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posted: 3/3/2017 1:00 AM

New crowdfunding law brings local businesses, investors together

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  • Cardfrenzy, a growing business with stores in Darien, Countryside and Chicago, is one of a few companies that is taking advantage of Illinois' new Intrastate Equity Crowdfunding law.

    Cardfrenzy, a growing business with stores in Darien, Countryside and Chicago, is one of a few companies that is taking advantage of Illinois' new Intrastate Equity Crowdfunding law.
    Photo courtesy Cardfrenzy

  • Anthony Zeoli

    Anthony Zeoli

  • Howard Orloff

    Howard Orloff

  • Mike Perri

    Mike Perri

  • Darien-based VestLo is one of three online portals that have been certified by the Illinois Secretary of State to handle intrastate equity crowdfunding.

    Darien-based VestLo is one of three online portals that have been certified by the Illinois Secretary of State to handle intrastate equity crowdfunding.

 
 

Mike Perri had an idea his business could be even larger.

As the owner of Cardfrenzy, a greeting card, gift and special occasion store, Perri has added stores in Darien and Chicago since opening his Countryside shop in 2010. But one question kept popping up among the favorable comments he got from customers.

"One of our number one questions was 'Hey, do you guys franchise?'" he said. "That got the arrow pointed toward growing the business."

As a result, Perri has become one of a few businesses to jump into Illinois' new Intrastate Crowdfunding Law. Approved about a year ago, the law gives small businesses and startups in the state the ability to seek Illinois-resident investors through certified crowdfunding portals. What makes it different from websites like Kickstarter or Indiegogo is that investors get a financial stake in the company and share the rewards for the company's success.

"It's meant to take Kickstarter and Indiegogo to the next level," said Anthony Zeoli, a partner at law firm of Freeborn & Peters and the author of the crowdfunding law. "People can get involved in local companies they care about and have an interest in.

"They are actually going to be able to lend money or get equity in a company and have a chance to be financially rewarded for their support," he added.

Although it's been on the books for about a year, intrastate equity crowding is just now starting to get into gear. Three online portals are currently certified by the Secretary of State, whose securities division oversees the program. One of the portals is Darien-based VestLo, which is handling Cardfrenzy's franchise offering.

VestLo Founder Howard Orloff points out the great advantage of equity crowdfunding is that it connects local businesses with local investors.

"The folks that shop there, know the local business and community just seem so much more of a natural fit," Orloff said.

Both Orloff and Zeoli stress that investors buy into the company -- as opposed to receiving a gift or perk for donating cash in a Kickstarter campaign -- and benefit as the campaign reaches its goal.

Orloff uses the successful 2012 Kickstarter campaign of virtual reality goggle start up company Occulus. The campaign raised well over the amount Occulus sought, but investors received perks instead of an equity share. Shortly after the campaign ended, Occulus was acquired by Facebook for $2.1 billion.

"Had your $500 donation been equity, that $500 would have turned into somewhere around $18,500," he said.

Intrastate equity crowdfunding is also subject to state and federal securities laws, Zeoli said. As a result, businesses go through a vetting process that includes filing legal papers with the Secretary of State and background checks of owners and executives. As an added level of transparency, crowdfunding portals provide forum rooms that investors can use to ask questions and get information from the company about the campaign.

"One set of eyes is worth a certain amount, but having thousands of eyes and minds and questions really opens up the field and adds a tremendous amount of transparency to these offerings," Orloff said.

He added for the business, equity crowdfunding can also be a great marketing tool.

"If I backed a local restaurant and my folks come in to visit from New York, rest assured the first place I'm taking them to eat is the restaurant that I own a piece of," he added.

While the program provides additional steps and safeguards over traditional crowdfunding, both Orloff and Zeoli stress it's still up to the investors to do their due diligence and thoroughly research an offering before putting money into it, as the risk level is no different from putting money into any new venture.

And for businesses considering crowdfunding, it's best to go through the process with an attorney to assure the offer is in compliance with the state and federal securities laws.

"While it may not seem that way because we're doing it on a website and it seems like Kickstarter, it's still subject to the FBI and SEC securities 0regulations," Zeoli said.

As for Perri, Cardfrenzy is about $3,000 into its $500,000 franchise offering, and he's confident his customers will help him achieve that goal before the Aug. 1 deadline.

"Crowdfunding was a perfect fit for us to raise capital through our customers and the people who love shopping through our store," he said.