New Business Crowdfunding State Law

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A new state law kicked into effect last week that allows businesses to use crowdfunding to sell shares of their business without the complicated and expensive oversight typically needed by the Securities and Exchange Commission. The new state law follows a 2012 federal law allowing small amounts of equity crowdfunding but that required states to set up a framework. Rick Murray, CEO of the Arizona Small Business Association, will tell us about the new law.

CHRISTINA ESTES: A new state law kicked into effect a few days ago that allows businesses to by-pass banks to get the money they need. It follows a federal law that allows equity crowdfunding. Here to talk about it is Rick Murray, he is CEO of the Arizona Small Business Association. Thanks for coming in, appreciate it.

RICK MURRAY: Thank you, I enjoy talking about small business.

CHRISTINA ESTES: Well, a lot of us are familiar with crowd funding. We think of kickstarter, Indie Go-Go, we've seen businesses that use that, donate $50, get a T-shirt. How is equity crowdfunding different?

RICK MURRAY: Well, what's different in this is that now small businesses can raise capital through selling shares in their company without going through an initial public offering or lower than the threshold of the securities exchange commission. It's kind of like shark tank. I want to raise $100,000 and I'm going to give away 25% of my company, and then you go out and put this on a portal and you put a business plan together and you solicit your idea and hopefully, you get your donations. The interesting thing about the Arizona law is that it allows for all of us to participate. Currently, those types of offerings are only made available to what we call accredited investors, which those are people who are worth $1 million and make up to $200,000 a year. Well, that obviously was just for a small group of people so now, we've got everybody can now invest in this and it really sets a limit in regards to how much can be raised from individual investors as well, they only have $10,000, at the maximum. We know that a lot of companies won't even go to that level, as well.

CHRISTINA ESTES: Can you walk us through it? Say I'm a business owner and I need -- you give me a scenario, you're the business guy. Give me a scenario, who might use this?

RICK MURRAY: Okay this may be a different vertical. Maybe it's a real estate company, maybe it's a technology company or healthcare company but so now, I've got this company, and I need to take the next step in taking -- and raising some dollars to be able to hire more people. Opportunity for more graduates here. I think this is a game changer in creating jobs in Arizona when this thing starts to kick in. So then you then have this idea, you've created a business plan, it's going to be overseen by the corporation commission, you register with the corporation commission as a securities dealer, and it's only for Arizona residents for Arizona companies. So it's very home grown. So you can't get a Texas investor to come in and invest in your company or a California investor to come in. It's specifically for Arizona. And we're one of about states who have now passed this law. I think Arizona is actually much further ahead of the curve than most of them. Most of what the practicality of what the law and putting it into effect is actually written into the law. So as soon as we can find somebody and an Internet portal to host these things, I think we'll start seeing some activity but we're still waiting for that private enterprise to come and have an Internet portal to host these, just like you say, in those kick-starter opportunities.

CHRISTINA ESTES: That's what I was going to ask, if I wanted to find an Arizona business that I wanted to invest in?

RICK MURRAY: So the law just went live as of July 3rd. And so, you know, it had a 60 day resting period before it became law. And so there are a lot of companies that I've heard from personally that are interested in developing and building these portals and these portals may be for all companies, they may be industry specific as I said before, maybe it's for real estate or maybe it's for healthcare or technology maybe. And so they're building those now and we hope to see them go live in the next 30 days.

CHRISTINA ESTES: What are your hearing from your members at the Arizona small business association?

RICK MURRAY: They're excited. I think this is a game changer. Right now, we're not going to see a lot of momentum, at least initially. I think it takes a couple of years before you really see a lot of momentum but I think over time I think within five years, 10 years, who knows what this is going to look like in regards to how businesses are raising money and really the opportunity to be able to by-pass the banks. And I want to say this, as well. The banks are very much in favor of this. They know they can't lend to these types of businesses, anyway. And they want to have those relationships as well with these companies so this has really been very much of a community support from all the stakeholders so we're hoping to see this thing take off in the next few years.

CHRISTINA ESTES: When it's up and running we'll have to revisit this. Thanks so much, appreciate it. Friday on "Arizona Horizon," it's the Journalists' Roundtable. Presidential candidate Donald Trump is coming to town. Hear how he might affect the GOP. And a new poll is out on the wide open congressional district one race. Those stories and more Friday on the Journalists' Roundtable. Have a great night. ¬¬¬"Arizona Horizon" is made possible by contributions from the Friends of Eight, members of your Arizona PBS station. Thank you.

Rick Murray:CEO, Arizona Small Business Association

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