18 ms·

> I think this addresses the challenge of the general solicitation rule (finding the startups) without the negative of creating a bunch of unvetted startups adv

by jmj42 13y ago

> I think this addresses the challenge of the general solicitation rule (finding the startups) without the negative of creating a bunch of unvetted startups advertising for dollars. Not really. We, here on HN, tend to frame things around tech startups, but there's a larger world out there that incubators don't (and often can't) address. Consider this (real life) example: Recently a local pub came up for sale. The asking price was $200,000. The purchase would include all current equipment and supplies, existing vendor contracts (subject to state transferability rules on the alcohol contracts), and local liquor license (the state license isn't transferable). It also included the building which housed 3 occupied (at the time) apartments. The question, of course, is how to raise the $200K. Standard business loans were out (not an established business). There's SBA, but the loan amount we were looking for was a bit high for SBA. Friends and family, of course, but we wouldn't even come close. In the end, we had to pass (though funding was only a part of the decision to pass). Here's kicker: If we could have spread the net wider, we may have had a chance to raise the money (with less effort), and been able to go ahead with the purchase. While this is one story, I see these kinds of things al the time. A few years back, a founder looking to start a paintball facility got nailed by this (he was advertising the investment opportunity). It ended up shutting down the project. The point is, outside of the technology world, getting investment funding for small businesses is very hard. This rule change makes it much easier.

7Figures2Commas 13y ago
>... getting investment funding for small businesses is very hard. This rule change makes it much easier. That isn't necessarily true. Just because small businesses can freely solicit investment doesn't mean that actually raising it will be easier. People seem to be making the assumption that there's this huge untapped market of rich people (read: accredited investors) who are not actively investing in businesses today simply because they haven't seen an ad or received an email inviting them to get in on the ground floor of a great opportunity. I don't see much evidence that this is the case, and based on my experience, the reality, for better or worse, is that you're either tapped into funding channels (or can work your way into them) or you're not. This doesn't mean that no money will be raised in the fashion you describe, but the notion that there's going to be a flood of wealthy individuals writing checks to people and companies they just met is absurd. As far as the specific situation you described, $200,000 is a modest amount. If you had a wealthy individual, or group of individuals, truly interested in owning a bar, it's far more likely that they'd purchase it themselves and hire an experienced person to run it. What incentive would they have to give any equity ownership and control to a group that couldn't "even come close" to putting up $200,000 themselves? "Accredited investor" doesn't necessarily mean "intelligent investor" but a lot of the comments around this general solicitation change assume that there's an abundance of accredited investors who are, for lack of a better description, utter fools. This discussion around the lifting of the ban on general solicitation also seems to assume that this will most greatly affect startups/Silicon Valley and small business, when in fact this will almost certainly most greatly benefit Wall Street and the financial establishment.
- clavalle 13y ago
  Is it a fact that only accredited investors can be solicited? I remember reading when the Jobs Act was first floated that non-accredited investors could invest as well but were capped at how much they could invest in a given year based on their income.
  - 7Figures2Commas 13y ago
    Yes, there is a separate portion of the Jobs Act that deals with crowdfunding and non-accredited investors. That is an entirely different can of worms, but there too, I think there is a general overestimation of how easy it will be for the average small business or startup to raise capital.
- jmj42 13y ago
  While it's not _necessarily_ true, it is possibly true, and that's the bit that folks are latching on to. They're assuming that there's a "market" of investors who are both interested in and willing to diversify their investment portfolio by, in part, making smaller high risk investments. My experience with, admittedly smaller investment firms, is that this may be true. Organizations like IllinoisVENTURES (I know several of the folks there) aren't interested in big C-round investments. The bulk of their information comes from their proximity (physically and virtually) to Enterprise Works (a UIUC run incubator). I've heard partners declare, on several occasions, "I wish we knew about these guys while they were still looking for seed money." I guess in, at least one, anecdotal case, it does bear out to be true. As for my bar, let me re-phrase, just for accuracy: We couldn't come close on our own without liquidating existing investments. It didn't make mathematical sense to do so (returns were higher on existing than expected returns on the bar). From our perspective, it was an expensive hobby, not a money making investment (for us). On the other hand, if we could raise, let's say $50K from investment, $50K converted from other investments (our own money), and $25K from family, then cover the remaining $75K through bank loan collateralized by the building (the building is valued at $125k)... Yup, that would have been easier.
  - 7Figures2Commas 13y ago
neilk 13y ago
I don't see what the difference is. Bars and other small businesses are risky investments too.
- jmj42 13y ago
  Yes, but my point was, incubators serve as a fine information channel for technology companies, but there is an entire class of small business which are not suited to incubators, such as bars. The rule change gives these small businesses a channel to inform potential investors that they're out there. Investors that they would not, otherwise, be able to reach.
  - gohrt 13y ago
    Starbucks did an experiment in "white label" (non-SBUX-branded) storefronts. It didn't continue, but one could imagine developing a national network of white-label restaurants to be run by locals.

by jmj42 13y ago

7Figures2Commas 13y ago

>... getting investment funding for small businesses is very hard. This rule change makes it much easier. That isn't necessarily true. Just because small businesses can freely solicit investment doesn't mean that actually raising it will be easier. People seem to be making the assumption that there's this huge untapped market of rich people (read: accredited investors) who are not actively investing in businesses today simply because they haven't seen an ad or received an email inviting them to get in on the ground floor of a great opportunity. I don't see much evidence that this is the case, and based on my experience, the reality, for better or worse, is that you're either tapped into funding channels (or can work your way into them) or you're not. This doesn't mean that no money will be raised in the fashion you describe, but the notion that there's going to be a flood of wealthy individuals writing checks to people and companies they just met is absurd. As far as the specific situation you described, $200,000 is a modest amount. If you had a wealthy individual, or group of individuals, truly interested in owning a bar, it's far more likely that they'd purchase it themselves and hire an experienced person to run it. What incentive would they have to give any equity ownership and control to a group that couldn't "even come close" to putting up $200,000 themselves? "Accredited investor" doesn't necessarily mean "intelligent investor" but a lot of the comments around this general solicitation change assume that there's an abundance of accredited investors who are, for lack of a better description, utter fools. This discussion around the lifting of the ban on general solicitation also seems to assume that this will most greatly affect startups/Silicon Valley and small business, when in fact this will almost certainly most greatly benefit Wall Street and the financial establishment.

clavalle 13y ago
Is it a fact that only accredited investors can be solicited? I remember reading when the Jobs Act was first floated that non-accredited investors could invest as well but were capped at how much they could invest in a given year based on their income.
- 7Figures2Commas 13y ago
  Yes, there is a separate portion of the Jobs Act that deals with crowdfunding and non-accredited investors. That is an entirely different can of worms, but there too, I think there is a general overestimation of how easy it will be for the average small business or startup to raise capital.
jmj42 13y ago
While it's not _necessarily_ true, it is possibly true, and that's the bit that folks are latching on to. They're assuming that there's a "market" of investors who are both interested in and willing to diversify their investment portfolio by, in part, making smaller high risk investments. My experience with, admittedly smaller investment firms, is that this may be true. Organizations like IllinoisVENTURES (I know several of the folks there) aren't interested in big C-round investments. The bulk of their information comes from their proximity (physically and virtually) to Enterprise Works (a UIUC run incubator). I've heard partners declare, on several occasions, "I wish we knew about these guys while they were still looking for seed money." I guess in, at least one, anecdotal case, it does bear out to be true. As for my bar, let me re-phrase, just for accuracy: We couldn't come close on our own without liquidating existing investments. It didn't make mathematical sense to do so (returns were higher on existing than expected returns on the bar). From our perspective, it was an expensive hobby, not a money making investment (for us). On the other hand, if we could raise, let's say $50K from investment, $50K converted from other investments (our own money), and $25K from family, then cover the remaining $75K through bank loan collateralized by the building (the building is valued at $125k)... Yup, that would have been easier.
- 7Figures2Commas 13y ago

neilk 13y ago

I don't see what the difference is. Bars and other small businesses are risky investments too.

jmj42 13y ago
Yes, but my point was, incubators serve as a fine information channel for technology companies, but there is an entire class of small business which are not suited to incubators, such as bars. The rule change gives these small businesses a channel to inform potential investors that they're out there. Investors that they would not, otherwise, be able to reach.
- gohrt 13y ago
  Starbucks did an experiment in "white label" (non-SBUX-branded) storefronts. It didn't continue, but one could imagine developing a national network of white-label restaurants to be run by locals.