7 ms·

SEC moves toward allowing crowdfunding IPOs

86 points by antoviaque 13y ago

walshemj 13y ago
But the SEC won't allow ordinary Americans to invest in much safer FTSE flotations for example say the royal mail float that just happened. Floated at £3.30 now £5.30 in not much more than a week.
- cube13 13y ago
  Is this a SEC problem or a problem with British regulations? I'm completely clueless on how this works for international stuff.
  - walshemj 13y ago
    SEC was my understanding from reading the prospectus.
    - jackgavigan 13y ago
      Offering shares to US citizens would have subjected the Royal Mail IPO to US laws and regulations, and opened the company up to the risk of spurious lawsuits by greedy lawyers or over-zealous regulators and public prosecutors seeking a high-profile scalp so they can get their face in the newspapers and on TV to kickstart their election campaign. After the "British Petroleum" debacle, what sane company would voluntarily expose itself to such risks unless it had to?
      - walshemj 13y ago
        I think that its UK laws that apply to securities on the FTSE 100 same as if I hold ATT or IBM I have to abide by US law - and file a wben 8. Just seems odd that the SEC is fine with people investing in much riskier start ups than blue chips - arnt they supposed to look out for investors as well as companys
MWil 13y ago
To make a public comment: http://www.sec.gov/cgi-bin/ruling-comments?ruling=s70913&rule_path=/comments/s7-09-13&file_num=S7-09-13&action=Show_Form&title=Crowdfunding http://www.sec.gov/cgi-bin/ruling-comments?ruling=s70913&rul...
berberous 13y ago
For anyone who is curious, here's a link to the (585 page!) PDF of the SEC's proposed rules: http://www.sec.gov/rules/proposed/2013/33-9470.pdf http://www.sec.gov/rules/proposed/2013/33-9470.pdf
gbelote 13y ago
I'm really excited that we've made it to this point. The implementation of the full JOBS Act has been on the horizon for over a year and I think it has a lot of potential to do good. That said, I'm nervous about overzealous regulations. There are a few ways this can create severe enough adverse selection that healthy, high-caliber companies will avoid raising from the unaccredited crowd. I'm still reading the details in the 585 page PDF of proposed rules but some concerns come to mind: - Capping the whole round to $1m - Forcing unnecessary financial disclosures - Inability to use a single purpose fund for aggregating small investors (forcing every unaccredited to be a direct investor) I believe these are all feel-good but destructive rules that will poison the unaccredited crowdinvesting ecosystem. At Wefunder we've learned a lot about what it takes to get high caliber startups to use our platform and I'm pretty confident that those three things can each be deal breakers. If you're a part of the startup ecosystem I encourage you to pay attention to this law, get informed, and give the SEC your feedback. These are only -proposed- rules and the SEC will listen and adapt (at least, they have in the past). Someday you may want to raise money or invest in a company!
- berberous 13y ago
  I agree with you that these three items could be dealbreakers for the high caliber startups, but aren't they mandated by the JOBS Act itself? (At least the first two, I'm not sure about the third.) I'm not sure the SEC can override congress' say on those matters.
  - gbelote 13y ago
    The SEC has enough power to shape regulation to neuter some of those clauses. For instance, they're able to apply the $1m cap to fees collected by the portal (not amount raised) or add exceptions for certain types of offerings. [1] So in theory they could add exemptions or weaken other clauses. I'm not sure exactly where the line is drawn (e.g. can they entirely rewrite the JOBS Act?) but I believe the rules outlined in the JOBS Act are mostly to express intent of Congress and it's the job of the SEC to implement them in a way that works and maintains the intent. [1] They request comments on those ideas and more in the big PDF. See page 20 of http://www.sec.gov/rules/proposed/2013/33-9470.pdf http://www.sec.gov/rules/proposed/2013/33-9470.pdf
wissler 13y ago
Call my cynical, but I don't think they are going to allow the peons to move in on their action. If I'm wrong, fantastic!
31reasons 13y ago
The whole limit on how much you can invest looks silly to me. When it comes to investing in high growth startups, government thinks : "Poor people are dumb and we need to protect them from their own mistakes". Where was this rule when greedy banks sold them expensive mortgages ?
- pla3rhat3r 13y ago
  I agree with this up to a point. I think there should be little that limits people from being able to invest as much as they want but then you have to consider the same limitations with IRAs and 401Ks. Not saying investing in a new startup is just like investing in an IRA or 401K but I can certainly understand it from that perspective. Maybe the answer isn't limiting the amount that can be invested but increasing oversight on the companies people are investing in. No one wants to be taken for a ride even though the risk is above average in this case.
- 7Figures2Commas 13y ago
  > Where was this rule when greedy banks sold them expensive mortgages ? Uhm, the government encouraged much of the mortgage lending you're referring to. The loans themselves were artificially cheap. Unfortunately for borrowers, the houses were not.
  - InclinedPlane 13y ago
    A lot of people thought those high risk mortgages were win/win. Best case scenario: the mortgage gets paid back at a healthy RoI. Better case scenario: the borrower defaults and the mortgage owners end up with real estate that is getting more valuable by the day. Of course, the borrower gets screwed but who gives a shit about them. And if the housing market tanks the whole thing falls apart, but the market can only go up, up, up!
    - 7Figures2Commas 13y ago
      Your understanding of how mortgage-backed securities work is flawed. MBS holders have no control over how the collateral backing their securities (the houses themselves) are dealt with in a default. The servicers of the MBS are responsible for this. In other words, no investor buys MBS with the expectation of owning houses because that's simply not what happens. Out of all the "victims" in the housing collapse, MBS investors were arguably some of the more sympathetic. They were the true bag holders, overpaying (in the form of lower yields than was justified by actual risk) for lead that credit ratings agencies assured them was gold. Following the collapse, many any of them sued, alleging amongst other things, fraud. On the list of "victims", many but certainly not all borrowers were less sympathetic characters. Some individuals had no problem lying about their income, and many others took out adjustable rate mortgages with the incorrect assumption that they'd be able to flip their homes at a profit or rent them out when their payments increased. It's hard to see these folks as anything other than willing participants in the game.
tocomment 13y ago
I'm trying to figure out what this kind of funding would be good for. Could you use it to open a restaurant or bar for example?
- thaddeusmt 13y ago
  $1 million (a year) in funding might not register on TechCrunch, but I would think it's more than enough money to start (or help keep afloat) many different kinds businesses, including tech startups.
- michaelt 13y ago
  Kickstarter's Technology category has only 9 projects that have raised over $1 million [1]. None of them requested more than $250,000 and one requested just $30,000. In fact the only things I can find on Kickstarter that requested and raised more than $1 million are films [2]. There's people working on space telescopes who only requested $1 million [3]. So, I guess this type of funding could be used for the kind of things you see on kickstarter? [1] http://www.kickstarter.com/discover/categories/technology/most-funded?ref=more#p1 http://www.kickstarter.com/discover/categories/technology/mo... [2] http://www.kickstarter.com/projects/559914737/the-veronica-mars-movie-project?ref=most-funded http://www.kickstarter.com/projects/559914737/the-veronica-m... [3] http://www.kickstarter.com/projects/1458134548/arkyd-a-space-telescope-for-everyone-0?ref=most-funded http://www.kickstarter.com/projects/1458134548/arkyd-a-space...
  - tocomment 13y ago
    Excellent point. So is anyone working on a kickstarter that uses this model instead? Would it work like Kickstarter except you'd receive shares of a company? Would there be a lot of overhead?
mehwoot 13y ago
The SEC is overrated and this is the year that they stop being relevant.
confluence 13y ago
HAHAHAHAHAHAHAH brilliant! Let's break this dumb idea down shall we. > These rules could reinvent the way companies raise money by allowing them to bypass the traditional costs of going public, which usually involves hiring costly investment bankers and accountants. So instead of breaking the seat belt monopoly to reduce costs (work with me here), we'll just make it so that kids no longer have to wear seat belts anymore. It's absolutely brilliant in its sheer audacity. You get to keep your campaign contributions from the rent-seeking financial cartels, whilst simultaneously providing VCs with their retail lambs for the slaughter. The fact that they do this, whilst selling the idea as a positive act for the public has me slack jawed. That takes balls. > Congress is looking for a loophole to allow smaller companies to get an exemption from the strict rules controlling the sale of securities to individuals. Congress is hoping that by using Internet crowdfunding, small and promising companies could gather capital needed to grow and expand from a wide pool of investors. So we invent seat belts, and people stop dying. After a while people forget why we had seat belts in the first place. Let's take away the seat belts, because look, no one has died in a really long time. Furthermore, why on earth would MORE risky companies need LESS disclosure. That makes no sense. If you were thinking halfway straight, you'd realize that it's the small ones that are the most subject to corruption, pump and dump scams and extensive stock promotion. Penny stocks CLEARLY indicate that this is the case. We need MORE disclosure not less. Costs are entirely derived from the IPO cartel. Break that you morons. Oh wait, you can't, because 20% of next year's campaign contributions come from your financial bosses. > With the new rules, the SEC is looking to open the concept of crowdfunding to the public, while still offering investor protection. The new elements of the rules would cap any company's ability to raise money through crowdfunding to $1 million every 12 months. For investors with an annual net income or net worth of less than $100,000, every 12 months they can invest up to 5% of that, or $2,000, whichever is more. Those with an annual income or net worth exceeding $100,000 can invest up to 10% of that every 12 months. Securities bought through portals would have to be held a year before being sold. Good luck regulating this. Capital limits are always exceeded by the determinedly stupid.
- streetcat 13y ago
  Two things: 1) I would assume that you can invest at the same level of risk at existing public company (e.g. micro cup, or investing in options), the this point is mute. 2) core pillar of modern finance is portfolio theory . I.e. how to mitigate a specific company risk by investing in portfolio of companies (which is what VCs are essentially doing). Hence, this would also imply here (regardless of the amount of audit employed). So really a risk of a single company is a non issue.
jackgavigan 13y ago
We've had equity crowdfunding in the UK for a while now. The two platforms I hear about most often are Seedrs ($3.2m invested) and Crowdcube ($23.3m). For example, PixelPin - https://news.ycombinator.com/item?id=6366343 https://news.ycombinator.com/item?id=6366343 - raised $240k at a $2.4m valation: https://www.seedrs.com/post_investment/9385#1976 https://www.seedrs.com/post_investment/9385#1976

86 points by antoviaque 13y ago

But the SEC won't allow ordinary Americans to invest in much safer FTSE flotations for example say the royal mail float that just happened. Floated at £3.30 now £5.30 in not much more than a week.

cube13 13y ago
Is this a SEC problem or a problem with British regulations? I'm completely clueless on how this works for international stuff.
- walshemj 13y ago
  SEC was my understanding from reading the prospectus.
  - jackgavigan 13y ago
    Offering shares to US citizens would have subjected the Royal Mail IPO to US laws and regulations, and opened the company up to the risk of spurious lawsuits by greedy lawyers or over-zealous regulators and public prosecutors seeking a high-profile scalp so they can get their face in the newspapers and on TV to kickstart their election campaign. After the "British Petroleum" debacle, what sane company would voluntarily expose itself to such risks unless it had to?
    - walshemj 13y ago
      I think that its UK laws that apply to securities on the FTSE 100 same as if I hold ATT or IBM I have to abide by US law - and file a wben 8. Just seems odd that the SEC is fine with people investing in much riskier start ups than blue chips - arnt they supposed to look out for investors as well as companys

MWil 13y ago

To make a public comment: http://www.sec.gov/cgi-bin/ruling-comments?ruling=s70913&rule_path=/comments/s7-09-13&file_num=S7-09-13&action=Show_Form&title=Crowdfunding http://www.sec.gov/cgi-bin/ruling-comments?ruling=s70913&rul...

berberous 13y ago

For anyone who is curious, here's a link to the (585 page!) PDF of the SEC's proposed rules: http://www.sec.gov/rules/proposed/2013/33-9470.pdf http://www.sec.gov/rules/proposed/2013/33-9470.pdf

gbelote 13y ago

I'm really excited that we've made it to this point. The implementation of the full JOBS Act has been on the horizon for over a year and I think it has a lot of potential to do good. That said, I'm nervous about overzealous regulations. There are a few ways this can create severe enough adverse selection that healthy, high-caliber companies will avoid raising from the unaccredited crowd. I'm still reading the details in the 585 page PDF of proposed rules but some concerns come to mind: - Capping the whole round to $1m - Forcing unnecessary financial disclosures - Inability to use a single purpose fund for aggregating small investors (forcing every unaccredited to be a direct investor) I believe these are all feel-good but destructive rules that will poison the unaccredited crowdinvesting ecosystem. At Wefunder we've learned a lot about what it takes to get high caliber startups to use our platform and I'm pretty confident that those three things can each be deal breakers. If you're a part of the startup ecosystem I encourage you to pay attention to this law, get informed, and give the SEC your feedback. These are only -proposed- rules and the SEC will listen and adapt (at least, they have in the past). Someday you may want to raise money or invest in a company!

berberous 13y ago
I agree with you that these three items could be dealbreakers for the high caliber startups, but aren't they mandated by the JOBS Act itself? (At least the first two, I'm not sure about the third.) I'm not sure the SEC can override congress' say on those matters.
- gbelote 13y ago
  The SEC has enough power to shape regulation to neuter some of those clauses. For instance, they're able to apply the $1m cap to fees collected by the portal (not amount raised) or add exceptions for certain types of offerings. [1] So in theory they could add exemptions or weaken other clauses. I'm not sure exactly where the line is drawn (e.g. can they entirely rewrite the JOBS Act?) but I believe the rules outlined in the JOBS Act are mostly to express intent of Congress and it's the job of the SEC to implement them in a way that works and maintains the intent. [1] They request comments on those ideas and more in the big PDF. See page 20 of http://www.sec.gov/rules/proposed/2013/33-9470.pdf http://www.sec.gov/rules/proposed/2013/33-9470.pdf

wissler 13y ago

Call my cynical, but I don't think they are going to allow the peons to move in on their action. If I'm wrong, fantastic!

31reasons 13y ago

The whole limit on how much you can invest looks silly to me. When it comes to investing in high growth startups, government thinks : "Poor people are dumb and we need to protect them from their own mistakes". Where was this rule when greedy banks sold them expensive mortgages ?

pla3rhat3r 13y ago
I agree with this up to a point. I think there should be little that limits people from being able to invest as much as they want but then you have to consider the same limitations with IRAs and 401Ks. Not saying investing in a new startup is just like investing in an IRA or 401K but I can certainly understand it from that perspective. Maybe the answer isn't limiting the amount that can be invested but increasing oversight on the companies people are investing in. No one wants to be taken for a ride even though the risk is above average in this case.
7Figures2Commas 13y ago
> Where was this rule when greedy banks sold them expensive mortgages ? Uhm, the government encouraged much of the mortgage lending you're referring to. The loans themselves were artificially cheap. Unfortunately for borrowers, the houses were not.
- InclinedPlane 13y ago
  A lot of people thought those high risk mortgages were win/win. Best case scenario: the mortgage gets paid back at a healthy RoI. Better case scenario: the borrower defaults and the mortgage owners end up with real estate that is getting more valuable by the day. Of course, the borrower gets screwed but who gives a shit about them. And if the housing market tanks the whole thing falls apart, but the market can only go up, up, up!
  - 7Figures2Commas 13y ago
    Your understanding of how mortgage-backed securities work is flawed. MBS holders have no control over how the collateral backing their securities (the houses themselves) are dealt with in a default. The servicers of the MBS are responsible for this. In other words, no investor buys MBS with the expectation of owning houses because that's simply not what happens. Out of all the "victims" in the housing collapse, MBS investors were arguably some of the more sympathetic. They were the true bag holders, overpaying (in the form of lower yields than was justified by actual risk) for lead that credit ratings agencies assured them was gold. Following the collapse, many any of them sued, alleging amongst other things, fraud. On the list of "victims", many but certainly not all borrowers were less sympathetic characters. Some individuals had no problem lying about their income, and many others took out adjustable rate mortgages with the incorrect assumption that they'd be able to flip their homes at a profit or rent them out when their payments increased. It's hard to see these folks as anything other than willing participants in the game.

tocomment 13y ago

I'm trying to figure out what this kind of funding would be good for. Could you use it to open a restaurant or bar for example?

thaddeusmt 13y ago
$1 million (a year) in funding might not register on TechCrunch, but I would think it's more than enough money to start (or help keep afloat) many different kinds businesses, including tech startups.
michaelt 13y ago
Kickstarter's Technology category has only 9 projects that have raised over $1 million [1]. None of them requested more than $250,000 and one requested just $30,000. In fact the only things I can find on Kickstarter that requested and raised more than $1 million are films [2]. There's people working on space telescopes who only requested $1 million [3]. So, I guess this type of funding could be used for the kind of things you see on kickstarter? [1] http://www.kickstarter.com/discover/categories/technology/most-funded?ref=more#p1 http://www.kickstarter.com/discover/categories/technology/mo... [2] http://www.kickstarter.com/projects/559914737/the-veronica-mars-movie-project?ref=most-funded http://www.kickstarter.com/projects/559914737/the-veronica-m... [3] http://www.kickstarter.com/projects/1458134548/arkyd-a-space-telescope-for-everyone-0?ref=most-funded http://www.kickstarter.com/projects/1458134548/arkyd-a-space...
- tocomment 13y ago
  Excellent point. So is anyone working on a kickstarter that uses this model instead? Would it work like Kickstarter except you'd receive shares of a company? Would there be a lot of overhead?

mehwoot 13y ago

The SEC is overrated and this is the year that they stop being relevant.

confluence 13y ago

HAHAHAHAHAHAHAH brilliant! Let's break this dumb idea down shall we. > These rules could reinvent the way companies raise money by allowing them to bypass the traditional costs of going public, which usually involves hiring costly investment bankers and accountants. So instead of breaking the seat belt monopoly to reduce costs (work with me here), we'll just make it so that kids no longer have to wear seat belts anymore. It's absolutely brilliant in its sheer audacity. You get to keep your campaign contributions from the rent-seeking financial cartels, whilst simultaneously providing VCs with their retail lambs for the slaughter. The fact that they do this, whilst selling the idea as a positive act for the public has me slack jawed. That takes balls. > Congress is looking for a loophole to allow smaller companies to get an exemption from the strict rules controlling the sale of securities to individuals. Congress is hoping that by using Internet crowdfunding, small and promising companies could gather capital needed to grow and expand from a wide pool of investors. So we invent seat belts, and people stop dying. After a while people forget why we had seat belts in the first place. Let's take away the seat belts, because look, no one has died in a really long time. Furthermore, why on earth would MORE risky companies need LESS disclosure. That makes no sense. If you were thinking halfway straight, you'd realize that it's the small ones that are the most subject to corruption, pump and dump scams and extensive stock promotion. Penny stocks CLEARLY indicate that this is the case. We need MORE disclosure not less. Costs are entirely derived from the IPO cartel. Break that you morons. Oh wait, you can't, because 20% of next year's campaign contributions come from your financial bosses. > With the new rules, the SEC is looking to open the concept of crowdfunding to the public, while still offering investor protection. The new elements of the rules would cap any company's ability to raise money through crowdfunding to $1 million every 12 months. For investors with an annual net income or net worth of less than $100,000, every 12 months they can invest up to 5% of that, or $2,000, whichever is more. Those with an annual income or net worth exceeding $100,000 can invest up to 10% of that every 12 months. Securities bought through portals would have to be held a year before being sold. Good luck regulating this. Capital limits are always exceeded by the determinedly stupid.

streetcat 13y ago
Two things: 1) I would assume that you can invest at the same level of risk at existing public company (e.g. micro cup, or investing in options), the this point is mute. 2) core pillar of modern finance is portfolio theory . I.e. how to mitigate a specific company risk by investing in portfolio of companies (which is what VCs are essentially doing). Hence, this would also imply here (regardless of the amount of audit employed). So really a risk of a single company is a non issue.

jackgavigan 13y ago

We've had equity crowdfunding in the UK for a while now. The two platforms I hear about most often are Seedrs ($3.2m invested) and Crowdcube ($23.3m). For example, PixelPin - https://news.ycombinator.com/item?id=6366343 https://news.ycombinator.com/item?id=6366343 - raised $240k at a $2.4m valation: https://www.seedrs.com/post_investment/9385#1976 https://www.seedrs.com/post_investment/9385#1976