Thursday, October 23, 2014

Texas Passes its Intrastate Crowdfunding Law with a Unanimous Vote


The Texas Securities Board voted unanimously yesterday to pass the proposed Texas Intrastate Crowdfunding Ruling.  State law requires a 30 day registration period after which the ruling can become effective.  This means that we could have the use of this law by the end of November, 2014.

In short, the ruling gives any resident of the state of Texas the ability to invest in a startup up to $5000 per person per year.  Previously, startups could only raise equity funding from accredited investors -- those with a net worth of $1M not counting the house they live in.  Accredited investors account for a very small fraction of the population.  The new ruling opens up the investor list dramatically for startups.  Most startups have a substantial number of contacts in their network and now they can tap their entire network for funding.

The ruling requires the funding be transferred through an approved Texas Crowdfunding Portal into funds escrow in a Texas bank.  Goldstar Trust in Amarillo has signed up as the first bank to provide such services.
Other criteria include the company raising funding must have 80% of their assets and revenues in Texas.  Investors must verify their Texas residency status by submitting their drivers license number or voter ID number.  Texas-based accredited investors are not limited to the $5K limit.

Unlike most states, the state Securities Board makes this decision rather than the legislature.  The board indicates they will continue to monitor the program and plan to modify and update the ruling to protect investors and startups.

You can see the rules at this link.

Best regards,
Hall T.