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Blame the SEC for this one. Their accredited investor regulation gave the future to the rich. Seed round, series A, B, C, etc should be a vehicle for class mo

Blame the SEC for this one. Their accredited investor regulation gave the future to the rich. Seed round, series A, B, C, etc should be a vehicle for class mobility. Instead it's a way for the rich and powerful to accumulate more wealth. With YC and other incubators acting as a filter for where investors should put money, it matters more which zipcode you were born into than your overall intelligence and creativity. People talk about bitcoin, but it's the only 'startup' that regulation didn't prohibit people from investing in. Facebook should have made millenials/gen x rich. Github should have made developers rich. The list goes on and on.

derefr 9y ago
Investor accreditation makes sense (for now.) Giving poor people free access to untested-investment-vehicle-X is basically the same as giving them over-the-counter access to scheduled drugs. Mistakes will be made, and the people making them—lacking resources as they do—won't be able to recover from them. Right now, we're spending a lot of money trying to figure out how to get people out of these ruts. (Free housing seems to be helpful.) Creating more ways for people to get themselves into them seems ill-thought-out. On the other hand (to pile tangent upon tangent), something like UBI would neatly fix the "problem" that investor accreditation addresses, because it would mean that even the poorest people would have a cushion in case their investments don't work out.
- deleted 9y ago
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- jrs95 9y ago
  It's not about poor people. A huge number of middle class people aren't accredited investors. But they could easily put a small sum into a high risk investment and potentially benefit greatly from it. Bitcoin is a decent example of this. There aren't any accredited investors regulations, and I highly doubt there's hardly anyone who bought so much of it that they'd go bankrupt if it became worth $0
  - dmoy 9y ago
    I would be absolutely shocked if Bitcoin hit $0 and nobody came out of the woodwork sheepishly admitting that their investment strategy was "put 110% in Bitcoin". People go bankrupt on much sillier schemes than Bitcoin on a routine basis...
    - skyfold 9y ago
      I already cashed out enough to pay for school, a new house, and a new car. My parents are farmers. Even if Bitcoin went to $0, the number of people who became wealthy vs broke would be skewed towards individuals becoming wealthy because the late money is primarily institutional.
  - dnautics 9y ago
    They won't go bankrupt because they aren't purchasing it using leverage.
- deleted 9y ago
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- walshemj 9y ago
  Why I don't see many people in the UK going bankrupt of stockmarket investments opposed to say video poker in the Bookies Its just the Maggie meant what she said about a shareholding democracy And even Sweden has a strong retail shareholdings they even have national organisation that looks out for their interests
  - derefr 9y ago
    I don’t think you have the correct picture of what the US “accreditied investor” laws are about. Anyone can invest in publicly-traded companies. The law prevents unaccredited (i.e. not rich) investors from investing in private companies. A company has to go through a number of processes, such as disclosure and underwriting, when it goes public. These processes effectively make it a much safer investment vehicle, amenable to purchase by pretty much anyone. A company that hasn’t gone public hasn’t gone through these processes, and therefore might just be a huckster’s sham. For a look at what it looks like when private companies are allowed to raise money from the public, don’t look at other countries (which have similar laws) or at Bitcoin (which nobody but rich people even understands.) Look at early Kickstarter, before they put in more stringent disclosure requirements; and look at Indiegogo, which still doesn’t have such requirements. Especially look at projects that started on Kickstarter, were kicked off for not meeting the disclosure requirements, and then went on to raise money on Indiegogo. You know what percentage of those are scams? It’s not small. Early US stock market investment, before the requirements to IPO were made stringent, look a lot like Indiegogo. Anything and everything was up for investment, without examination. Many people did lose their livelihoods.
    - walshemj 9y ago
      Banned from investing in floats on the UK stockmarket though
    - walshemj 9y ago
      Yes that was pre crash of 1929 its 2017.
- andr3w321 9y ago
  "Investor accreditation makes sense (for now.)" No it doesn't. It's pure nanny statism. The government has no business telling people what they can and can't invest in or spend their money on. Yes startups are risky. So are lots of things. Why should the wealthy have no restrictions on them, but the poor do? This is literally "class warfare".
  - derefr 9y ago
    The government isn't telling people what they can invest in; it's telling companies whether they can take people's money. It's not illegal to hand money to a private company (you will not be charged with a crime); it's illegal to, as the company, accept that money. Private companies are a very specific kind of company—they're supposed to be a temporary condition, a way for companies to not have to go through the effort of going through disclosure, underwriting, etc. right away, because they're still just two guys in a garage and don't have the resources to do so. Private companies, as a special case, don't get to participate in all the things public (i.e. "normal") companies do. Private companies are to public companies as minors are to adults. In your phrasing, you could say that government also "tells people what they can and can't" eat, in the form of the FDA. But, just like this case, it should be clear that the FDA never goes after someone for eating a poisoned cucumber; it just goes after the company for selling poisoned cucumbers. (The DEA, on the other hand, is pure nanny-state-ism.)
    - andr3w321 9y ago
      Regarding the FDA I don't think the government should be telling me what drugs I can and can't take. Plenty of people are denied from taking early stage drugs because they are not FDA approved and dangerous, but if people are aware of the risks I think they should have every right to take them. In your poison cucumber example I think this would qualify as knowingly poisoning someone else which is clearly illegal and we do not need the FDA for that. As long as the cucumber is labeled as "poison" I have no problem with people selling them.
      - dragonwriter 9y ago
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- kakarot 9y ago
  > basically the same as giving them over-the-counter access to scheduled drugs. Something that also should be legal (with reasonable discrimination). I would choose a different metaphor because this one doesn't work in your favor.
  - derefr 9y ago
    I believe in safe injection sites; in having way more doctors; in having more state-sponsored free clinics; in encouraging said free clinics to be willing to prescribe narcotics in cases where the patient is unable to function without them; in support programs for getting over addiction using drugs like naltrexone; etc. I also, I should especially highlight, don't believe in prosecuting people for drug possession, of any kind or amount. But I don't believe that we would benefit, on net, if you could buy heroin in the corner convenience store without a doctor's encouragement to do so. The number of people who would be able to safely manage their own treatment, would be outweighed by the number of people who would become newly addicted due to increased access and the aura of illegitimacy being removed.
- Sevii 9y ago
  Poor people are allowed to legally gamble away their money in situations where its 100% known that they will lose it all.
  - derefr 9y ago
    This is kind of why commercial casinos are illegal in 30 states, why racetrack betting is illegal in 29 states, why online gambling is illegal in 46(!) states, and why the only legal (non-charitable) lotteries are state-run. It's not leftover morality laws; it's that monitoring commercial gambling to protect against exploitation of the poor is a really hard problem, one we haven't really solved. Some states choose to allow it despite this, and then deal with the consequences of increased poverty. Most don't. (And then they're forced to allow it in anyway by native on-res exceptions.) This is also why such commercial gambling establishments as are legalized, are heavily regulated. For example, see the Nevada state laws on gaming fraud: https://www.leg.state.nv.us/NRS/NRS-465.html#NRS465Sec070 https://www.leg.state.nv.us/NRS/NRS-465.html#NRS465Sec070 Those laws aren't there to stop people trying to cheat the house. They're there to stop the house from exploiting people by rigging the game.
    - smsm42 9y ago
      > This is kind of why commercial casinos are illegal in 30 states, why racetrack betting is illegal in 29 states, why online gambling is illegal in 46(!) states, and why the only legal (non-charitable) lotteries are state-run. And we all know no poor person in these states ever gambled their money away! Or, alternatively, they did gamble it away, but since gambling is illegal, they were also cheated mercilessly and have no recourse and no place to complain, since being poor and telling police you participated in illegal activity gets you an express ticket to jail.
    - zanny 9y ago
      Meanwhile, buying loot chests in Android games is perfectly legal and lets people spend thousands of dollars in a gambling stupor and get nothing for it.
  - chimeracoder 9y ago
- abecedarius 9y ago
  I can see that being a millionaire already is (somewhat) correlated with being less vulnerable to scams, but if you were designing a rule to protect the vulnerable, is that really what you'd come up with? The first thing to come to mind for me, besides taking a test, is for people to show they can make it as a blackjack card-counter -- seriously, wouldn't an official investor-accrediting poker league, even, do a better job of sorting out or educating the marks and freeing up much more of the population to invest? If we have to deal with this problem by prior restraint at all.
- bfuller 9y ago
  Not everyone is against drug legalization
- njarboe 9y ago
  In the US we let people gamble; the government even runs and promotes it in many states. We let people get credit cards to buy consumable products and then pay 20%-30% interest. We let them take out loans to buy real estate worth multiples of their annual salary and have a debt overhang greater than they could ever save in a lifetime. We let teen-agers take out $100k of student loans that can't even be dismissed by bankruptcy. We are not "protecting" people in all these other problematic financial situations. I might advocate for shutting down gambling, credit cards and getting the government out of student and home loans, but if we think those actions should be are allowed, investing in small companies should be also.
  - tinus_hn 9y ago
    > I might advocate for shutting down gambling, [...] Why not reintroduce prohibition while you’re at it? It is not possible to force your opinion on other people like that, it only drives the behavior underground, which is a breeding ground for crime.
dgut 9y ago
I definitely believe ICOs are the future of funding. We are at a premature stage, but as the ecosystem matures we'll see a lot of great things come out of it unless the SEC and whatnot decide to nuke it. For instance, until now ICOs have been able to raise money without a prototype in hand, this I believe will change.
- lucozade 9y ago
  That’s an interesting position. What you’re effectively saying is, if you’re stupid enough to invest in a scam then you should be allowed to. The establishment shouldn’t put barriers in your way if you want to give your money to a hoax. There’s something to be said for that. If you’re not capable of managing your own money then maybe the con artist will do better? Personally, I’d prefer to give to a charity with a decent track record but it’s your money. You presumably don’t need nannying.
  - skyfold 9y ago
    Gambling is legal, smoking is legal, and yet risky early stage investments aren't? And the reason these investment opportunities aren't available to us is because they are risky and dangerous? Hmm.... Point being the government deciding how to "protect us" is based on arbitrary criteria at best.
  - dgut 9y ago
    That's some of the most short-sighted comment I've read on HN. As somebody else here points out, there are a ton of unhealthy activities (I can think of a thousand) that are not only legal but well advertised. In fact, the current US president owns one of those great places where people can flush their money down the toilet. You are fundamentally saying all ICOs are a scam, otherwise your comment doesn't make much sense. Because that's false but it's true there are a number of scam ICOs, it's also true we can lower that number. If you read my comment, you probably noticed the part about the need for the ecosystem to mature also.
    - lucozade 9y ago
gowld 9y ago
If you believe that, create a VC fund, make public offerings, and let the general public buy shares in your fund via their brokerage account.
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jldugger 9y ago
There's plenty of means within the existing legal framework to allow investors access to VC investment options. Blackstone IPO'd ten years ago, and Intel, Google and GE all have VC subsidaries. My pension with Oregon has a variety of investments in VC private equity funds that have done quite well. There's really no reason to agitate for people to invest their savings directly into a single series A round. Capital pooling and diversification is a key function that VC provides investors.
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Ice_cream_suit 9y ago
And if you put your life savings into a hedge fund and it blows up ? See http://hf-implode.com/index.html#lists http://hf-implode.com/index.html#lists for a partial list. Even the famous Marc Mezvinsky's notoriously "well supported" Eaglevale Partners fund has shutdown up after losing 48% of investors funds.
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derefr 9y ago

Investor accreditation makes sense (for now.) Giving poor people free access to untested-investment-vehicle-X is basically the same as giving them over-the-counter access to scheduled drugs. Mistakes will be made, and the people making them—lacking resources as they do—won't be able to recover from them. Right now, we're spending a lot of money trying to figure out how to get people out of these ruts. (Free housing seems to be helpful.) Creating more ways for people to get themselves into them seems ill-thought-out. On the other hand (to pile tangent upon tangent), something like UBI would neatly fix the "problem" that investor accreditation addresses, because it would mean that even the poorest people would have a cushion in case their investments don't work out.

deleted 9y ago
[deleted]
jrs95 9y ago
It's not about poor people. A huge number of middle class people aren't accredited investors. But they could easily put a small sum into a high risk investment and potentially benefit greatly from it. Bitcoin is a decent example of this. There aren't any accredited investors regulations, and I highly doubt there's hardly anyone who bought so much of it that they'd go bankrupt if it became worth $0
- dmoy 9y ago
  I would be absolutely shocked if Bitcoin hit $0 and nobody came out of the woodwork sheepishly admitting that their investment strategy was "put 110% in Bitcoin". People go bankrupt on much sillier schemes than Bitcoin on a routine basis...
  - skyfold 9y ago
    I already cashed out enough to pay for school, a new house, and a new car. My parents are farmers. Even if Bitcoin went to $0, the number of people who became wealthy vs broke would be skewed towards individuals becoming wealthy because the late money is primarily institutional.
- dnautics 9y ago
  They won't go bankrupt because they aren't purchasing it using leverage.
deleted 9y ago
[deleted]
walshemj 9y ago
Why I don't see many people in the UK going bankrupt of stockmarket investments opposed to say video poker in the Bookies Its just the Maggie meant what she said about a shareholding democracy And even Sweden has a strong retail shareholdings they even have national organisation that looks out for their interests
- derefr 9y ago
  I don’t think you have the correct picture of what the US “accreditied investor” laws are about. Anyone can invest in publicly-traded companies. The law prevents unaccredited (i.e. not rich) investors from investing in private companies. A company has to go through a number of processes, such as disclosure and underwriting, when it goes public. These processes effectively make it a much safer investment vehicle, amenable to purchase by pretty much anyone. A company that hasn’t gone public hasn’t gone through these processes, and therefore might just be a huckster’s sham. For a look at what it looks like when private companies are allowed to raise money from the public, don’t look at other countries (which have similar laws) or at Bitcoin (which nobody but rich people even understands.) Look at early Kickstarter, before they put in more stringent disclosure requirements; and look at Indiegogo, which still doesn’t have such requirements. Especially look at projects that started on Kickstarter, were kicked off for not meeting the disclosure requirements, and then went on to raise money on Indiegogo. You know what percentage of those are scams? It’s not small. Early US stock market investment, before the requirements to IPO were made stringent, look a lot like Indiegogo. Anything and everything was up for investment, without examination. Many people did lose their livelihoods.
  - walshemj 9y ago
    Banned from investing in floats on the UK stockmarket though
  - walshemj 9y ago
    Yes that was pre crash of 1929 its 2017.
andr3w321 9y ago
"Investor accreditation makes sense (for now.)" No it doesn't. It's pure nanny statism. The government has no business telling people what they can and can't invest in or spend their money on. Yes startups are risky. So are lots of things. Why should the wealthy have no restrictions on them, but the poor do? This is literally "class warfare".
- derefr 9y ago
  The government isn't telling people what they can invest in; it's telling companies whether they can take people's money. It's not illegal to hand money to a private company (you will not be charged with a crime); it's illegal to, as the company, accept that money. Private companies are a very specific kind of company—they're supposed to be a temporary condition, a way for companies to not have to go through the effort of going through disclosure, underwriting, etc. right away, because they're still just two guys in a garage and don't have the resources to do so. Private companies, as a special case, don't get to participate in all the things public (i.e. "normal") companies do. Private companies are to public companies as minors are to adults. In your phrasing, you could say that government also "tells people what they can and can't" eat, in the form of the FDA. But, just like this case, it should be clear that the FDA never goes after someone for eating a poisoned cucumber; it just goes after the company for selling poisoned cucumbers. (The DEA, on the other hand, is pure nanny-state-ism.)
  - andr3w321 9y ago
    Regarding the FDA I don't think the government should be telling me what drugs I can and can't take. Plenty of people are denied from taking early stage drugs because they are not FDA approved and dangerous, but if people are aware of the risks I think they should have every right to take them. In your poison cucumber example I think this would qualify as knowingly poisoning someone else which is clearly illegal and we do not need the FDA for that. As long as the cucumber is labeled as "poison" I have no problem with people selling them.
    - dragonwriter 9y ago
deleted 9y ago
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kakarot 9y ago
> basically the same as giving them over-the-counter access to scheduled drugs. Something that also should be legal (with reasonable discrimination). I would choose a different metaphor because this one doesn't work in your favor.
- derefr 9y ago
  I believe in safe injection sites; in having way more doctors; in having more state-sponsored free clinics; in encouraging said free clinics to be willing to prescribe narcotics in cases where the patient is unable to function without them; in support programs for getting over addiction using drugs like naltrexone; etc. I also, I should especially highlight, don't believe in prosecuting people for drug possession, of any kind or amount. But I don't believe that we would benefit, on net, if you could buy heroin in the corner convenience store without a doctor's encouragement to do so. The number of people who would be able to safely manage their own treatment, would be outweighed by the number of people who would become newly addicted due to increased access and the aura of illegitimacy being removed.
Sevii 9y ago
Poor people are allowed to legally gamble away their money in situations where its 100% known that they will lose it all.
- derefr 9y ago
  This is kind of why commercial casinos are illegal in 30 states, why racetrack betting is illegal in 29 states, why online gambling is illegal in 46(!) states, and why the only legal (non-charitable) lotteries are state-run. It's not leftover morality laws; it's that monitoring commercial gambling to protect against exploitation of the poor is a really hard problem, one we haven't really solved. Some states choose to allow it despite this, and then deal with the consequences of increased poverty. Most don't. (And then they're forced to allow it in anyway by native on-res exceptions.) This is also why such commercial gambling establishments as are legalized, are heavily regulated. For example, see the Nevada state laws on gaming fraud: https://www.leg.state.nv.us/NRS/NRS-465.html#NRS465Sec070 https://www.leg.state.nv.us/NRS/NRS-465.html#NRS465Sec070 Those laws aren't there to stop people trying to cheat the house. They're there to stop the house from exploiting people by rigging the game.
  - smsm42 9y ago
    > This is kind of why commercial casinos are illegal in 30 states, why racetrack betting is illegal in 29 states, why online gambling is illegal in 46(!) states, and why the only legal (non-charitable) lotteries are state-run. And we all know no poor person in these states ever gambled their money away! Or, alternatively, they did gamble it away, but since gambling is illegal, they were also cheated mercilessly and have no recourse and no place to complain, since being poor and telling police you participated in illegal activity gets you an express ticket to jail.
  - zanny 9y ago
    Meanwhile, buying loot chests in Android games is perfectly legal and lets people spend thousands of dollars in a gambling stupor and get nothing for it.
- chimeracoder 9y ago
abecedarius 9y ago
I can see that being a millionaire already is (somewhat) correlated with being less vulnerable to scams, but if you were designing a rule to protect the vulnerable, is that really what you'd come up with? The first thing to come to mind for me, besides taking a test, is for people to show they can make it as a blackjack card-counter -- seriously, wouldn't an official investor-accrediting poker league, even, do a better job of sorting out or educating the marks and freeing up much more of the population to invest? If we have to deal with this problem by prior restraint at all.
bfuller 9y ago
Not everyone is against drug legalization
njarboe 9y ago
In the US we let people gamble; the government even runs and promotes it in many states. We let people get credit cards to buy consumable products and then pay 20%-30% interest. We let them take out loans to buy real estate worth multiples of their annual salary and have a debt overhang greater than they could ever save in a lifetime. We let teen-agers take out $100k of student loans that can't even be dismissed by bankruptcy. We are not "protecting" people in all these other problematic financial situations. I might advocate for shutting down gambling, credit cards and getting the government out of student and home loans, but if we think those actions should be are allowed, investing in small companies should be also.
- tinus_hn 9y ago
  > I might advocate for shutting down gambling, [...] Why not reintroduce prohibition while you’re at it? It is not possible to force your opinion on other people like that, it only drives the behavior underground, which is a breeding ground for crime.

dgut 9y ago

I definitely believe ICOs are the future of funding. We are at a premature stage, but as the ecosystem matures we'll see a lot of great things come out of it unless the SEC and whatnot decide to nuke it. For instance, until now ICOs have been able to raise money without a prototype in hand, this I believe will change.

lucozade 9y ago
That’s an interesting position. What you’re effectively saying is, if you’re stupid enough to invest in a scam then you should be allowed to. The establishment shouldn’t put barriers in your way if you want to give your money to a hoax. There’s something to be said for that. If you’re not capable of managing your own money then maybe the con artist will do better? Personally, I’d prefer to give to a charity with a decent track record but it’s your money. You presumably don’t need nannying.
- skyfold 9y ago
  Gambling is legal, smoking is legal, and yet risky early stage investments aren't? And the reason these investment opportunities aren't available to us is because they are risky and dangerous? Hmm.... Point being the government deciding how to "protect us" is based on arbitrary criteria at best.
- dgut 9y ago
  That's some of the most short-sighted comment I've read on HN. As somebody else here points out, there are a ton of unhealthy activities (I can think of a thousand) that are not only legal but well advertised. In fact, the current US president owns one of those great places where people can flush their money down the toilet. You are fundamentally saying all ICOs are a scam, otherwise your comment doesn't make much sense. Because that's false but it's true there are a number of scam ICOs, it's also true we can lower that number. If you read my comment, you probably noticed the part about the need for the ecosystem to mature also.
  - lucozade 9y ago

gowld 9y ago

If you believe that, create a VC fund, make public offerings, and let the general public buy shares in your fund via their brokerage account.

deleted 9y ago
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jldugger 9y ago

There's plenty of means within the existing legal framework to allow investors access to VC investment options. Blackstone IPO'd ten years ago, and Intel, Google and GE all have VC subsidaries. My pension with Oregon has a variety of investments in VC private equity funds that have done quite well. There's really no reason to agitate for people to invest their savings directly into a single series A round. Capital pooling and diversification is a key function that VC provides investors.

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deleted 9y ago
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Ice_cream_suit 9y ago

And if you put your life savings into a hedge fund and it blows up ? See http://hf-implode.com/index.html#lists http://hf-implode.com/index.html#lists for a partial list. Even the famous Marc Mezvinsky's notoriously "well supported" Eaglevale Partners fund has shutdown up after losing 48% of investors funds.

deleted 9y ago
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deleted 9y ago
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