SEC moves toward allowing crowdfunding IPOs

http://www.usatoday.com/story/money/business/2013/10/23/crowdfunding-ipo-sec-jobs-act/3169395/

by antoviaque • 13 years ago

86 38 13 years ago

walshemj3• 13 years ago

But the SEC won't allow ordinary Americans to invest in much safer FTSE flotations for example say the royal mail float that just happened.

Floated at £3.30 now £5.30 in not much more than a week.

cube13• 13 years ago

Is this a SEC problem or a problem with British regulations? I'm completely clueless on how this works for international stuff.

walshemj3• 13 years ago

SEC was my understanding from reading the prospectus.

MWil• 13 years ago

To make a public comment: http://www.sec.gov/cgi-bin/ruling-comments?ruling=s70913&rul...

berberous2• 13 years ago

For anyone who is curious, here's a link to the (585 page!) PDF of the SEC's proposed rules: http://www.sec.gov/rules/proposed/2013/33-9470.pdf

gbelote6• 13 years ago

I'm really excited that we've made it to this point. The implementation of the full JOBS Act has been on the horizon for over a year and I think it has a lot of potential to do good.

That said, I'm nervous about overzealous regulations. There are a few ways this can create severe enough adverse selection that healthy, high-caliber companies will avoid raising from the unaccredited crowd.

I'm still reading the details in the 585 page PDF of proposed rules but some concerns come to mind:

    - Capping the whole round to $1m
    - Forcing unnecessary financial disclosures
    - Inability to use a single purpose fund for aggregating small investors (forcing every unaccredited to be a direct investor)

I believe these are all feel-good but destructive rules that will poison the unaccredited crowdinvesting ecosystem. At Wefunder we've learned a lot about what it takes to get high caliber startups to use our platform and I'm pretty confident that those three things can each be deal breakers.

If you're a part of the startup ecosystem I encourage you to pay attention to this law, get informed, and give the SEC your feedback. These are only -proposed- rules and the SEC will listen and adapt (at least, they have in the past). Someday you may want to raise money or invest in a company!

berberous2• 13 years ago

I agree with you that these three items could be dealbreakers for the high caliber startups, but aren't they mandated by the JOBS Act itself? (At least the first two, I'm not sure about the third.) I'm not sure the SEC can override congress' say on those matters.

gbelote6• 13 years ago

The SEC has enough power to shape regulation to neuter some of those clauses. For instance, they're able to apply the $1m cap to fees collected by the portal (not amount raised) or add exceptions for certain types of offerings. [1]

So in theory they could add exemptions or weaken other clauses. I'm not sure exactly where the line is drawn (e.g. can they entirely rewrite the JOBS Act?) but I believe the rules outlined in the JOBS Act are mostly to express intent of Congress and it's the job of the SEC to implement them in a way that works and maintains the intent.

[1] They request comments on those ideas and more in the big PDF. See page 20 of http://www.sec.gov/rules/proposed/2013/33-9470.pdf

7Figures2Commas4• 13 years ago

Healthy, high-caliber companies are far less likely to want anything to do with the unaccredited crowd anyway. Most will continue to raise capital through Reg D Rule 506 offerings, and 506(b) offerings specifically given the uncertainty around the proposed rules associated with 506(c).

It sounds like you basically want Rule 506 offerings without the accredited investor requirements. Debate over the wisdom of that notwithstanding, this was never the intention of the crowdfunding portion of the JOBS Act to begin with.

gbelote6• 13 years ago

That's what many critics said before 506(c) but that's not how the market is behaving [1]. There's more value to a crowd of investors than easy dumb money, and I don't see why the personal wealth of an investor really matters.

I disagree with your interpretation of the intention of the JOBS Act. As I interpret it it's meant to allow all Americans the opportunity to invest in startups and small businesses while protecting them from losing all their money. Introducing regulations that cause severe adverse selection outweighs the benefit of those specific rules, in my opinion.

[1] I think the quality of companies raising publicly on Wefunder and AngelList speak to that, but I'm heavily biased. I respect your opinion even though I disagree with it. :)

tslathrow• 13 years ago

        - Forcing unnecessary financial disclosures

Have we not learned a damn thing from 1999? The whole reason retail investors have a chance is because public companies have to file an 8k every time the CFO farts

mbreese2• 13 years ago

Regarding the $1M limit, the SEC document included comments regarding this limit. It looks like the limit is congressionally mandated.

From the proposed rules:

Section 4(a)(6) specifically provides for a maximum aggregate amount of $1 million sold in reliance on the exemption in any 12-month period. The only reference in the statute to changing that amount is the requirement that the Commission update the amount not less frequently than every five years based on the Consumer Price Index. Additionally, statements in the Congressional Record indicate that Congress believed that $1 million was a substantial amount for a small business. We do not believe that Congress intended for us to modify the maximum aggregate amount permitted to be sold under the exemption when promulgating rules to implement the statute. Therefore, we are not proposing to increase the limitation on the aggregate amount sold.

wissler• 13 years ago

Call my cynical, but I don't think they are going to allow the peons to move in on their action. If I'm wrong, fantastic!

31reasons• 13 years ago

The whole limit on how much you can invest looks silly to me. When it comes to investing in high growth startups, government thinks : "Poor people are dumb and we need to protect them from their own mistakes".

Where was this rule when greedy banks sold them expensive mortgages ?

pla3rhat3r• 13 years ago

I agree with this up to a point. I think there should be little that limits people from being able to invest as much as they want but then you have to consider the same limitations with IRAs and 401Ks. Not saying investing in a new startup is just like investing in an IRA or 401K but I can certainly understand it from that perspective.

Maybe the answer isn't limiting the amount that can be invested but increasing oversight on the companies people are investing in. No one wants to be taken for a ride even though the risk is above average in this case.

7Figures2Commas4• 13 years ago

Where was this rule when greedy banks sold them expensive mortgages ?

Uhm, the government encouraged much of the mortgage lending you're referring to. The loans themselves were artificially cheap. Unfortunately for borrowers, the houses were not.

InclinedPlane• 13 years ago

A lot of people thought those high risk mortgages were win/win. Best case scenario: the mortgage gets paid back at a healthy RoI. Better case scenario: the borrower defaults and the mortgage owners end up with real estate that is getting more valuable by the day.

Of course, the borrower gets screwed but who gives a shit about them. And if the housing market tanks the whole thing falls apart, but the market can only go up, up, up!

tocomment2• 13 years ago

I'm trying to figure out what this kind of funding would be good for. Could you use it to open a restaurant or bar for example?

thaddeusmt• 13 years ago

$1 million (a year) in funding might not register on TechCrunch, but I would think it's more than enough money to start (or help keep afloat) many different kinds businesses, including tech startups.

michaelt• 13 years ago

Kickstarter's Technology category has only 9 projects that have raised over $1 million [1]. None of them requested more than $250,000 and one requested just $30,000.

In fact the only things I can find on Kickstarter that requested and raised more than $1 million are films [2]. There's people working on space telescopes who only requested $1 million [3].

So, I guess this type of funding could be used for the kind of things you see on kickstarter?

[1] http://www.kickstarter.com/discover/categories/technology/mo... [2] http://www.kickstarter.com/projects/559914737/the-veronica-m... [3] http://www.kickstarter.com/projects/1458134548/arkyd-a-space...

tocomment2• 13 years ago

Excellent point. So is anyone working on a kickstarter that uses this model instead?

Would it work like Kickstarter except you'd receive shares of a company? Would there be a lot of overhead?

mehwoot• 13 years ago

The SEC is overrated and this is the year that they stop being relevant.

confluence2• 13 years ago

HAHAHAHAHAHAHAH brilliant! Let's break this dumb idea down shall we.

These rules could reinvent the way companies raise money by allowing them to bypass the traditional costs of going public, which usually involves hiring costly investment bankers and accountants.

So instead of breaking the seat belt monopoly to reduce costs (work with me here), we'll just make it so that kids no longer have to wear seat belts anymore. It's absolutely brilliant in its sheer audacity. You get to keep your campaign contributions from the rent-seeking financial cartels, whilst simultaneously providing VCs with their retail lambs for the slaughter. The fact that they do this, whilst selling the idea as a positive act for the public has me slack jawed. That takes balls.

Congress is looking for a loophole to allow smaller companies to get an exemption from the strict rules controlling the sale of securities to individuals. Congress is hoping that by using Internet crowdfunding, small and promising companies could gather capital needed to grow and expand from a wide pool of investors.

So we invent seat belts, and people stop dying. After a while people forget why we had seat belts in the first place. Let's take away the seat belts, because look, no one has died in a really long time.

Furthermore, why on earth would MORE risky companies need LESS disclosure. That makes no sense. If you were thinking halfway straight, you'd realize that it's the small ones that are the most subject to corruption, pump and dump scams and extensive stock promotion. Penny stocks CLEARLY indicate that this is the case. We need MORE disclosure not less. Costs are entirely derived from the IPO cartel. Break that you morons. Oh wait, you can't, because 20% of next year's campaign contributions come from your financial bosses.

With the new rules, the SEC is looking to open the concept of crowdfunding to the public, while still offering investor protection. The new elements of the rules would cap any company's ability to raise money through crowdfunding to $1 million every 12 months. For investors with an annual net income or net worth of less than $100,000, every 12 months they can invest up to 5% of that, or $2,000, whichever is more. Those with an annual income or net worth exceeding $100,000 can invest up to 10% of that every 12 months. Securities bought through portals would have to be held a year before being sold.

Good luck regulating this. Capital limits are always exceeded by the determinedly stupid.

streetcat• 13 years ago

Two things:

1) I would assume that you can invest at the same level of risk at existing public company (e.g. micro cup, or investing in options), the this point is mute.

2) core pillar of modern finance is portfolio theory . I.e. how to mitigate a specific company risk by investing in portfolio of companies (which is what VCs are essentially doing). Hence, this would also imply here (regardless of the amount of audit employed). So really a risk of a single company is a non issue.

confluence2• 13 years ago

Two things

1) Those are esoteric. People don't do them. However the dotcom boom shows us that they will fund bullshit stock issues.

2) MPT is bullshit. Systems fail in a cascade fashion, not independently. Furthermore investors do not diversify.

jackgavigan2• 13 years ago

We've had equity crowdfunding in the UK for a while now. The two platforms I hear about most often are Seedrs ($3.2m invested) and Crowdcube ($23.3m).

For example, PixelPin - https://news.ycombinator.com/item?id=6366343 - raised $240k at a $2.4m valation: https://www.seedrs.com/post_investment/9385#1976

SEC moves toward allowing crowdfunding IPOs

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