State businesses might have an easier time with financing once an equity crowdfunding program launches next month.
Starting June 1, anyone in Wisconsin will be able to buy small amounts of stock in Wisconsin businesses through online portals registered through the state. That will allow business owners to easily turn to their community to raise money and grow, said the law’s author, Rep. David Craig, R-Big Bend.
“As small business goes, so goes our economy in Wisconsin and nationally,” Craig said. “The number one problem I hear from small businesses is lack of access to capital, and this law directly addresses that.”
The program is modeled after popular fundraising websites like Kickstarter or Indiegogo. Those websites allow someone with a project — a dance show, book, album, technological innovation, line of clothing — to request money from the online community. If successful, those projects might return something to funders, a gift like the product itself, for example. But they are unable to sell stock in a company.
That’s changing under equity crowdfunding programs. The equity programs stemmed in part from frustration that it’s taking too long to finalize some rules for the federal JOBS Act, a crowdfunding law passed in 2011. Even when those federal rules are finalized, backers of state-based crowdfunding say, the regulations may be too onerous for some small businesses, so it might be easier and cheaper for them to go through state programs.
Wisconsin’s new law, which Craig said updated “New Deal era” securities statutes, passed the Senate unanimously and the Assembly on a voice vote. It has the backing of business groups and Gov. Scott Walker, who said when signing the law in November it “reforms government for the 21st century by providing a market-driven solution” for businesses looking to raise funds.
The state law allows Wisconsin businesses to raise funds through online platforms, which will register with the Department of Financial Institutions. The businesses can raise up to $1 million from Wisconsinites, or $2 million if they agree to an audit. The average Wisconsin investor can invest up to $10,000, unless they have a certain net worth or income. Backers say the latter provision protects consumers by ensuring they can’t invest too much in a single venture.
The online platforms will likely be similar to Milwaukee-based CraftFund LLC, a website where businesses will be able to offer stock. CraftFund will focus on helping businesses in the food and beverage industry, said the site’s founder, David Dupee, a securities regulations and compliance lawyer who’s “also a craft beer fan.”
“We’re hoping that whenever [food and beverage businesses] think about raising funds, they’ll immediately think of raising capital in their community in the same way they would think of taking out a bank loan,” said Dupee, who worked with Craig on developing and promoting the law.
In Kansas, a similar program approved through agency regulations — not through the legislative process like Wisconsin — saved the brewery-restaurant of Justin Bays and Jeremy Johns.
Their business, Radius Brewing Company LLC in Emporia, was undergoing construction to be turned into “one of the coolest looking breweries we’ve ever seen” when the co-owners ran out of money. The banks were done lending, Bays said, and if they didn’t find the extra money, the business could’ve been over before it began.
It was then that Bays and Johns heard of Kansas’ new program, through which they raised the needed $350,000 from the college town of 25,000 people. They were able to keep their business alive.
“It was a rough story that turned into a happy ending story,” Bays said.
A challenge for Wisconsin, however, will be having enough interest from online platforms and businesses for the law to take off. Kansas, for example, has had around eight businesses raise money through its program, which actually discourages businesses from raising funds online, said Lynn Hammes, the director of finance and administration at the Office of the Securities Commissioner of Kansas.
But Craig expressed optimism that Wisconsin’s law will be a popular option for businesses and that the state will see those online platforms pop up in a variety of industries.
“There’s going to be pioneers,” Craig said. “Dupee is certainly going to be one of them. I think there’s going to be others, but he’s going to be the example for how other industries can utilize it. There’s no end to what industry this can touch.”
National groups, meanwhile, tout the benefits of online crowdfunding to say it will indeed be a popular way to raise funds.
Joy Schoffler, a board member of Crowdfund Intermediary Regulatory Advocates, said she used to raise capital for a living. The old manual process was inefficient, sending out emails one by one to investors. Online crowdfunding is “absolutely gaining in popularity” and could actually change the whole investing industry, she said.
Sydney Armani, founder and publisher of the CrowdFund Beat publication, credits states like Wisconsin that have taken the lead.
“It’s a good thing they’re taking initiative,” Armani said. “We are very optimistic about this. … Crowdfunding is here to stay.”
— By Polo Rocha