The first of the state’s new equity crowdfunding deals opened for business to investors Friday.
The real estate limited partnership, open to any Texas resident 18 or older with at least a $500 investment, would finance a senior living facility to be built in Cedar Hill. The deal is listed on the state-approved portal MassVenture.com and will close June 19 if it raises at least $450,000.
Two other crowdfunded investment deals — one for a three-well oil and gas lease in Crockett County through CrudeFunders and another to fund a hair salon listed on NextSeed — are also looking for investors in what is the start of a new chapter in Texas investing.
In October, the Texas State Securities Board voted unanimously to allow Texas-based businesses to raise up to $1 million annually through online crowdfunding platforms. The rules allow for Texans to invest up to $5,000 a year through one or more deals offered on the platforms, which are vetted by the board.
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The board has approved six crowdfunding platforms, and three more are in the approval process, spokesman Robert Elder said.
“The board didn’t have any expectations on how quickly this would roll out, simply that Texas is a large enough capital market with enough entrepreneurs and investors to go forward with crowdfunding,” he said.
Crowdfunding had been limited to either equity deals through accredited investors (those with high net worths and incomes) or a donation where people received only free prototypes or promotional items in exchange for their money (think Kickstarter).
Texas is the 13th state to offer equity crowdfunding, in which a high income and net worth are not required. The Securities and Exchange Commission has looked at setting federal rules for equity crowdfunding for years but has yet to come up with anything.
MassVenture.com, the first crowdfunding portal to launch under the Texas rules, has had hundreds of potential investors sign up since it began in February, said Nathan Roach, CEO and co-founder of the San Antonio-based service.
“Overall, of the volume of transactions likely to take place through crowdfunding, real estate stands to be the leader,” Roach said. “Other offerings, like the hair salon, will help small business and entrepreneurs.”
Roach said he plans to have six real estate projects available for investors over the spring and summer. After a required 21-day listing period, the deals will go live to investors.
The initial deal for the Cedar Hill senior living center lists an extensive amount of financial documentation, including an investment overview with cash flow projections and estimated annual rates of return in years three, four and five; limited partnership and escrow agreements; disclosure statements and related documents.
Helen Stephens, a Fort Worth certified financial planner with Aspen Wealth Management, looked over the Cedar Hill deal and found a math error in the project development and overview document that was corrected in another document.
“If I see people putting things out that are inconsistent, I see a red flag,” she said. “I’m a trained professional, but the average person looking at these documents would get lost.”
Stephens said most people do not have the money for venture funding, which could see little or no return and even a loss of the initial investment.
“But I’m not throwing it all out,” she said of crowdfunding. “People are going to have to be wise and vet these things greatly.”
The state securities board also urges investors take a hard look at crowdfunding in its recent guide for potential investors subtitled “Crowd wisdom or the madness of crowds?” The guide, available through the board’s website at www.ssb.state.tx.us, offers many cautionary points.
“An inexperienced investor may not be a good judge of a company’s prospects,” the guide says. “It takes time to learn about a specific business sector and to read and understand even the limited disclosure materials issuers are required to provide. … You can lose your shirt, $5,000 at a time.”
Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net