Arizona’s Future: CrowdFunding

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See how one budding artist used crowdfunding to help her buy art supplies. That will be followed by a discussion on how crowdfunding works and how it can be used to help reach goals for businesses and individuals. Mary Juetten, a national crowdfunding expert and founder of Traklight, a Phoenix company that has developed a software platform to identify and protect intellectual property, will tell us more about crowdfunding.

Ted Simons: Tonight's edition of "Arizona's Future" looks at the concept of crowd-funding. It's one way technology is changing the way we connect with others. We'll hear from a crowd-funding expert in a moment. We'll see first how a single posting has changed a Phoenix family. Christina Estes tells us their story.

Lynn Baldwin: Malinda is 21. She was born kind of a little bit late start kid.

Christina Estes: It took seven years for Lynn Baldwin to learn her daughter had the George syndrome, caused by a chromosome defect. It took 14 more years for Lynn to discover her daughter's talent.

Lynn Baldwin: She first started by accident.

Christina Estes: It started when Lynn asked Malinda to paint for grandma.

Lynn Baldwin: It was so pretty. She said, mom, I'd like to keep it for myself. I'll do another one for grandma. I thought, okay, great idea. So she started to do another one. Of course, the other one she also liked it.

Christina Estes: And another and another. In just six weeks malinda has created more than a dozen pieces. But they are not just covering the family's tables and walls. Malinda is painting for people she's never met, strangers who have invested in her.

Lynn Baldwin: It's just beautiful.

Christina Estes: When Malinda's mother realized the power of painting, she turned to a crowd diagnose sourcing site for supplies.

Lynn Baldwin: I'm very grateful for their help. People have a very good heart.

Christina Estes: The goodness comes from across the U.S., Massachusetts, Illinois and Arizona. Lynn hoped to collect $200. She got more than $300.

Lynn Baldwin: Her mind goes everywhere. I can't figure out what's in her head. So through her painting I can understand actually a little bit about her.

Malinda Baldwin: I like blue and white.

Lynn Baldwin: Some days she has orange, red, and very happy color. And then the other times she has blues, greens, you know, more like a deep sea color. So it's a reflection of her mind.

Christina Estes: When she paints Malinda says she just goes with what she's thinking.

Malinda Baldwin: Always fast.

Christina Estes: Always fast, always joyful. In exchange for their support, Malinda's backers get colorful thank-you cards, canvas paintings and a mother's eternal gratitude.

Lynn Baldwin: She's a lot happier after painting. It gave her meaning for her life.

Ted Simons: Malinda's mother is now considering creating a permanent website where people can view and purchase Malinda's paintings. Here to tell us more about crowd funding, is Mary Juetten who founded Traklight. It's a little confusing here, we've got crowd sourcing, crowd funding, equity crowd funding, rewards-based crowd funding. That is crowd -- is that rewards based?

Mary Juetten: Yes, that's rewards-based crowd funding. Origins are going out to find your crowd and find a source of money is donations. But this is one step further, because although people were donating the $300 they collected, the donors, instead of just receiving the good feeling that comes along with a donation, they are getting perks or rewards, which were the paintings or the thank-you cards.

Ted Simons: So that's kind of the rewards based. Let's get to equity crowd funding, which I think is very interesting, as well. This could be big news for start-ups and entrepreneurs, define that for us.

Mary Juetten: Equity crowd funding on the federal level came out of the jobs act, which is the jump-start our business start-up act signed into law April of 2012. The idea that is instead of having to be an accredited investor -- which means you need certain net worth or level of income, anybody can invest and buy basically a piece of a company by going online and using a crowd-funding portal.

Ted Simons: If I've got Ted's Hamburgers and looking for equity crowd funding, you could donate $5 to Ted's hamburgers. I have to keep track and you get returns on that? How does that work?

Mary Juetten: If you had Ted's hamburgers and you would go to a funding portal -- you would go, because it's not yet legal in the U.S. to do this equity crowd funding. I would go and say, hey, I want to be an investors in Ted's hamburgers. If I could buy one share for let's say $5, a great deal, I could then purchase that $5 share and you would have to keep track of everybody who invested. It's not really a donation, you're actually investing like on the stock market.

Ted Simons: You're just not as it stands right now, "accredited."

Mary Juetten: Correct. It is for anyone. You need a certain amount of income, there are some rules about how much you can invest like for example 5%. If you make under $100,000 that would limit you to, say, $5,000 a year of investment. But it opens up a huge source of funding for small businesses and start-ups.

Ted Simons: And before we go on now, you said this wasn't legal yet. What's going on?

Mary Juetten: It passed into law and then the SEC, securities and exchange commission was tasked with coming up with the rules for this. They created rules that came out last October. They were a tad late, about nine months late, but it's a big job. They opened it up for comment. Comments were received until early 2014. But the SEC hasn't released the rules they may or may not have changed based on those comments L. there are some states that have en trust state or within the state crowd funding, it's not allowed right now in the U.S.

Ted Simons: Looking at both sides of the issue here, if I've got Ted's hamburgers, and I want to be her someone does run off and open a chain or something, that needs to be protected to some degree, correct?

Mary Juetten: Correct. Whether it's rewards based crowd funding, equity based crowd funding or going to investors raising crowd funding, you might have your secret recipe for your hamburgers. That's nothing that you're going patent, there's no protection for that. So you have to keep your secret sauce literally secret. Let's say you had something like your name, Ted's hamburgers, you wanted to protect that, all these things have to be identified and protected before you go out publicly. So somebody doesn't steal your idea once it's out there.

Ted Simons: Okay. Let's go to the other side of the fence where I'm just as big as life with Ted's hamburgers, I'm going dump a whole bunch money in there and tomorrow Ted's hamburgers says, thank you very much, I'm gone, out out of here with your money.

Mary Juetten: That is a big concern and the jobs act has a lot of information around education for investors. When a company goes out to raise money, currently that's not raising money on the stock exchange, they create something, a private placement memo which lists all kinds of risks. So part of what the SEC rules came out with is the same kind of disclosure information has to be provided when I would be making my investment in Ted's hamburgers. You would have made available to me as the investors a whole raft of information, including risks that you might go out of business.

Ted Simons: Right.

Mary Juetten: And investing in private companies is risky business.

Ted Simons: It is. Especially if they are a little on the shady a side.

Mary Juetten: However, there are lots of people who have talked about it. The difference between somebody's on the shady a side, you have to comply with background checks, you have to comply with a lot of regulations. You have to provide financial statements. You have to provide a lot of information. There's a lot of rules around it to try to prevent any kind of fraud.

Ted Simons: We don't have too much time left. I keep hearing Indygogo and Kick-starter are the rewards based platforms at this time.

Mary Juetten: There you can go and list your project or your film or whatever your cause or whatever you're doing, you list it there. Then you offer a series of rewards. So for example, if you're doing something around a movie you might have get your name in the credits or get a hat with the movie logo on it or something like that. That's how people gather money. There's no ownership there.

Ted Simons: If you give me $5,000 for my film about hamburgers, let's say -- and I give you a hat or a burger patty or something, and it makes millions, you don't get any of that.

Mary Juetten: No, no. Our deal was I'm supporting you and getting my hat. And you're gathering the money you need to make your project successful.

Ted Simons: Is this the future? We're talking about Arizona's future in this entire series. Could this be the future start-ups?

Mary Juetten: I think that both the rewards-based and the equity-based is the future of the way for start-ups to get started. There was a lot of push-back around the equity saying people don't want to use this to raise $1 million. If it's not a huge idea where you're going to need millions, you could get started with a very small amount of money. If you go to the right crowd, your Arizona ecosystem to raise that money, we can end up creating more jobs in Arizona. It would be great. There's about 12 or 13 states now who have their own intrastate crowd funding laws. I think it would be great if Arizona would do that.

Ted Simons: Is that in the works, do you think?

Mary Juetten: I haven't heard that but I'd love to hear that.

Ted Simons: Before you go now, you are with Traklight.

Mary Juetten: I founded it when I was in law school here at Arizona state in 2010, because I saw that entrepreneurs were losing their intellectual property and in tangibles are about 80 to 90% of the value of companies these days, particularly start-ups. We created a software platform that allows entrepreneurs very affordably to identify the intellectual property they need to protect so. That's what we created. We're a proud Arizona company.

Ted Simons: And I would say that you are rooting for crowd sourcing and crowd funding to increase, as well.

Mary Juetten: It would be great for us. 100% of companies have I.P., even Ted's hamburgers has I.P., regardless of how you're Rafe raise your money, the banks wants to know that you have your I.P.

Ted Simons: I'll bet it does. It does sound fascinating. Makes you want to do something. Thank you so much for joining us.

Mary Juetten: Thank you.

Mary Juetten:National CrowdFunding Expert and Founder, Traklight;

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