Over the last few years I have been working with a number of Austin-based startups, primarily in the tech sector. Austin-based VC (and even a number of angels earlier in the capital raising progression) seem more accustomed / are more comfortable with B2B models or B2C already demonstrating significant sales. While I understand the caution these investors exercise while evaluating the various investment opportunities that come to them, the result is that investment capital for early stage B2C ventures in Austin can be extraordinarily difficult to source locally. Not to sound crass, but raising capital for a venture should be hard: someone throwing money at your endeavor without good cause would be outright foolish. That said, B2C developers understandably get frustrated from their comparative hurdle for sourcing capital.
On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (the "JOBS Act"). Via that act, Congress carved a significantly easier path for startups to access certain smaller amounts of capital. This past January, the Securities and Exchange Commission (SEC) approved crowdfunding portal rules proposed by the Financial Industry Regulatory Authority (FINRA) for implementing the JOBS Act. The FINRA rules may be found here. These rules will go into effect on May 16, 2016.
Section 302 of the JOBS Act provides a specific crowdfunding exemption to existing federal securities law by amending Section 4(a)(6) of the Securities Act of 1933. The amendment to Section 4(a)(6) specifically exempts from registration a securities offering of less than $1 million on an aggregate basis during a 12-month period, so long as that the offering is conducted through an approved broker or funding portal. A number of these funding portals are being formed now and should provide significantly easier access to smaller amounts of capital than currently exists. If, like many Austin B2C founders, your business is in need of equity investment but you are not making progress among local investors, consider investigating your options with the new crowdfunding portals. For more information about the legal practical limits of using this new source of equity, please contact our firm.