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>... getting investment funding for small businesses is very hard. This rule change makes it much easier. That isn't necessarily true. Just because small busin

>... 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
  I wish somebody had alerted me when a few guys in a Harvard dorm needed capital to pay the hosting bills for their new social network! My missed opportunity to take a huge equity stake in Facebook for $20,000 aside, what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a particular company. That's not what we're talking about though. Your prior comment suggested that the lifting of the ban on general solicitation will make it easier for small businesses that cannot realistically raise capital today to do so. There's a huge difference between a startup that is already working the angel and VC networks and a group of guys who want to buy a bar as a hobby and, perhaps not surprisingly, have no contacts eager to pony up even $50,000 so that the founders can keep most of their money in investments that are producing better returns than the bar would. In other words, you're confirming one of my original observations: a lot of folks seem to believe that general solicitation will enable startups and small businesses that are less-than-compelling investments to raise money from stupid rich people. Although I wouldn't be surprised if somebody somewhere has a list of accredited investors over the age of 80 who are likely to have Alzheimer's, that is not going to happen in significantly larger numbers as a result of this change.

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
I wish somebody had alerted me when a few guys in a Harvard dorm needed capital to pay the hosting bills for their new social network! My missed opportunity to take a huge equity stake in Facebook for $20,000 aside, what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a particular company. That's not what we're talking about though. Your prior comment suggested that the lifting of the ban on general solicitation will make it easier for small businesses that cannot realistically raise capital today to do so. There's a huge difference between a startup that is already working the angel and VC networks and a group of guys who want to buy a bar as a hobby and, perhaps not surprisingly, have no contacts eager to pony up even $50,000 so that the founders can keep most of their money in investments that are producing better returns than the bar would. In other words, you're confirming one of my original observations: a lot of folks seem to believe that general solicitation will enable startups and small businesses that are less-than-compelling investments to raise money from stupid rich people. Although I wouldn't be surprised if somebody somewhere has a list of accredited investors over the age of 80 who are likely to have Alzheimer's, that is not going to happen in significantly larger numbers as a result of this change.