More than 20 million unaccredited investors in Texas will soon be able to invest $5,000 per year in equity investments for small businesses raising under $1 million
By Robert Hoskins
Austin, Texas – Texas, the 2nd largest state by population in America, formally approved an Intrastate Texas Crowdfunding Exemption Rule, on October 22, 2014, in Austin, Texas with a resounding 4-0 unanimous vote. Why? Texas has been an economic engine because our state government officials have always understood how to provide an environment where businesses can make money, even during tough economic times.
Texas Approves Intrastate Equity Crowdfunding Exemption for Non-Accredited Investors in Texas
Even though the Texas State Securities Board doesn’t like tout this fact, Texas has around 26 to 29 million people living here, with around 20 million residents over the age of 18. The fact that the new Texas Equity Crowdfunding Rule allows these people to invest up to $5,000 per year in private equity investments is significant.
Do the math. What is 20 million times $5,000? To keep it simple, we’ll do the math for you, but we’ll be honest and let you know the number was too big our Smartphone’s calculator. We had to break out an Excel spreadsheet to make sure this figure was correct.
The pool of potential investment capital that will be available in November 2014 to start new businesses or expand existing ones will be around $100 billion per year. So over the next 5 years, Texas has pretty much said to the rest of America, we love business so much we have put together an economic development slush fund of $500 billion.
And guess what? It won’t cost taxpayers a single cent. Even better is the amount of small businesses that entrepreneurs will be able to launch during that time frame.
And guess what? It won’t be Wall Street investment bankers that will be controlling or driving the growth of Texas. It will be hard-working ranch hands, oil & gas field workers and blue-collar construction laborers who understand what the value of a hard-earned dollar is and who will certainly be able to decide what types of products and services they want to see brought to market.
Why is this important? Ft. Worth is booming. Dallas survived a telecom meltdown. Houston has never been short on energy. Austin is a technology mecca second only to Silicon Valley in California. What do you think $500 billion worth of investment capital will do the Texas economy?
It won’t happen over night, but neither did the oil boom. It was one thing to drill for oil and find it. It was another for the country to figure out what to do with oil and a wasteful substance called gasoline that no one knew what to do with because it was so volatile. But when Henry Ford won the right mass produce affordable Model T’s, Texas benefited from its early risk taking and bold move to start exploring and drilling for oil.
Did a lot of people drill wells that were dry where investors lost a lot of money? Yep. But the industry adjusted quickly on the fly and learned how to harness engineering, technology and sheer will power to weed out bad investments.
The same will be true of Equity Crowdfunding. The power of the crowd to perform due diligence and the need for all equity investments to be done through a registered crowdfunding platform or portal will make it very hard for the Wolf of Wall Street types to do business. It won’t take the industry long to populate itself with crowdfunding classes, investment training programs and crowd checking services that investors can use to educate themselves and learn quickly how to vet deals.
What kind of deals can Texans expect? Franchises, high-technology, bio technology, clean technology, financial technology, real estate, oil and gas, defense technology, space exploration technology, etc.
Will people always make money? No, but deals like Oculus Rift might become common place. In 2012, Oculus needed to raise money to bring a new type of 3D virtual reality computer gaming goggles to market. They did so successfully by raising $2.4 million via a Kickstarter campaign by pre-selling goggles for $300 a pair.
In May 2014, Facebook bought Oculus for $2 billion. There was an immediate uproar from Oculus supporters because they didn’t benefit from the buyout because supporters didn’t own any private equity stock. It was a true crowdfunding dream come true. News stories say that a $300 investment for a pair of 3D goggles and one equity share would have paid return on investment of ~$45,000, but after two years of waiting equity investing is still not legal in the United States for unaccredited investors.
Who was to blame for supporters getting screwed? The bullseye can be pointed nowhere else but squarely on the Securities Exchange Commission (SEC), who has been holding America hostage during one of the biggest economic depressions America has ever seen.
The SEC can defy the President of United States and both Houses of Congress, but they are no match for hardworking Americans who are tired of watching the government run our country into the ground.
Honestly, can American’s skip four games of golf or quit buying scratch off lotto tickets for a month to take a wild risk on a crowdfunding investment? We sure can. And with some careful consideration, due diligence and investing in only products/service we understand, a new generation of micro venture capitalists will rise.
Why go to Las Vegas or continue to buy lotto tickets when you can shop for cool products and businesses online that you’d be willing to bet a couple of hundred bucks in order to make a fortune? Suddenly the American dream will become a reality again.
Maybe not in the rest of America, but in Texas, entrepreneurs and startups will be able to go straight to the public with their investor decks and business plans. Just as Texas oil money, real estate and telecom/computer technology had a heavy influence in the development of the United States, so will the influence of crowdfunded millionaires that are sure follow the same rise to power as risky, gutsy Texas-based entrepreneurs such as Mark Cuban and Michael Dell.
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Texas Equity Crowdfunding Exemption:
Passed 10/22/2014 – Texas State Securities Boards Approves Texas Crowdfunding Exemption Rules
Texas Crowdfunding News:
10/25/14 – Ft. Worth Star Telegram – Texas sets the stage for crowdfunding
10/23/14 – Austin Business Journal – State Securities Board OKs new Texas crowdfunding rules
10/23/14 – San Antonio Business Journal – Texas greenlights new rules for equity-based crowdfunding
10/23/14 – Silicon Hills – Texas Approves Equity-Based Crowdfunding Rules
10/23/14 – Dallas Morning News – Texas OKs rules allowing small businesses to raise funds online
09/23/14 – San Antonio Express News – Texas Crowdfunding for the little guys
09/16/14 – Times Realty News – Texas Crowdfunding Investments Set for Vote in September
08/12/14 – Ft. Worth Star Telegram – Texas set to allow crowdfunding investments for small businesses
08/27/14 – Houston Chronicle – Texas crowdfunding conference hopes to draw a crowd
07/21/14 – Crowdfunding PR News – Front Page PR Offers Texas Crowdfunding Sites Advertising, PR and Social Media Marketing Campaigns to Market Equity Shares to Potential Investors
List of States with Intrastate Exemption for Equity Crowdfunding:
State Population
- Texas 26,059,203
- Michigan 9,883,360
- Georgia 9,919,945
- Washington 6,897,012
- Indiana 6,537,334
- Tennessee 6,495,978
- Maryland 5,884,563
- Wisconsin 5,726,398
- Alabama 4,822,023
- Idaho 1,595,728
- Kansas 2,885,905
- Maine 1,329,192
If you were a new company planning to launch a business, what state would you pick?
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