We’ve discussed the controversies surrounding the legality and legitimacy of crowdfunding. However, the time has finally arrived: Texas has legalized investment crowdfunding. This now makes Texas the largest state to legalize crowdfunding.
For those startups or entrepreneurs who aren’t as familiar with crowdfunding, or how these investing strategies can be proven effective for many startups, crowdfunding is where a small business or startup is funded by raising capital from a pool of carefully selected investors. The rules in place by Texas legislation state that any entity is allowed to invest up to $5,000 in any Texas business regardless of industry or income. For entrepreneurs and small businesses, this is a financial win.
Raising capital for a small business or startup project can be difficult, particularly in trying times. In fact, many startup small businesses fail within the first five years of business due to financial struggle. Many entrepreneurs and startups are left with only a few options to raise capital, such as angel investors, traditional lending institutions (which can be costly and risky), and relatives.
With the law now allowing small businesses and startups to seek crowdfunding for their projects, this strategy can actually be beneficial to more than just the entrepreneur. When matched with the right investor, this can be proven successful and beneficial to the investor, who has a hand in a business’s success and ultimately sees financial gain from stock when a company performs well.
Allowing investors to participate in a business or idea and receive equity in the company can be great for local communities and industries. Investors who are local to the entities they invest it not only helps those businesses thrive, but also ensures a level of trust and comfort knowing their resources are investing in an entity and industry in which they are familiar. Additionally, small businesses will have the opportunity to connect with investors directly from their areas.
Although this is not a way for small businesses to start out nationally, the legalization of intrastate crowdfunding can allow small towns to grow and new projects to succeed. Startup projects and small businesses need every outlet possible to succeed when it comes to raising capital.
With the legalization of intrastate crowdfunding, this not only helps startups and small businesses as a whole grow and develop successfully, and obtain needed resources to grow, but also investors who receive equity, and communities who reap the benefits of a growing economy.