Equity crowdfunding has been up and running for a year in Texas, but the number of closed deals has been pretty slim.
Since February 2015, just $1.2 million has been raised for 24 deals, about 20 percent of what was sought, according the Texas State Securities Board. The projects range from a hair salon to a snore center expansion, drilling in the Permian Basin to building a senior living facility in Cedar Hill.
Crowdfunding investing in the state is open to any Texas resident age 18 or older. Overseen by the Texas State Securities Board, intrastate crowdfunding allows Texas-based businesses to raise up to $1 million annually through online platforms. Texas residents can invest up to $5,000 a year in one or more deals offered on the platforms, which are vetted and approved by the securities board.
On May 16, the Securities and Exchange Commission is adopting new interstate crowdfunding rules that could light a fire under crowdfunding in Texas.
“We see benefits to both and are looking to expand nationally,” said Abe Chu, chief marketing officer at Nextseed, a Texas intrastate crowdfunding portal based in Houston. “But you can’t do both — intrastate and interstate — on the same deal. There are two different sets of rules.”
Chu will be one of the speakers at a free crowdfunding town hall Tuesday in Arlington, one in a series being offered around the state by ThinkCrowdFund.com to educate potential investors and companies about the new concept.
Crowdfunding may be simple in terms of technology — after signing up on a crowdfunding portal, investing can be just a click away. But most Texans are unsure of how it really works, said Cynthia Nevels, founder of ThinkCrowdFund.com.
Her company put on crowdfunding seminars in six Texas cities last year, sometimes drawing crowds of 50. This year, she plans on seven seminars, including Arlington and one this fall in Fort Worth. The seminar has expanded to 100-seat venues.
“Crowdfunding isn’t going to keep moving forward without education,” she said.
“A lot of education has to take place both on the business and investor side,” he said.
Nextseed has closed five deals since crowdfunding began in the state, including the first crowdfunding investment: a $25,000 revenue-sharing loan to Hair Revolution, a Houston hair salon wanting to expand.
While each crowdfunding portal can operate differently in how it raises and disperses investment funds (within state regulations), NextSeed chose to set up a model in which a business is required to pay a fixed percentage of its monthly gross revenue until a predetermined total amount has been paid.
“That deal closed in nine days and the owner is almost done repaying the loan a year after the deal closed,” Chu said. “The owner had the cash flow to go to a bank and get the loan, but he found through crowdfunding there is a merging of the financial and social that created a marketing halo effect.”
In other words, the salon owner got more clients for his business by using this new type of funding, Chu said. The salon’s deal had 17 investors.
Other Nextseed deals have drawn hundreds of investors. Among those were a new Asian restaurant and kava bar in Austin; snore centers in Dallas, Austin and Houston; and a mixed-use center in Houston. All are fully funded. Its current deal, a floatation spa in Houston, is 93 percent funded with $103,300 committed.
Nextseed’s crowdfunding deals range from a minimum investment of $100 up to $5,000, but they can also include accredited investors (those with a net worth of $1 million or more) who can invest higher values, Chu said. Returns vary. The Snore Center loan was made with an interest rate of 11.98 percent over 18 months, while the kava bar loan carried an 18 percent rate over 36 months.
In addition to small-business deals, other crowdfunding portals in the state focus on oil and gas and real estate. A listing of crowdfunding portals can be found on the state securities board’s website at www.ssb.texas.gov.
But Texas State Securities Board spokesman Robert Elder warns that crowdfunding is risky, so you shouldn’t invest any money you can’t afford to lose.
Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net
Crowdfunding Town Hall
- The City of Arlington Equity Crowdfunding town hall is scheduled for 10 a.m.-noon on April 12 at the South Street Patio, 400 E. South St. in Arlington. The event is free.
- Downtown Arlington, Comerica Bank, LiftFund, and ThinkCrowdFund.com are sponsoring the event for local startups, entrepreneurs, small-business owners and investors.
- Crowdfunding, SBA loans and micro-funding will be discussed.
- To register, go to www.thinkfirstcrowd.com or call toll-free 1-877-601-3211 ext 151.