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Raising the bar on raising cash in N.J. Bill would let N.J. firms tap crowdfunding model

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Michael Flett, president of the Jersey City-based Flett Exchange, supports the crowdfunding bill.
Michael Flett, president of the Jersey City-based Flett Exchange, supports the crowdfunding bill. - ()

Two New Jersey lawmakers — enticed by the ability of crowdfunding sites such as Kickstarter to raise big money for creative projects — are preparing legislation that would give companies in the state the same ability to raise cash.

There's just one difference: While contributors to Kickstarter campaigns usually receive only warmhearted thank yous or small tokens of appreciation for their contributions, this bill would enable companies to offer shares of equity in their business.

In the coming weeks, Assemblyman Angel Fuentes (D-Audubon) and state Sen. Joe Kyrillos (R-Middletown) plan to introduce the bill — a version of which was introduced last September but sent back to the drawing board for some retooling.

“I think this is a win-win for not only the businesses, (but) even for nonprofits and anyone that wants to become creative,” Fuentes said.

Under the bill, companies would crowdfund through privately run Web portals, eliminating any potential website startup and maintenance costs to the state. But state regulators would have oversight of the portals.

Fuentes, who added that he believes “huge job growth” could also be a byproduct of the legislation, said the crowdfunding format offers an interesting lifeline to small businesses in need of financial help.

“If you have a small business that's really struggling, you probably want to think about it,” Fuentes said.

RELATED: Crowdfunding bill advanced by Assembly panel

Kyrillos said the time has come.

“Frankly, there is no reason to embrace laws enacted in the 1930s that have outlived their usefulness,” he said. “The economy is still troubled. Financing is hard to come by. Millions of people understand intuitively that when there is a good idea, people would like to risk their capital to make that a success.”

The crowdfunding concept effectively calls for raising money through small contributions from large numbers of investors, typically through the Internet. The method already has shown to work: Kickstarter, which was launched in 2009, said on its website that roughly 6.3 million people have put forth $1 billion in funding for some 62,000 projects.

In New Jersey, the intrastate aspect of the legislation is key, stipulating that Garden State businesses can only crowdfund from Garden State residents. That's necessary because the federal government has yet to finalize its crowdfunding provisions under the JOBS Act, which was signed into law by President Barack Obama in 2012.

So, New Jersey could either wait for Washington to issue the federal green light or decide to go the route of states like Kansas, Georgia and Michigan — and take it upon themselves to permit and regulate crowdfunding within state borders.

Michael Flett, president of the Jersey City-based Flett Exchange, a trading platform for solar renewable energy certificates, applauds New Jersey for not waiting on the federal government.

Flett feels the state would be wise to pursue the bill now because it can use other states that have already passed similar measures as samples — and enjoy a “first-mover advantage” over neighbors New York and Pennsylvania.

Flett said the bill would allow companies to “access a new group of investors” that are “rate-starved” and looking for an investing alternative. “I think there's an appetite to diversify,” he said.

The real estate industry, in particular, could see a big boost from the bill, Flett said, as developers then could sell equity in a project to the general public if they choose to do so. People like investing in things they understand, and if they're offered a stake in a neighborhood high-rise, that could be an enticing opportunity, Flett said.

For Daryl Bryant, CEO of Saddle Brook-based Startup Valley, an equity crowdfunding portal still in prelaunch status due to the undetermined federal regulations, the state bill is not the end-all goal but does provide some intrigue.

If passed, the intrastate measure could allow the company to “work the kinks out” prior to launching on a national scale, Bryant said. Though nothing is definitive, Bryant said he's hoping the federal government will finalize its crowdfunding regulations “at some point this year.”

“It could be a great way to kind of test the market,” Bryant said.

E-mail to: andrewg@njbiz.com
On Twitter: @andrgeorge

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