An interesting way to invest that I’d not heard of before popped up on my radar today (thanks to Swamplot)
Per Silicon Hills New,
That makes Texas the 13th state, and the largest to date, to adopt its own equity-based crowdfunding rules in advance of the U.S. SEC’s expected national rules. The JOBS Act of 2012 authorized the SEC to create new crowdfunding rules for the country, but they have been delayed by more than a year.
I think that is pretty fascinating. Think of it as kickstarter for equity (not prizes/perks). It also allows people not yet at an asset/income level to qualify for Angelist, to get in the game. I’m not yet an accredited investor and have certainly not previously had the access or ability to invest in major real estate deals. Individual investors will have the ability to put in up to $5,000 per company. The ability to put in limited amounts of capital, keep limited liability, while still making direct real estate investments in an area you understand is appealing. The same rules will allow crowd funding for companies of all types as well. This will allow much easier friends/family investing.
I may personally give this a shot, but I have to admit there are a lot of pitfalls here. Most startups fail. The average venture capitalist works largely from a spray and pray attitude, assuming that if they invest in 10, 2 break-even, 6 fail, and last 2 make enough returns for the group. Startups are inherently risky for the average person and investing in the space is not to be taken lightly. Protecting people from that reality will be much harder for regulators when the flood gates open.
The average person is not qualified to to judge the quality of the real estate deals offered to them, look for hidden fees, or evaluate management teams. A normal person also typically doesn’t have the emotional fortitude for high risk, long lockup investing and are probably not prepared for it. Any time you open the doors like this, you create opportunities for fraud and for the average joe to get screwed.
It’s also interesting to consider if this will fill a capital need in an under served part of the market, falling somewhere between friends/family/small business loan and startups that are able to garner venture capital or private equity? Currently, 12 states have some sort of crowdfunding exemption in place, but Texas seems to have struck a nice balance in the rules, as well as sporting a very large population across many industries.
What are some of the key rules (expected to be put in place in November)?
- The business must be Texas based.
- You the investor must be Texas based.
- 80% of revenue and assets must be Texas based.
- Maximum investment of $5,000 if investor is not accredited.
- May raise up to $1M in a 12 month period.
See the linkfest below for more information.
- Texas Crowd Funding (fantastic level of detail)
- Real Estate and Energy to be most affected by crowd funding
- Texas Approves Equity-Based Crowdfunding Rules
- InvestPeer Launches Equity Based Crowdfunding Beta Website in Texas
- Texas’ crowdfunding exemption could mean big things for Houston startups
- Crowdfnuding goes big time
- Texas Intrastate Crowdfunding