get a stake in a company, with the potential for investment returns.

To protect small-time investors, those with incomes of less than $200,000 a year, no more than $5,000 could be invested in any one company in a 12-month period. The bill also includes other protections for both investors and the companies, including secretary of state oversight, escrow provisions, a long list of upfront company disclosure provisions and required financial reports.

The bill’s only real weakness is that it allows only for intrastate investments — all investors and all businesses must be within Illinois’ borders. But that’s on purpose, and that’s all Illinois can do. Congress in 2012 passed the JOBS Act, intended to allow for equity crowdfunding across the country for both wealthier accredited investors and smaller unaccredited investors. The rules allowing for implementation are in place for accredited investors, but are stalled for small-time investors.

Instead of waiting for Washington, states have begun passing their own intrastate equity crowdfunding laws to open the door for smaller investors. Some 15 states now have laws, including Wisconsin, Indiana and Michigan. Bills are pending in 15 more states, says Chicago attorney Anthony Zeoli, who drafted the Illinois bill, which is sponsored by Rep. Carol Sente (D-Vernon Hills).

Intrastate laws have their limits. Far preferred would be equity crowdfunding across the country, allowing a small-time investor in Chicago to get a stake in a company in San Francisco. But while we wait, this bill will at least let Illinois residents in on the game.