Arizona Small Businesses Could Use Crowdfunding To Attract Investors Nationwide

Published: Tuesday, February 23, 2016 - 4:31pm
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(KJZZ file photo)
Arizona Capitol in Phoenix.

Crowdsourcing sites like Kickstarter and Indiegogo have been helping ideas get funded for a while now. The users ask for donations to support a project or a cause, but what if small businesses could crowdfund for investments from across the country?

That’s what a new bill is aiming to do.

SB1425 passed unanimously in the Arizona Senate and, if it passes through the House of Representatives, it would allow small business owners in Arizona to raise up to $1 million from both accredited and unaccredited investors anywhere in the country without having to go through the Securities and Exchange Commission.

Last year, the legislature passed an intrastate crowdfunding law that let small businesses raise money from investors within the state. This expands upon that law, according to Rick Murray, CEO of the Arizona Small Business Association, who is spearheading the effort to pass this bill.

“It really is another opportunity, another arrow in the quiver, if you will, for the business owner to be able to find those alternative ways of raising money to help grow or expand their business,” Murray said. “It really takes a lot of the barriers away and the expense, as well, to be able to get into the game of investing and/or making your company semi-public.”

Small businesses have not started to take advantage of the intrastate crowdfunding law yet because it requires businesses to go through an online portal that’s regulated by the Arizona Corporation Commission. No one has created a portal like that yet, Murray said.

But, he said he’s working with two companies to launch portals like that in the next few months and expects business owners to take advantage of it then.

However, according to Kevin Desouza, associate dean for research at Arizona State University College of Public Service & Community Solutions, there seem to be some other holes in the legislation.

Desouza has studied the viability of crowdfunding, and he said one of the major challenges when it comes to crowdfunding is the regulation around it.

“Under what category do these investments get regulated from a legal viewpoint?” he asked.

Desouza said that until a small business reaches the level of franchising or expanding regionally, their network is almost entirely local.

“Only at that stage do you attract investors that are outside your local networks,” he said. “I still think, this channel is going to add a new resource stream, but I don’t think it's going to be a huge boon to Arizona economy. I think what it might do, is it might open up the pent-up demand locally of individuals to invest in Arizona.”

Murray said he thinks opening up that new resource stream for small businesses will only help grow our state’s economy.

“We’re going to see more jobs; we’re going to see more businesses open up, relocate, expand and grow here in Arizona,” Murray said.

Through the Great Recession Arizona fell harder than most other states, and it has taken us a lot longer to dig our way out of it, he said.

“The reason for that is we’re building a very stable base and a very stable economy, so when – not if  but when - there is another downturn, we’re not going to fall like we did before,” he said. “So, these types of opportunities, these types of programs are going to help create a much more stable base as we move forward in this new economy.”

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