7 ms·

New bill to allow $1m crowdfunding rounds

67 points by uripom 15y ago

billboebel 15y 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 15y 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.
frankydp 15y 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 15y ago
  Crowd donating is legal. Crowd investing is not; currently, investors must be accredited or qualified.
  - dmix 15y ago
    I never really understood the reasoning behind accredited investors.
    - anigbrowl 15y ago
      Scam prevention.
    - geoffschmidt 15y ago
      Imagine those infomercials that run late at night on cable TV, except instead of selling dubious kitchen gadgets, they're selling equity in dubious social media startups to your grandmother.
      - bravura 15y ago
        Does anyone know what sort of crowdfunding is considered permissible, and what is not allowed, under the proposed legislation? I didn't see it in TFA, and googling "CROWDFUND ACT" didn't bring me the text of the bill. Ostensibly the line must be drawn somewhere. Is this only for "tech" companies? How is that defined? Is there a particular company structure that is dictated? Delaware S-Corp, or any state Corp/LLC?
      - _delirium 15y ago
        Imagine a world where everyone who thinks they're building "the next Facebook" can be matched up with regular people who want to invest in "the next Facebook"...
    - Tuna-Fish 15y ago
      The present rules came into force with the Securities Act of 1933, which was written during the great depression to protect people from the kind of predatory "investments" that caused a lot of people to lose their savings in the crash. The last part of the bubble in late 20's was characterized with the lower middle class, which previously didn't have much investments, getting involved with the stock market. A lot of companies of all sizes advertised their stocks and "expected returns" in everything from radio to milk labels. Too many people bought into it at the worst possible time, on the top of the bubble.
  - kls 15y 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.
    - Kliment 15y ago
      Indiegogo and Kickstarter will likely be the first to jump on it. Indiegogo in particular seems interested, since a number of their customers are asking for this (they wrote an FAQ answer about it).
  - deleted 15y ago
    [deleted]
  - jedberg 15y 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.
- damoncali 15y 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 15y 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 http://thomas.loc.gov/cgi-bin/bdquery/z?d112:h.r.02930:
trevor99 15y ago
anyone know how long this might take to pass and become legislation?
dclaysmith 15y 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 15y 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 15y 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...
jedberg 15y 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?
- damoncali 15y 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 15y 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.
  - jedberg 15y 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.
shareme 15y ago
this is a bad idea on the level of the TSA idea
DennisP 15y ago
Interesting. Here are two similar bills: http://thehill.com/blogs/floor-action/house/191669-bills-easing-sec-rules-advance-in-house 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 http://www.govtrack.us/congress/bill.xpd?bill=h112-2930

67 points by uripom 15y 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 15y 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.

frankydp 15y 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 15y ago
Crowd donating is legal. Crowd investing is not; currently, investors must be accredited or qualified.
- dmix 15y ago
  I never really understood the reasoning behind accredited investors.
  - anigbrowl 15y ago
    Scam prevention.
  - geoffschmidt 15y ago
    Imagine those infomercials that run late at night on cable TV, except instead of selling dubious kitchen gadgets, they're selling equity in dubious social media startups to your grandmother.
    - bravura 15y ago
      Does anyone know what sort of crowdfunding is considered permissible, and what is not allowed, under the proposed legislation? I didn't see it in TFA, and googling "CROWDFUND ACT" didn't bring me the text of the bill. Ostensibly the line must be drawn somewhere. Is this only for "tech" companies? How is that defined? Is there a particular company structure that is dictated? Delaware S-Corp, or any state Corp/LLC?
    - _delirium 15y ago
      Imagine a world where everyone who thinks they're building "the next Facebook" can be matched up with regular people who want to invest in "the next Facebook"...
  - Tuna-Fish 15y ago
    The present rules came into force with the Securities Act of 1933, which was written during the great depression to protect people from the kind of predatory "investments" that caused a lot of people to lose their savings in the crash. The last part of the bubble in late 20's was characterized with the lower middle class, which previously didn't have much investments, getting involved with the stock market. A lot of companies of all sizes advertised their stocks and "expected returns" in everything from radio to milk labels. Too many people bought into it at the worst possible time, on the top of the bubble.
- kls 15y 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.
  - Kliment 15y ago
    Indiegogo and Kickstarter will likely be the first to jump on it. Indiegogo in particular seems interested, since a number of their customers are asking for this (they wrote an FAQ answer about it).
- deleted 15y ago
  [deleted]
- jedberg 15y 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.
damoncali 15y 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 15y 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 http://thomas.loc.gov/cgi-bin/bdquery/z?d112:h.r.02930:

trevor99 15y ago

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

dclaysmith 15y 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 15y 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 15y 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...

jedberg 15y 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?

damoncali 15y 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 15y 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.
- jedberg 15y 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.

shareme 15y ago

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

DennisP 15y ago

Interesting. Here are two similar bills: http://thehill.com/blogs/floor-action/house/191669-bills-easing-sec-rules-advance-in-house 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 http://www.govtrack.us/congress/bill.xpd?bill=h112-2930