‘CROWDFUNDING’ A New Financing Option For Startups

Owners of startup companies who may not be able to land big investors with deep pockets will soon have another way to raise capital: Wisconsin’s new “crowdfunding” law that allows state businesses to raise funds from a large number of small investors.

A company wishing to raise money through crowdsourcing must be a Wisconsin business selling stock to state investors. It most cases, it cannot raise more than $1 million. However, if the company has had an audit in its most recent fiscal year and has provided the audit to prospective investors and the state, that amount is increased to $2 million.  The funds can only be raised online.

It is not ideal for every startup, but the law allows businesses to seek financing for smaller-scale projects from investors.  The investors would receive stock in the company.

Supporters say the law will make investing in the state a more democratic endeavor and let entrepreneurs leverage public goodwill for their plans in a way that wouldn’t be possible through traditional financing.

Wisconsin’s crowdfunding law is another component in building the state’s entrepreneurial environment by expanding the resources available to startups and allowing a broader base of investors to participate in building world-class companies. The new law provides an opportunity for entrepreneurs to raise money for the types of startups that traditionally have been limited to only wealthy investors.

Overall, Wisconsin is seeing advancements in the amount of new capital available for investments in early-stage, high-growth firms.  Those type of traditional capital investments are critically important in supporting technology companies and long-term, high-wage job growth.  However, they are not a realistic resource for many other types of small businesses in need of capital to launch or grow. The new crowdfunding law fills that void.

The law, which takes effect June 1, will be administered by the Wisconsin Department of Financial Institutions. For more information on the new law, visit the DFI’s website.

(April 2014)