Texas Passed the Rules ... Now What?

What now?

Where do we go from here?

As you might have heard, the Texas Securities Board (SSB) unanimously approved the Texas crowd funding rules. In response to annoucing the passage in October, the most common question I hear is "Now What?"

It seems counter-intuitive, but just because the rules were approved does not mean that you can start raising funds immediately. There are three things that need to happen before companies and real estate developers can begin raising money in Texas with crowdfunding:

First, the rules must be published in the Texas Register, a publication of the Texas Secretary of State. The publication submission threshold is November 1 and the publication itself will likely be mid to late November. For example, the October register was published October 24, 2014. Commissioner Morgan and his staff will submit the approved rules to the register before the 1st for publication in the November issue. Once the rules have been published they are considered official.

Second, the portals need to be registered and licensed by the SSB. Under the rules, all solicitation and communication for a crowd funded offering must go through a registered portal or a broker-dealer. While there are some existing broker-dealers who may be able to begin offerings right away, it's likely that the bulk of the Texas crowdfundng activity will be through portals after the registrations are completed. The portals (such as Hive Equity) will need to register with the state following the Texas Register publication, so realistically portal activity isn't likely to begin until December at the earliest. The SSB hasn't said how long it will take them to process portal applications, and this is the step with the least initial predictability for now.

Third, the portals need to launch, build a user base, and start conducting offerings. Some portals have already started building a pipeline of prospective deals and issuer interest seems strong, but we can expect a gradual ramp-up. A best guess at deal activity would be to start seeing issuers launch funding activity in January, with the legally mandated 21-day waiting period running out at the end of January. This means we could see the first serious volume of deals starting to complete in February if issuers act quickly and portals are able to launch rapidly following approval. Best estimates would be limited deal activity in Q1 2015 with ramp-up in volume in Q2.