New bill to allow $1m crowdfunding rounds

http://merkley.senate.gov/newsroom/press/release/?id=9E32CE5C-4DF0-4596-BA92-5695F68681F6

by uripom • 15 years ago

67 29 15 years ago

merkley.senate.gov

billboebel• 15 years ago

what is a "registered internet website"? Is that just their long winded term for website or do crowdfunding sites need to register with some government agency?

aclements18• 15 years ago

I assume in order for it to 'legalize and regulate' there would probably have to be some form of registration specific to the crowdfunding sites. But I agree, they should clarify.

_wp3r• 15 years ago

In what way is crowd funding illegal now? I am assuming that is what the gentleman was implying with "legalize and regulate."

Doesn't regulation of a 'crowdsourced' anything, kind of defeat the purpose? The entire idea is that many small failures lead too faster successful iterations.

joshu• 15 years ago

Crowd donating is legal. Crowd investing is not; currently, investors must be accredited or qualified.

dmix• 15 years ago

I never really understood the reasoning behind accredited investors.

kls• 15 years ago

Does anyone know of any sites that are positioned to take advantage of the investing aspect should the legality of it change? Are their any players in the space standing on G waiting on O so to speak.

jedberg4• 15 years ago

> Crowd donating is legal. Crowd investing is not; currently, investors must be accredited or qualified.

That's not actually true (otherwise you couldn't do a friends and family round).

The reason a startup generally wants qualified investors is because the non-qualified ones can sue you if you they lose money, so it is in your best interest not to take their money.

damoncali2• 15 years ago

My understanding is that it's the solicitation that is prohibited. You can raise $1000 each from 50 people if you want, but the SEC won't let you "advertise" the offering on the internet. You also get into the whole accreditation mess, but that's sort of a different issue.

HistoryInAction• 15 years ago

Not really a new bill, since it's just the Senate equivalent of the House's HR2930: http://thomas.loc.gov/cgi-bin/bdquery/z?d112:h.r.02930:

trevor99• 15 years ago

anyone know how long this might take to pass and become legislation?

dclaysmith• 15 years ago

I think this is great but the fraud potential is going to be key. It says it will require the companies to provide basic financial documentation but it will be interesting to see what the SEC requires. Also, what legal responsibility will these crowdfunded companies have to their investors.

I also wonder how this would impact wider disclosure requirements. From what I've read, you can only have so many private investors (500?) before you are required to provide enlarged financial statements. Apparently it's one of the reasons Facebook needs to IPO--too many stockholders. If this law isn't modified in this bill--you'd have small companies who had to spend tons of resources to comply at a very young age.

handelaar• 15 years ago

I think a good sign of when a legislature has stopped being remotely sensible is when all its new bills have preposterous backronyms instead of names.

tbrownaw• 15 years ago

...why?

I thought the way VCs worked is that most of their investments go bust, while a few percent do absurdly well. How do you "minimize the risk of ... loss" for people who supposedly can't afford it, by giving them access to something even professionals usually lose money on?

This is an alternative to the "detailed disclosures" the SEC requires now, the way that's presented makes it sound like this requires less detail.

Is this because more people want to directly invest in startups, or because startups have a hard time getting funding the way things are now? Either way it sounds a bit bubbly...

jedberg4• 15 years ago

Am I the only one on HN who thinks this is a bad idea? I can only see this going one of two ways:

- Minimally regulated so that it is easy to get money, but then full of scams.

- Heavily regulated so that it is hard to get money, which makes it not much better than the current system.

I'd love to see smaller investors able to invest in startups, but it just seems like a bad idea to let any old person invest.

Can someone convince me I'm wrong?

damoncali2• 15 years ago

No, it's a pretty bad idea. It comes with great intentions, but there is a good reason the current laws exist. People have to trust the financial system, and this sort of activity will (because of the obvious and easy fraud) deliver a solid blow to the public's trust. You think bankers have a bad rep? Wait until you see what people think of "entrepreneurs" after a few rounds with this.

clavalle• 15 years ago

Scams are going to happen.

The accredited investor rules have been around long before the internet and all of the tools we can now use to follow up on start up companies and the people behind them.

I am certain that if this bill passes, there will be plenty of services offered to dig up this kind of information and make this kind of due diligence easier and more complete.

Sure, grandma and grandpa might be targeted by scammers (not that there is any shortage of Utah based pyramid schemes and other n'er do wells out there doing just that) but there should be /severe/ penalties attached to discourage bad actors.

I don't think we should be protecting people from themselves as much as we do as a society, and I really think this is going to be a net positive when all of the wrinkles are ironed out.

jedberg4• 15 years ago

> I don't think we should be protecting people from themselves as much as we do as a society

That much I do agree with you. This is definitely a case of the government protecting people from themselves. Just the same, I'm still not sure it's a good idea because it will give entrepreneurs a bad name, so in a sense, it is protecting that reputation too.

vaksel• 15 years ago

yeah agreed, they can just setup a landing page talking about how the company has created an awesome new search engine to take on Google...and then get a few thousand people to invest "$250" each...then "operate" the business for a year, and close up shop, pocketing the money...or paying $100,000/mo for web hosting from their other company.

vannevar2• 15 years ago

One way to possibly make this work is to require the money to go into an escrow account at a bank, to be used to guarantee a loan to the business getting funded. The business would put up its stock as collateral. If the business defaulted on the loan, the bank could seize the stock and the escrow account (but only after pursuing all possible avenues to recover from the debtor business). If the loan was paid back, the stock would be disbursed to the investors. This arrangement wouldn't prevent the possibility of a loss, but by introducing the bank as an intermediary (with the attendant requirements for a loan application), it should help weed out complete scams.

jedberg4• 15 years ago

Why would having a bank involved weed out scams if it were impossible for the bank to lose money?

This is basically what happened during the mortgage bubble -- the banks lowered their standards because they knew the government would back up the loans.

shareme• 15 years ago

this is a bad idea on the level of the TSA idea

DennisP• 15 years ago

Interesting. Here are two similar bills: http://thehill.com/blogs/floor-action/house/191669-bills-eas...

One of them passed the House recently: http://www.govtrack.us/congress/bill.xpd?bill=h112-2930

New bill to allow $1m crowdfunding rounds

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