The Texas Legislature will discuss whether laws should be changed to make Texas friendlier to the new process of raising money for an Internet start up known as 'crowd funding,' 1200 WOAI news reports.
State Representative Mike Villarreal (D-San Antonio), says the House Committee on Investments and Financial Services will look into the costs and benefits of implementing what is called an 'intrastate equity crowd funding system.'
San Antonio venture capital manager Nathan Roach says crowd funding, which is the process of allowing regular middle class people to buy into a start up company is revolutionizing the high tech world, and is making it more democratic.
"It allows ordinary people, anybody who wants to participate, to create something of value," Roach said.
He says the Legislature will look at how impediments to crowd funding can be removed, but the process can still be regulated to make sure only legitimate operations are made available for crowd funding.
One change that can be made, Roach suggested, is to remove barriers which currently prohibit crowd funding investors from actually buying an equity stake in the companies they invest in.
"You can't actually invest that money and get shares in a company," he said. "The only thing normal people can do now is pre pay for a product, and then when the product comes out, you would get the product."
Nathan says another change that could be made is to remove current restrictions which limit the ability to crowd fund to what is called ''accredited investors.'
"Accredited investors can invest in these companies today, but by and large, your average citizen cannot," he said.
Accredited investors have to democratize that they have at least $1 million in liquid assets available to be invested, something Roach says cuts out most middle class people.
Generally, start ups like Facebook and Twitter are limited to 'plugged in' investors who either are venture capitalists who control great wealth, or who are friends or relatives of company officials or the investment banker. Roach says crowd funding democratizes that process.
He says if Texas can become known as a center of crowd funding, it will be a powerful tool to lure the next generation of high tech startups away from Silicon Valley, where many of them locate simply because that's where the big money 'angel investors' are located, and convince them to locate their start up in Texas.