The U.S. Securities and Exchange Commission’s recent decision to permit equity crowdfunding, in accordance with October’s Jumpstart Our Business Startups (JOBS) Act, could open up an attractive option to Arizona businesses, Quarles & Brady LLP and the Arizona Technology Council said this week.
The law firm of Quarles & Brady and the council said that the legislation not only indicates a sea change in the SEC’s handling of private securities, but it also stands to positively impact local business owners who want to raise capital via public efforts.
“Crowdfunding allows companies to use technology to make capital raises more efficient and reach a broader audience of potential investors,” Kevin Walsh, an equity specialist with Quarles & Brady in Phoenix, said. “For startups and other emerging growth businesses that may not have ready access to traditional sources of funding, crowdfunding may be an attractive option for raising capital.”
The federal law's passage follows Arizona’s own crowdfunding law, enacted in July. The federal and state rulings may benefit Arizona enterprises by opening up a greater number of potential contributors.
“The new rules adopted by the SEC represent a fundamental shift in the regulatory landscape,” Quarles & Brady Partner Jacque Westling said. “It opens up a whole new approach for raising capital that will likely have a significant impact on Arizona’s entrepreneurial community.”
Previously, crowdsourcing depended largely on donation campaigns, such as Kickstarter, which funnels capital to specific projects. In contrast, equity crowdfunding raises capital in exchange for equity interest in a company.
“Over a span of only a few years, crowdfunding has brought about dramatic changes to capital formation,” Arizona Technology Council President and CEO Steven Zylstra said. “The single biggest impact for local startups and growing companies is that … entrepreneurs may now … reach out much more broadly to the public during capital raises through online portals registered with the appropriate regulators.”