7 ms·

Thank goodness the government protects me, a non-accredited investor, from investing in any private companies! I'm too stupid to make investment decisions with

Thank goodness the government protects me, a non-accredited investor, from investing in any private companies! I'm too stupid to make investment decisions without going broke! https://passiveincomemd.com/not-secret-society-accredited-investors/ https://passiveincomemd.com/not-secret-society-accredited-in...

JumpCrisscross 9y ago
I used to be skeptical of accredited investor requirements [1] until cryptocurrencies happened. That an entire space can (a) go from zero to fraud in the blink of an eye and (b) not only ignore the delineation between gambles and core investments, but develop a collective disdain for it and anyone espousing it, has me convinced of the rule's wisdom. Investing in start-ups costs money. Diligence costs money, negotiating terms costs money and staying up to date on corporate actions costs time, and when it matters, more money. Those who can't afford that not only sets themselves up to get screwed, they bring down the quality of the ecosystem. There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision. [1] https://www.sec.gov/files/ib_accreditedinvestors.pdf https://www.sec.gov/files/ib_accreditedinvestors.pdf
- nordsieck 9y ago
  > There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision. You say this as if its obvious, but I'm not even convinced that it's true. Sure, there are all sorts of strategies that VC firms employ to mitigate their downside, but those are only marginally effective. The real reason the successful ones are successful is because they were part of the right deals, not because they lost less money on the wrong ones. Modern portfolio theory is adequate protection from that kind of risk.
  - conanbatt 9y ago
    The proof of the opposite is easier than that. That phrase implies it should be illegal to give stock to employees.
    - JumpCrisscross 9y ago
      > That phrase implies it should be illegal to give stock to employees Not necessarily. I identified three asymmetries for which capital matters: the costs of diligence, negotiation and keeping up on corporate actions. Employees gain an insider advantage in respect of the first and last. In respect of the second, employee stock options contracts are--relatively speaking--on the regulated end of the private markets. (Despite that, employees still get screwed on a regular basis[1].) There is also the forced savings component. If an executive saving 30% of their salary were considering a start-up job with a 30% pay cut, the cut is 100% a speculative move. To a middle manager saving 1%, on the other hand, part of the difference can be explained as forced savings. Those forced savings may outweigh the speculative downsides of the position. [1] https://www.bloomberg.com/view/articles/2015-12-23/good-technology-wasn-t-so-good-for-employees https://www.bloomberg.com/view/articles/2015-12-23/good-tech...
      - conanbatt 9y ago
        There are more protections for investors than for employees in options. Investors are also provided considerably more information. And they sue regularly. Employees getting screwed can be perfectly legal. So yes, I agree it has regulations, and it has them slanted. IF employees could re-sell their stocks in the open market, then employees could protect themselves from all of these. So instead, they get lottery tickets with their name on it, with unclear terms and information obscurity. In any case, the argument against is very simple. Who wants to pay the sec for the sec to make it impossible for you to do something. The sec could just as easily say "sec compliant" as a bonus for enterprises, and those that arent, arent. Those who care about not getting fleeced, will go get legally fleeced by sec compliant companies, and those that dont care, wont.
        JumpCrisscross 9y ago
  - notahacker 9y ago
    In order to have a portfolio sufficiently weighted towards the the right deal(s), it is necessary to say no to enough of the wrong deals. (And of course to have access to the right deals, which many of the most advantaged startups can conclude far more quickly and discreetly with VCs than by marketing their business plan to the public.) Modern portfolio theory isn't adequate protection when the probability of the average retail investor picking a portfolio consisting entirely of losers is sufficiently high.
- conanbatt 9y ago
  If the state used that argument, it wouldnt be able to run lotteries. It is, as many other measures, used by some to profit at the expense of others. Investors have their competition blocked, and ignorant. If a company had the opportunity to go public a lot earlier, they would gain massive leverage over the traditional investors, which means better terms and cheaper money. Cryptocurrency showed precisely the opposite: it showed the tremendous pent-up demand for investments that regulations forbid. And the best way to reduce fraud is to increase competition. Who wants to invest in cryptokitties when the other startup has actuall revenue and sales and asks for less money than the latest ICO? Figure 100% of YC companies ICO'ing in comparison to what ICO's are today. It would be massive amounts of cash with al ot less strings attached.
  - JumpCrisscross 9y ago
    > If the state used that argument, it wouldnt be able to run lotteries Lotteries are transparently run by the state as negative-sum games.
    - conanbatt 9y ago
      I fail to see how that makes it any better.
      - notahacker 9y ago
        A lottery is marketed as a game in which one spends a small sum of money in the hope of winning a large sum, not as a place to park ones savings in the expectation of increasing their value over time. And still likely offers a less negative ROI than unregulated securities offerings to retail investors.
        conanbatt 9y ago
        You are welcome to restrain yourself from your own ignorance, but I don't see why you should have the right to do so on others that don't enjoy that bondage. Punish those you disagree with by letting them hang by their own rope, or realize later on that it is you today who is being hang by your own.
- nokcha 9y ago
  I think that the rich and the poor should have equal protection of the laws, as a matter of principle. Investor accreditation could be done on the basis of passing an exam (similar to how lawyers need to pass a bar exam in order to practice law) instead of on the basis of net wealth or annual income. >There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision. I disagree. I don't meet the wealth or income requirements for 'accredited investor' status, but if I had been allowed to invest some money in early-stage tech start-ups, I could have done quite well for myself.
  - s73v3r_ 9y ago
    How much would you have invested, and how well would you have done had the start-ups went belly up?
    - patentatt 9y ago
      Don’t know why this is being downvoted. The above comment makes it seem like early stage venture capital is an easy money spigot, and the only barrier to them getting rich is the big bad government.
    - nokcha 9y ago
      >How much would you have invested Only what I could have afforded to lose. Around $5k. Not a lot of money (maybe even too small an amount to overcome the friction of traditional early-stage fundraising), but I would have gotten a much better RoI than my indexed stock-market fund got. >and how well would you have done had the start-ups went belly up? Well clearly I would have done poorly in that case. But that is why I don't invest more than I can afford to lose in risky investments.
      - s73v3r_ 9y ago
        "but I would have gotten a much better RoI than my indexed stock-market fund got." Are you sure? How many stories have we heard here about people being diluted to shit when big investors come in?
- mattnewport 9y ago
  Another interpretation is that the crypto mania is evidence of huge unmet demand for the types of investment profile that are largely unavailable to non accredited investors. If regular investors had access to more (possibly less risky) such investments perhaps the demand for crypto investments wouldn't have been so great.
  - saalweachter 9y ago
    There's certainly an unmet demand for investments that yield 1000-fold overnight. People want to invest a few hundred or a couple thousand dollars and be multi-millionaires by Christmas. They don't want to put tends of thousands of dollars into an aggressive portfolio to maybe break a million in 2045.
  - crdoconnor 9y ago
    >If regular investors had access to more (possibly less risky) such investment Which could be done easily by raising interest rates above 0% and offsetting any resulting collapse in demand with counter cyclical fiscal policy.
    - mattnewport 9y ago
      Years of extremely low interest rates does seem like a contributing factor to the demand for riskier investments that may see some inflation beating return.
  - s73v3r_ 9y ago
    I think that just shows that there's a huge unmet demand for get rich quick schemes.
  - SkyMarshal 9y ago
    It could also be argued that the success of crowdfunding sites like Kickstarter are similar evidence that people want to make micro-investments in early stage ventures that appeal to them.
- SkyMarshal 9y ago
  >There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision. I used to think this too until I saw a bunch of teenagers invest their allowance and part-time job money into a new industry that was open to them and get rich. It made me wonder if perhaps the definition of accredited investor should be expanded to people who have not only a lot of capital but also lot of time till retirement, since there's an equivalency, and who can afford to take risks and make mistakes in their 20s b/c they still have time to make up for it later.
- wslh 9y ago
  I assume you are in favor of closing Las Vegas and prohibiting all those marketing campaigns that play with the brains and sentiment of billions of people. Many different kind of scams or tricks are present everyday. Also, there are zillions of entrepreneurs wasting their health and time following impossible dreams. I prefer losing money than my health. I am not endorsing any ICO but education should change to include basic finances since elementary school.
  - patentatt 9y ago
    Not OP, but yes, I’d be in favor of all of the parade of horribles you trotted out
- psyc 9y ago
  Often this argument isn't really about whether everyone is collectively 'better off' by some particular metric. It's about how much of a nanny state it takes to get that result, and whether that's contrary to the spirit of freedom of association. In other words, money is not the only value. Liberty itself is a value.
  - patentatt 9y ago
    What of the liberty to not be swindled? The liberty to have access to public markets with an expectation that there is third party oversight of the companies you are investing in? The liberty to live in a society where hucksters are the exception rather than the norm?
    - psyc 9y ago
      Those aren't liberties by the connotation implied by the US framers. You seem to be repurposing the word for rhetorical reasons.
- MR4D 9y ago
  Your last statement is incorrect. If it were true, then only millionaires would be able to start companies. You’ve (inadvertently, I believe) just prohibited every independent plumber, carpenter, computer programmer, etc., from starting their own business. Because, trust me, starting a business is very illiquid - it’s like having a hole in your pocket. Even worse, said plumber, carpenter, etc., has a high concentration risk - pretty much everything in one basket, including the person’s income.

JumpCrisscross 9y ago

I used to be skeptical of accredited investor requirements [1] until cryptocurrencies happened. That an entire space can (a) go from zero to fraud in the blink of an eye and (b) not only ignore the delineation between gambles and core investments, but develop a collective disdain for it and anyone espousing it, has me convinced of the rule's wisdom. Investing in start-ups costs money. Diligence costs money, negotiating terms costs money and staying up to date on corporate actions costs time, and when it matters, more money. Those who can't afford that not only sets themselves up to get screwed, they bring down the quality of the ecosystem. There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision. [1] https://www.sec.gov/files/ib_accreditedinvestors.pdf https://www.sec.gov/files/ib_accreditedinvestors.pdf

nordsieck 9y ago
> There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision. You say this as if its obvious, but I'm not even convinced that it's true. Sure, there are all sorts of strategies that VC firms employ to mitigate their downside, but those are only marginally effective. The real reason the successful ones are successful is because they were part of the right deals, not because they lost less money on the wrong ones. Modern portfolio theory is adequate protection from that kind of risk.
- conanbatt 9y ago
  The proof of the opposite is easier than that. That phrase implies it should be illegal to give stock to employees.
  - JumpCrisscross 9y ago
    > That phrase implies it should be illegal to give stock to employees Not necessarily. I identified three asymmetries for which capital matters: the costs of diligence, negotiation and keeping up on corporate actions. Employees gain an insider advantage in respect of the first and last. In respect of the second, employee stock options contracts are--relatively speaking--on the regulated end of the private markets. (Despite that, employees still get screwed on a regular basis[1].) There is also the forced savings component. If an executive saving 30% of their salary were considering a start-up job with a 30% pay cut, the cut is 100% a speculative move. To a middle manager saving 1%, on the other hand, part of the difference can be explained as forced savings. Those forced savings may outweigh the speculative downsides of the position. [1] https://www.bloomberg.com/view/articles/2015-12-23/good-technology-wasn-t-so-good-for-employees https://www.bloomberg.com/view/articles/2015-12-23/good-tech...
    - conanbatt 9y ago
      There are more protections for investors than for employees in options. Investors are also provided considerably more information. And they sue regularly. Employees getting screwed can be perfectly legal. So yes, I agree it has regulations, and it has them slanted. IF employees could re-sell their stocks in the open market, then employees could protect themselves from all of these. So instead, they get lottery tickets with their name on it, with unclear terms and information obscurity. In any case, the argument against is very simple. Who wants to pay the sec for the sec to make it impossible for you to do something. The sec could just as easily say "sec compliant" as a bonus for enterprises, and those that arent, arent. Those who care about not getting fleeced, will go get legally fleeced by sec compliant companies, and those that dont care, wont.
      - JumpCrisscross 9y ago
- notahacker 9y ago
  In order to have a portfolio sufficiently weighted towards the the right deal(s), it is necessary to say no to enough of the wrong deals. (And of course to have access to the right deals, which many of the most advantaged startups can conclude far more quickly and discreetly with VCs than by marketing their business plan to the public.) Modern portfolio theory isn't adequate protection when the probability of the average retail investor picking a portfolio consisting entirely of losers is sufficiently high.
conanbatt 9y ago
If the state used that argument, it wouldnt be able to run lotteries. It is, as many other measures, used by some to profit at the expense of others. Investors have their competition blocked, and ignorant. If a company had the opportunity to go public a lot earlier, they would gain massive leverage over the traditional investors, which means better terms and cheaper money. Cryptocurrency showed precisely the opposite: it showed the tremendous pent-up demand for investments that regulations forbid. And the best way to reduce fraud is to increase competition. Who wants to invest in cryptokitties when the other startup has actuall revenue and sales and asks for less money than the latest ICO? Figure 100% of YC companies ICO'ing in comparison to what ICO's are today. It would be massive amounts of cash with al ot less strings attached.
- JumpCrisscross 9y ago
  > If the state used that argument, it wouldnt be able to run lotteries Lotteries are transparently run by the state as negative-sum games.
  - conanbatt 9y ago
    I fail to see how that makes it any better.
    - notahacker 9y ago
      A lottery is marketed as a game in which one spends a small sum of money in the hope of winning a large sum, not as a place to park ones savings in the expectation of increasing their value over time. And still likely offers a less negative ROI than unregulated securities offerings to retail investors.
      - conanbatt 9y ago
        You are welcome to restrain yourself from your own ignorance, but I don't see why you should have the right to do so on others that don't enjoy that bondage. Punish those you disagree with by letting them hang by their own rope, or realize later on that it is you today who is being hang by your own.
nokcha 9y ago
I think that the rich and the poor should have equal protection of the laws, as a matter of principle. Investor accreditation could be done on the basis of passing an exam (similar to how lawyers need to pass a bar exam in order to practice law) instead of on the basis of net wealth or annual income. >There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision. I disagree. I don't meet the wealth or income requirements for 'accredited investor' status, but if I had been allowed to invest some money in early-stage tech start-ups, I could have done quite well for myself.
- s73v3r_ 9y ago
  How much would you have invested, and how well would you have done had the start-ups went belly up?
  - patentatt 9y ago
    Don’t know why this is being downvoted. The above comment makes it seem like early stage venture capital is an easy money spigot, and the only barrier to them getting rich is the big bad government.
  - nokcha 9y ago
    >How much would you have invested Only what I could have afforded to lose. Around $5k. Not a lot of money (maybe even too small an amount to overcome the friction of traditional early-stage fundraising), but I would have gotten a much better RoI than my indexed stock-market fund got. >and how well would you have done had the start-ups went belly up? Well clearly I would have done poorly in that case. But that is why I don't invest more than I can afford to lose in risky investments.
    - s73v3r_ 9y ago
      "but I would have gotten a much better RoI than my indexed stock-market fund got." Are you sure? How many stories have we heard here about people being diluted to shit when big investors come in?
mattnewport 9y ago
Another interpretation is that the crypto mania is evidence of huge unmet demand for the types of investment profile that are largely unavailable to non accredited investors. If regular investors had access to more (possibly less risky) such investments perhaps the demand for crypto investments wouldn't have been so great.
- saalweachter 9y ago
  There's certainly an unmet demand for investments that yield 1000-fold overnight. People want to invest a few hundred or a couple thousand dollars and be multi-millionaires by Christmas. They don't want to put tends of thousands of dollars into an aggressive portfolio to maybe break a million in 2045.
- crdoconnor 9y ago
  >If regular investors had access to more (possibly less risky) such investment Which could be done easily by raising interest rates above 0% and offsetting any resulting collapse in demand with counter cyclical fiscal policy.
  - mattnewport 9y ago
    Years of extremely low interest rates does seem like a contributing factor to the demand for riskier investments that may see some inflation beating return.
- s73v3r_ 9y ago
  I think that just shows that there's a huge unmet demand for get rich quick schemes.
- SkyMarshal 9y ago
  It could also be argued that the success of crowdfunding sites like Kickstarter are similar evidence that people want to make micro-investments in early stage ventures that appeal to them.
SkyMarshal 9y ago
>There is no person (a) who doesn't meet the accredited investor requirement and (b) for whom an illiquid, volatile security like start-up equity is a prudent risk-reward decision. I used to think this too until I saw a bunch of teenagers invest their allowance and part-time job money into a new industry that was open to them and get rich. It made me wonder if perhaps the definition of accredited investor should be expanded to people who have not only a lot of capital but also lot of time till retirement, since there's an equivalency, and who can afford to take risks and make mistakes in their 20s b/c they still have time to make up for it later.
wslh 9y ago
I assume you are in favor of closing Las Vegas and prohibiting all those marketing campaigns that play with the brains and sentiment of billions of people. Many different kind of scams or tricks are present everyday. Also, there are zillions of entrepreneurs wasting their health and time following impossible dreams. I prefer losing money than my health. I am not endorsing any ICO but education should change to include basic finances since elementary school.
- patentatt 9y ago
  Not OP, but yes, I’d be in favor of all of the parade of horribles you trotted out
psyc 9y ago
Often this argument isn't really about whether everyone is collectively 'better off' by some particular metric. It's about how much of a nanny state it takes to get that result, and whether that's contrary to the spirit of freedom of association. In other words, money is not the only value. Liberty itself is a value.
- patentatt 9y ago
  What of the liberty to not be swindled? The liberty to have access to public markets with an expectation that there is third party oversight of the companies you are investing in? The liberty to live in a society where hucksters are the exception rather than the norm?
  - psyc 9y ago
    Those aren't liberties by the connotation implied by the US framers. You seem to be repurposing the word for rhetorical reasons.
MR4D 9y ago
Your last statement is incorrect. If it were true, then only millionaires would be able to start companies. You’ve (inadvertently, I believe) just prohibited every independent plumber, carpenter, computer programmer, etc., from starting their own business. Because, trust me, starting a business is very illiquid - it’s like having a hole in your pocket. Even worse, said plumber, carpenter, etc., has a high concentration risk - pretty much everything in one basket, including the person’s income.