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AZ Tech Beat | November 15, 2018

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Equity crowdfunding is open in Arizona

Equity crowdfunding is open in Arizona
Tishin Donkersley

Today at maker space TechShop Chandler, Governor Doug Ducey signed bill HB 2591, an intrastate crowdfunding bill where small businesses and entrepreneurs will be able to sell equity in their company over the Internet and receive funding from the general public.

“Small businesses and startups will have a new avenue for growing and creating capital,” Governor Ducey said.

This bipartisan Bill provides exemptions from state statutory registration requirements for certain securities transactions.

techshop

TechShop Chandler

 

Highlights of the Bill:

  • The company to offer equity must be an Arizona business, authorized to do business in the state, and doing business under the Securities Act of 1933.
  • Purchasers must be an Arizona resident
  • Purchasers will become equity stakeholders in ones’ project or company
  • The sum of all cash and other consideration to be received for all sales of securities may not exceed $1 million per offering in a twelve month period if the issuer has not undergone a financial audit of the prior fiscal year.
  • The sum of all cash and other consideration to be received for all sales of securities may not exceed $2.5 million within a twelve month period if the company has undergone a financial audit of the prior fiscal year.
  • Entrepreneurs can receive no more than $10,000 per person but unlimited for accredited investors per offering.

In an effort to keep the money and businesses in Arizona, the law is written so that “the funding needs to be intrastate, which I think is good,” said Representative Jeff Weninger, who led the charge for the Bill along with Senator David Farnsworth.

Ducey

Steve Zylstra (left), Governor Ducey (Center)

 

How will entrepreneurs get their money? Chairman, President and CEO of the Arizona Technology Council Steven G. Zylstra said “Transactions will be managed through a portal unaffiliated with the company who is either a registered dealer or someone who won’t receive any remuneration for the transaction. It will take some time for the portals to become operational.”

For startups ready to start dialing the phone for capital, make sure to understand security rules and regulations around crowdfunding, Zylstra cautions.

“Entrepreneurs should be careful [to engage] in crowdfunding like any other type of investment method.  They should seek advice from lawyers and accountants in Arizona who specialize in securities,” Zylstra said.

A common complaint from startups is raising capital in Arizona; founders begin to look for outside money, or they just pick up and leave. Legislators are looking to help ease the challenge.

“So often for entrepreneurs or startups, they are in need for oxygen of capital, and what this does is allow them to be able to find it. It’s not only good for the entrepreneur but for the small investor,” Ducey said.

crowdfunding bill-3

Photo by Tishin Donkersley

 

“We want to make sure that there are every avenues of a funding source for their great ideas here locally,” Weninger said. “I have seen a migration sometimes to Silicon Valley. We want to make sure that we aren’t being a farm team for California. [We want to] grow our own teams, our economy, and buy locally.”

Zylstra said, “[Equity crowdfunding] will allow many more people in general to be involved in investing in early-stage technology companies or other types of businesses.”

Ducey said, “This is one of the most important pieces of legislation I signed into law this session. This legislation reaffirms our commitment to making Arizona the most attractive, easiest place to start and grow a business.”

Read the fact sheet about the Bill below:

Fact Sheet Arizona Crowdfunding Law

Read more about crowdfunding here

Read more about Arizona companies getting funded here.