Texas Investment Crowdfunding Arrives Q4 2014
Update: the August 28 meeting which would have lead to adoption of the rules has been postponed. The meeting has been rescheduled for the week of October 20, 2014.
After lots of advocacy, and a few false starts, investment crowdfunding is coming to Texas. Regardless of what happens with JOBS Act Title III crowdfunding, Texas is poised to be the first state to begin equity crowdfunding en masse.
Unlike rewards-based sites like Kickstarter or Indiegogo, investment crowd funding lets backers make a return on their money, instead of funneling all gains to venture capitalists.
What is often left out of crowdfunding discussions by existing operators is that most existing portals are open only to accredited investors, which represent less than 2% of the US population. For most "accrediteds" the only qualification for entry is having more than $1million in the bank.
However, in a major sea change for equity investors, Texas will soon allow ANYONE with the interest and motivation to begin participating in crowdfunded investments of local businesses, startups, and investment-ready projects.
This isn't without risk, which is why the Texas Securities Board has proposed rules which require background checks, disclosure requirements, and registered portals before an investor can participate in a funding event.
Final rules should look very similar to the proposed rules, because major changes would require re-proposal and comment which would delay implementation.
Because of the way Texas has structured its regulatory environment, rule changes can happen more quickly in Texas than in most states. This also means that regulators can quickly crack down on abuses, or change rules to improve protections or eliminate inefficiencies. It also means that the final rules should look very similar to the proposed rules, because major changes would require re-proposal and comment, which would delay implementation. Instead of tackling changes in a manner that would delay implementation, it is likely that the securities board will make corrections and minor alterations to the proposed rules, and adopt larger changes if and when the need arises post-release.
The Board was scheduled to meet on August 28, 2014 to discuss and vote on adoption of the Texas securities regulations necessary to implement crowdfunding in Texas for 2014. That meeting has been delayed, but is still likely to occur in Q4 2014. If adopted, the rules would be published in the Texas Register and implentation would begin in October or November.
Although the rules will likely be 'live' by November, some delay is expected before actual legitimate investment deals become available because funding portals will need to register and be approved by the Board before offers begin. It is also expected that financial institutions providing the necessary escrow functions under the law will require some amount of time to onboard portals and begin transacting deals.
However, all indications point to deal activity beginning in late 2014 and ramping up into 2015.