SB 126-SMALL SECURITY OFFERINGS  2:18:29 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of SB 126. 2:18:43 PM WESTON EILER, Staff, Senator Mia Costello, Alaska State Legislature, introduced SB 126 on behalf of the sponsor, paraphrasing the following sponsor statement: Senate Bill 126, the Innovating Alaska Act, helps Alaskans start and invest in local businesses by enacting a new finance mechanism in state law. Crowdinvesting, sometimes known as "equity crowdfunding," is a new concept with a simple premise. Instead of receiving large investments from a few traditional investors, Alaskans starting a business receive small investments from a potentially a large group of investors. The approach lets broad groups of people invest in small businesses in return for equity ownership. This makes it easier for business start-ups to get capital to grow, and allows average Alaskans to invest in businesses being started in their communities. The federal Jumpstart Our Business Start-Ups (JOBS) Act of 2012 paved the way for this paradigm shift in business creation. It refines some of the more onerous regulations that have historically made it difficult for average Americans to directly invest in private companies. Since then over 12 states have enacted intra-state crowdinvesting laws. Crowdinvesting usually works through young companies selling equity shares, often through an on line portal, to a wide group of investors. Senate Bill 126 would regulate the sale of these types of securities separately from the Alaska Securities Act (AS 45.55.010) and adds several safeguards to protect investors. Under Senate Bill 126, businesses seeking to raise capital through crowdfunding would apply to the Alaska Division of Banking & Securities and hold investor funds in escrow in an Alaskan bank. Investments made through crowdinvesting are limited to $7,500 for investors and $1,000,000 for businesses raising capital. Both the investor and business owner must be Alaska residents at the time of sale. In addition to the cap, an escrow deposit is required, as is an agreement acknowledging high risk investment. Business start-ups are key to growing our state's economy. Enacting crowdinvesting through Senate Bill 126 is an innovative way to give entrepreneurs easier access to capital, and help Alaskans invest in local businesses, and changes the paradigm for start-ups. 2:21:09 PM MR. EILER addressed a question from Senator Meyer saying that SB 126 creates an exemption in statute and applicants would have to go through the Division of Banking & Securities to access it. He said there are a number of safeguards that protect state policy and investors. 2:23:59 PM SENATOR STEVENS voiced concern about investor safety and asked if the process has worked in Oregon. 2:24:35 PM MR. EILER offered to get that information. He noted an update in members' packets from The National Council on State Legislatures (NCSL) and a spreadsheet of intrastate crowdfunding legislation. He said it is a new area and there are a variety of success stories and challenges. 2:25:51 PM CHAIR COSTELLO stated her intention to hold the bill in committee. 2:26:34 PM KEVIN ANSELM, Director, Division of Banking and Securities, Department of Commerce, Community and Economic Development (DCCED), provided information related to SB 126. She reported that there are a number of states that have crowdfunding statutes or regulations on their books. While there have not been many losses relating to crowdfunding, there have been some securities losses, which is why the enforcement provisions are important and the division will be watching closely. 2:27:32 PM SENATOR STEVENS asked what the director's responsibility is regarding crowdfunding. MS. ANSELM explained the department's role is receiving simple crowdfunding applications. She related that Alabama has been successful for several years with its application process and crowdfunding offerings. They have very simple application requirements which Alaska is hoping to copy. She added that most of the details would be listed in regulations due to things changing quickly, such as the delivery method and the financial market. She noted it is difficult to change the law. SENATOR STEVENS asked whether the department would analyze the merits of a proposed business. MS. ANSELM explained that Alaska is not a "merit review state," it is a "disclosure state," so the department would look for proper disclosures. 2:29:50 PM SENATOR MEYER gave an example of investing $5,000 in a startup company such as a brewery, and having a beer named after the investor. He asked what the equity ownership would be. MS. ANSELM clarified that it is considered crowdfunding if there is some potential for profit and the investor is expecting a return. There would not be potential for profit in the previous example. 2:31:12 PM SENATOR GIESSEL noted crowdfunding can't exceed $1 million and $7,500 per person so it could not be used for the Alaska LNG Project. MR. EILER agreed. He said the Department of Revenue is exploring how average Alaskans could invest in a large diameter AK LNG pipeline. 2:32:10 PM CHAIR COSTELLO opened public testimony. 2:32:20 PM THOMAS DALY, Owner, HiSpeed Gear, testified in support of SB 126. He said the bill provides opportunities for Alaskans during a time of financial challenges. He shared a story from his youth. He maintained that SB 126 will help Alaskan businesses by allowing Alaskans to invest in them. He testified that large corporations do not last in Alaska and are not the answer. He described how clusters of businesses could be developed and how profits could remain in the state. He concluded that the bill will provide Alaska with a sustainable future. 2:34:54 PM JASON HOKE, Executive Director, Copper Valley Development Association, testified in support of SB 126. He said the bill is an opportunity for small businesses in a difficult financing climate. It could allow urban investors to invest in businesses in rural areas and elsewhere in the state. He offered to assist in the filing of applications. 2:37:17 PM CHAIR COSTELLO held SB 126 in committee with public testimony open.