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I'm confused why anyone would put this provision in a bill. Does anyone have any background that might fill in the motivation here? They always talk about being

by tibbon 17y ago

I'm confused why anyone would put this provision in a bill. Does anyone have any background that might fill in the motivation here? They always talk about being pro small business, but this seems fairly blatantly against it.

hga 17y ago
"always talk about being pro small business" Watch what they do, not what they say.... I for one am at a loss. Someone is writing these provisions and getting them into the Dodd bill. The questions are who and why. If I were to assume this was tied to the proposals to regulate VCs as ostensibly major economic players that pose systemic risks (insane on its face, since they're too small and their time frames are too long), then it could be part of a general anti-disruptive business thrust. That's what zapping the junk-bond market was all about (details upon request). In this case it could be an attempt to make sure there are fewer little mammals to eat the eggs of existing dinosaurs and drive them to extinction. The Internet is certainly acting as a massive disruptive force.... But the above musings are very vague, I don't see a tighter cause and effect, just a couple of data points. But provisions like this aren't put into bills randomly. Someone thinks they're a good idea for someone (not necessarily the nation). Maybe they want to devolve this to the states? There are strong incentives for that to happen in the bill, but I can't see how that would be a good thing for the nation, and it's not like the SEC is really overworked.
jplewicke 17y ago
I think it's most likely an attempt to cut down on fraudulent hedge funds. Currently, having "accredited investor" status is sufficient and usually necessary to invest in hedge funds, prvate equity funds, and startups. During the dénouement of the financial crisis, many mini-Madoffs were discovered, usually in the $5-200 million range. Most of these were pyramid schemes dressed up as hedge funds, but a few were fraudulent startups as well. I think the main reason they're changing the definition of "accredited investor" is because it also affects who can invest in hedge funds, not because they're trying to affect startups per se. This is probably classic "unintended consequences."
- tibbon 17y ago
  Too bad laws don't have functional test suites to run against changes to see if there are side effects and if the rest of the 'code' still works. Just so I understand: If I've got 250K in the bank- this would prevent me from doing 10K ycombinator style investments without jumping through massive SEC hoops?
  - akeefer 17y ago
    It's not quite that black and white: essentially, the laws around "accredited investors" are there to clearly delineate professional investors from more casual investors so that the person receiving the money can be sure that it will count as a private placement exempt from SEC registration requirements. That, in turn, is to prevent scam artists from inducing people to part with their money by "investing" in a private investment that's totally free of SEC registration and oversight. If you wanted to invest in your friend's startup, you could, but if you wanted to fund other third-party startups with which you had no pre-existing relationship, you'd need to register as an accredited investor. See grellas's excellent summary from a few days ago: http://news.ycombinator.com/item?id=1221387 http://news.ycombinator.com/item?id=1221387 As absurd as it seems, laws like this don't come out of nowhere just to make people's lives complicated and miserable: the SEC registration requirements are there to prevent scam artists (of which the 20th century that saw rise to these laws saw plenty), and the accredited investor regulations are a way to clarify the exemptions to those requirements.
    - startuprules 17y ago
      I think that works well in theory, but as we've seen from Bernie Madoff's case, where the SEC keeps ignoring pleas from whistleblowers to look into the case (because the fox is guarding the henhouse) and the fact that no reform in SEC has been made to this day, that that is not the case. As an aside, I think most people on this board have a 'everybody is decent and nice' goggle on. Probably why we're the ones getting ripped off by everyone else.
  - boucher 17y ago
    Well, no. If you've only got $250K in the bank you already can't invest. The current requirements are $1 million in assets or $250K annual income. This will move that bar up by about 2X.
bobbyi 17y ago
The provision seems like common sense. If you are going to have a minimum amount needed to be an "investor", why would that amount not be pegged to inflation (which is what the provision does)? What is the rational argument for having the (real money) amount needed to invest fluctuate based on inflation as it works today? There may be an argument for removing the minimum or changing the structure, but just having it stay at "one million dollars" for decades seems absurd.
- hga 17y ago
  Now that's a very good point ... so why aren't they pegging it to inflation? Correct me if I'm wrong, but as I understand it they're just making a one time upwards adjustment, plus throwing in a 120 day delay and making a strong push to devolve this to the states. When looked at as a package, your point isn't sufficiently explanatory.
- gridspy 17y ago
  I think that there is a different sort of "inflation" for starting a business. As time goes on technology gets cheaper and more available. Manufacturing becomes more automated, Just in Time stocking reduces capital requirements. Just because 1m buys less food than it did 20 years ago doesn't mean it can't finance a similar sized business. You can do more with less - there is much more leverage available with computers, SaaS, outsourced manufacturing and online sales than was available in the past. I don't see any reason why starting a business won't be even easier in 20 more years.

by tibbon 17y ago

hga 17y ago

"always talk about being pro small business" Watch what they do, not what they say.... I for one am at a loss. Someone is writing these provisions and getting them into the Dodd bill. The questions are who and why. If I were to assume this was tied to the proposals to regulate VCs as ostensibly major economic players that pose systemic risks (insane on its face, since they're too small and their time frames are too long), then it could be part of a general anti-disruptive business thrust. That's what zapping the junk-bond market was all about (details upon request). In this case it could be an attempt to make sure there are fewer little mammals to eat the eggs of existing dinosaurs and drive them to extinction. The Internet is certainly acting as a massive disruptive force.... But the above musings are very vague, I don't see a tighter cause and effect, just a couple of data points. But provisions like this aren't put into bills randomly. Someone thinks they're a good idea for someone (not necessarily the nation). Maybe they want to devolve this to the states? There are strong incentives for that to happen in the bill, but I can't see how that would be a good thing for the nation, and it's not like the SEC is really overworked.

jplewicke 17y ago

I think it's most likely an attempt to cut down on fraudulent hedge funds. Currently, having "accredited investor" status is sufficient and usually necessary to invest in hedge funds, prvate equity funds, and startups. During the dénouement of the financial crisis, many mini-Madoffs were discovered, usually in the $5-200 million range. Most of these were pyramid schemes dressed up as hedge funds, but a few were fraudulent startups as well. I think the main reason they're changing the definition of "accredited investor" is because it also affects who can invest in hedge funds, not because they're trying to affect startups per se. This is probably classic "unintended consequences."

tibbon 17y ago
Too bad laws don't have functional test suites to run against changes to see if there are side effects and if the rest of the 'code' still works. Just so I understand: If I've got 250K in the bank- this would prevent me from doing 10K ycombinator style investments without jumping through massive SEC hoops?
- akeefer 17y ago
  It's not quite that black and white: essentially, the laws around "accredited investors" are there to clearly delineate professional investors from more casual investors so that the person receiving the money can be sure that it will count as a private placement exempt from SEC registration requirements. That, in turn, is to prevent scam artists from inducing people to part with their money by "investing" in a private investment that's totally free of SEC registration and oversight. If you wanted to invest in your friend's startup, you could, but if you wanted to fund other third-party startups with which you had no pre-existing relationship, you'd need to register as an accredited investor. See grellas's excellent summary from a few days ago: http://news.ycombinator.com/item?id=1221387 http://news.ycombinator.com/item?id=1221387 As absurd as it seems, laws like this don't come out of nowhere just to make people's lives complicated and miserable: the SEC registration requirements are there to prevent scam artists (of which the 20th century that saw rise to these laws saw plenty), and the accredited investor regulations are a way to clarify the exemptions to those requirements.
  - startuprules 17y ago
    I think that works well in theory, but as we've seen from Bernie Madoff's case, where the SEC keeps ignoring pleas from whistleblowers to look into the case (because the fox is guarding the henhouse) and the fact that no reform in SEC has been made to this day, that that is not the case. As an aside, I think most people on this board have a 'everybody is decent and nice' goggle on. Probably why we're the ones getting ripped off by everyone else.
- boucher 17y ago
  Well, no. If you've only got $250K in the bank you already can't invest. The current requirements are $1 million in assets or $250K annual income. This will move that bar up by about 2X.

bobbyi 17y ago

The provision seems like common sense. If you are going to have a minimum amount needed to be an "investor", why would that amount not be pegged to inflation (which is what the provision does)? What is the rational argument for having the (real money) amount needed to invest fluctuate based on inflation as it works today? There may be an argument for removing the minimum or changing the structure, but just having it stay at "one million dollars" for decades seems absurd.

hga 17y ago
Now that's a very good point ... so why aren't they pegging it to inflation? Correct me if I'm wrong, but as I understand it they're just making a one time upwards adjustment, plus throwing in a 120 day delay and making a strong push to devolve this to the states. When looked at as a package, your point isn't sufficiently explanatory.
gridspy 17y ago
I think that there is a different sort of "inflation" for starting a business. As time goes on technology gets cheaper and more available. Manufacturing becomes more automated, Just in Time stocking reduces capital requirements. Just because 1m buys less food than it did 20 years ago doesn't mean it can't finance a similar sized business. You can do more with less - there is much more leverage available with computers, SaaS, outsourced manufacturing and online sales than was available in the past. I don't see any reason why starting a business won't be even easier in 20 more years.