When Florence Hardy started helping business owners obtain licenses as a business consultant for the City of Chicago, she noticed that many were struggling in two main areas: legal and fundraising.
This inspired Hardy to enroll in law school so she would be able to answer her clients’ most pressing legal questions. After navigating the legal environment, Hardy’s next step was finding a solution to the funding dilemma that left people who were seeking $10K–$100K in capital stranded on the sidelines.
Well, the timing was perfect. President Obama had just signed the JOBS (Jumpstart Our Business Startups) Act into law in 2012. This expanded funding opportunities for small businesses by allowing more individuals to invest in private companies. Previously, these rights were restricted to accredited investors— individuals who have at least $1 million net worth (excluding the value of the personal residence) or individuals who have over $200K net income or couples with over $300K net income for the last two years.
As Hardy increased her knowledge of funding opportunities for small business owners, The CROWDFUND ACT or Title II of the JOBS ACT, went into effect into 2013 allowing crowdfunding platforms to serve as a resource for startups and small businesses who were seeking non-traditional funding. Capital could now be obtained from non-accredited investors via debt or equity stakes in their businesses.
This new law provided Hardy with the perfect opportunity to cater to a market of business owners who were overlooked by venture capitalists and become the chief equity officer at truCrowd Illinois. Black Enterprise sat down with Hardy to discuss her rise and how crowdfunding works.
How did you become the chief equity officer of the first crowdfunding platform in Illinois?
When the JOBS Act passed in 2012, it opened doors for more people to invest and get funding. I started doing more research to start my own platform when I came across truCrowd. I researched the founder and after meeting with him, we thought it would be great if I joined the team. For the first two years, I volunteered with the company and did all the speaking engagements and pitch competitions. In 2017, he said ‘You’re doing great work. Why don’t you take over Illinois and see what you can do with it?’ That’s how I got into this.
How does your crowdfunding platform work?
The platform facilitates transactions but I always tell my business owners ‘we don’t find you funding but we provide a mechanism by which if you have a good idea and are looking for funding, you can find potential investors and facilitate the transactions so you can actually get the money from them.’ It can be an expensive endeavor to transfer the funds from one person to a business so we make that process easier.
When someone comes on our platform, they need to decide if they are going to be an investor or business owner or launch a campaign. There are some limitations to what a campaign can raise although those limitations are high in Illinois. For example, a campaign can raise up to $4 million in a 12-month period. On average, we’re seeing that $250,000 is the maximum amount raised so far but that’s only because it’s a new concept. People don’t know it exists and we are trying to build trust in the process.
On the other side, investors do have limitations on how much they can invest. In Illinois, that limitation is $5,000 per company. Crowdfunding platforms really provide an opportunity for individuals who have money available for investing to hold a substantial stake in a startup.
How do you help individuals get comfortable with the risk associated with investing in start-ups?
We try to disclose all the possible risks so that people who are investing have a complete story about what might happen with these funds once the business gets started. This is a risky process as is all investing so we highlight what those risks may be.
We also make sure business owners who are raising money are transparent about their processes. We try to put processes in place where business owners are very communicative about what’s happening with the company. We are not in a position to mandate but we do suggest that business owners who are raising funds contact investors at least once a month with good or bad news because they have a fiduciary duty to those investors. We encourage regular engagement to counteract these risks that are inherently a part of investing in a startup.