From Kickstarter to GoFundMe, online fundraising sites are popping up everywhere and gaining in popularity. Historically a resource for nonprofits, or filmmakers to fund projects, the concept referred to as “crowdfunding” has now taken a turn to help entrepreneurs spur investment and launch businesses.
Recently, the Indiana General Assembly passed legislation opening the door for privately owned businesses across the state to raise investment through online crowdfunding resources. Coming on the heels of the federal JOBS act, Indiana crowdfunding legislation stipulates that business can only raise funds within the state and went into effect July 1 of this year.
We recently sat down with Hannah Joseph, an attorney with Katz & Korin, PC and board member for the Indy Chamber’s Business Ownership Initiative program, who played an instrumental role in helping get this legislation passed. A small business owner herself, Joseph’s family owns King David’s Dogs and knows firsthand how financially challenging owning a business can be and how crowdfunding can change the landscape of business investment.
IC. This crowdfunding legislation has a major impact on how Indiana companies raise money. What is the most significant impact of this law for Hoosier businesses?
HJ. The biggest impact is that companies will now be able to access many more investors for their businesses. This new legislation effectively extends the "friends and family" round to allow Indiana individuals to invest in Indiana companies. This law also makes Indiana a pacesetter for intrastate equity crowdfunding, which will be an exciting avenue for businesses to raise money by selling equity in their companies to individuals who had been previously excluded from the market.
IC. Why is this measure important for the way companies do business?
HJ. Businesses now have new tools in their toolkit in how they fund their operations. Many companies have had a tough time getting traditional bank financing or locating investors that were qualified to purchase an equity stake under the existing securities laws. Through the new crowdfunding laws in particular, businesses will be able to leverage the support of their communities, fans, and customers to obtain funding and provide a percentage of ownership in return.
IC. Is there a particular type of company (i.e. size, industry, etc.) that is most impacted?
HJ. In particular, small businesses that have had trouble complying with the complex state and federal securities laws will be most affected by this new legislation. Governor Mike Pence had the vision and insight to understand that Indiana needed to make its laws easier to understand and to satisfy to allow businesses to have the greatest flexibility in obtaining investment. While the new securities exemptions available under the law will help businesses of all sizes, we are most excited to open up the marketplace to entrepreneurs and small companies who have not had the resources in the past to access and utilize this kind of funding.
IC. How does the passage of SB375 set Indiana apart from other states?
HJ. Indiana is one of the first handfuls of states to pass legislation permitting intrastate equity crowdfunding. We are very excited to be a "thought leader" by drafting a comprehensive law that balances the innovative ways businesses obtain investment with the protection of Indiana investors. There are already other states that are seeking to model their legislative process after Indiana's successful passage of SB 375.
Additional resources on crowdfunding can be fund through the Indiana Secretary of State’s Office.