Playing to the Crowd

Jonathan Kilman (BSBA ’96) had long admired the startup scene, but a blossoming practice at one of the nation’s largest law firms kept him from truly immersing himself in the culture.

That didn’t keep him, however, from making a significant impact on entrepreneurship in Florida. Kilman was pivotal in the crusade to legalize equity crowdfunding, a fundraising practice that could help thousands of Florida business owners fulfill their entrepreneurial dreams.

Crowdfunding is a fundraising method—made popular by the likes of Kickstarter—where companies appeal for financing, usually through the Internet. Investors typically provide small amounts of money and receive either the product or a small gift.

Equity crowdfunding, on the other hand, allows investors to receive shares of ownership in the company. The practice became legal in Florida on Oct. 1.

“If you think you have a great idea, you ask yourself two questions,” said Kilman, a Partner at Foley & Lardner. “‘Can it be a success as a business model and do I know enough rich people who will invest to get it off the ground?’ If the answer to the second question is no, you probably don’t have a shot. Equity crowdfunding helps mitigate that problem.”

Kilman reconnected with the startup culture a few years ago through Canvs, a co-working space in Orlando that is home to 75 companies and 160 entrepreneurs. Kilman, a founding member of Canvs’s Board of Directors, thought about how to enhance funding opportunities for these entrepreneurs.

Kilman, 40, teamed with Carlos Carbonell, Chief Executive Officer of Echo Interaction Group and President of the Orlando Tech Association; and Matthew Huggins, General Counsel at Power DMS, an Orlando company specializing in paperless policy and procedure management. They formed FounderSource, which champions crowdfunding in Florida.

Equity crowdfunding was sanctioned by the federal government in the Jumpstart Our Business Startups (JOBS) Act of 2012, but it failed to gain traction on a national scale due to a complex rulemaking process.

In response, U.S. states took up the cause. Kilman and his colleague Paul Lowell—in partnership with Carbonell and Huggins, Florida state representative David Santiago and Florida state senator Garrett Richter,—drafted the legislation to legalize equity crowdfunding. Kilman said the process took about eight months. He noted the valuable cooperation of Pamela Epting, Bureau Chief at Florida’s Office of Financial Regulation, and her staff.

“It was actually very smooth,” said Kilman, who has worked on a wide variety of bills ranging from digital media industry incentives to removing wildlife hazards near airports that could endanger aircrafts. “Once we explained our view, we were able to work toward that balance between opening the market and ensuring investor protection. They were happy to work with us.”

A major reason equity crowdfunding hasn’t taken hold on a national level is the complexity of developing rules that find a balance between enhancing investor access and ensuring protection for investors. Startups and small companies tend to fail more than succeed, and investors don’t have access to the same type of financial records as they would for a publicly-traded company.

Florida’s equity crowdfunding bill helps alleviate those fears. There are limits on how much investors can invest based on their annual income or net worth, companies cannot raise more than $1 million per year and an intermediary firm must oversee the fundraising. That transparency, however, comes at a cost for the company, which has to take on additional legal and accounting fees.

Kilman said equity crowdfunding may not be the ideal fundraising method for every company, but businesses with certain characteristics may be more likely to pursue it.

“If you’re looking to raise less than $1 million or if you’re in a part of the state where you have less access to a strong group of angel investors, equity crowdfunding gives you a great opportunity to get access to capital you otherwise wouldn’t,” Kilman said.

Kilman’s expertise in business began during his time at Warrington. He credits Professors Joel Houston and David Nye for providing a solid foundation for finance and business markets, and Professor Robert Emerson for demonstrating the opportunities business and law present.

“I interact with a lot of alumni with the work I do,” Kilman said. “Through that alumni network, I’ve developed lifelong friendships and professional relationships. It plays a big part of my life.”