6 ms·

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

by 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
7Figures2Commas 13y ago
Healthy, high-caliber companies are far less likely to want anything to do with the unaccredited crowd anyway. Most will continue to raise capital through Reg D Rule 506 offerings, and 506(b) offerings specifically given the uncertainty around the proposed rules associated with 506(c). It sounds like you basically want Rule 506 offerings without the accredited investor requirements. Debate over the wisdom of that notwithstanding, this was never the intention of the crowdfunding portion of the JOBS Act to begin with.
- gbelote 13y ago
  That's what many critics said before 506(c) but that's not how the market is behaving [1]. There's more value to a crowd of investors than easy dumb money, and I don't see why the personal wealth of an investor really matters. I disagree with your interpretation of the intention of the JOBS Act. As I interpret it it's meant to allow all Americans the opportunity to invest in startups and small businesses while protecting them from losing all their money. Introducing regulations that cause severe adverse selection outweighs the benefit of those specific rules, in my opinion. [1] I think the quality of companies raising publicly on Wefunder and AngelList speak to that, but I'm heavily biased. I respect your opinion even though I disagree with it. :)
  - mbreese 13y ago
    > I don't see why the personal wealth of an investor really matters Because you don't want people gambling with money that they can't afford. These regulations are about protecting investors while still opening up funding for startups.
    - gbelote 13y ago
      That excerpt is taken out of context but to respond to the point you make: that's why there are income-based caps to how much you can invest as an unaccredited investor.
  - 7Figures2Commas 13y ago
    Obviously "healthy, high-caliber" means different things to different people. As for how the market is behaving: I have personally heard several attorneys state that they're advising their clients to be very cautious about Rule 506(c) and according to media reports[1], this is the advice of many attorneys. I am aware that companies are relying on Rule 506(c) for offerings on AngelList and services like yours, but in terms of the overall market for Regulation D offerings, this is a still a small number. > I disagree with your interpretation of the intention of the JOBS Act. You cited the $1 million cap as an example of a rule that is of concern to you. To my knowledge, this cap was an explicit part of the bill that Congress passed. As such, I don't see how the SEC could eliminate that restriction. [1] http://www.crowdsourcing.org/editorial/ban-on-general-solicitation-lifted-but-caution-prevails/28964 http://www.crowdsourcing.org/editorial/ban-on-general-solici...
tslathrow 13y ago
- Forcing unnecessary financial disclosures Have we not learned a damn thing from 1999? The whole reason retail investors have a chance is because public companies have to file an 8k every time the CFO farts
mbreese 13y ago
Regarding the $1M limit, the SEC document included comments regarding this limit. It looks like the limit is congressionally mandated. From the proposed rules: Section 4(a)(6) specifically provides for a maximum aggregate amount of $1 million sold in reliance on the exemption in any 12-month period. The only reference in the statute to changing that amount is the requirement that the Commission update the amount not less frequently than every five years based on the Consumer Price Index. Additionally, statements in the Congressional Record indicate that Congress believed that $1 million was a substantial amount for a small business. We do not believe that Congress intended for us to modify the maximum aggregate amount permitted to be sold under the exemption when promulgating rules to implement the statute. Therefore, we are not proposing to increase the limitation on the aggregate amount sold.

by gbelote 13y ago

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

7Figures2Commas 13y ago

Healthy, high-caliber companies are far less likely to want anything to do with the unaccredited crowd anyway. Most will continue to raise capital through Reg D Rule 506 offerings, and 506(b) offerings specifically given the uncertainty around the proposed rules associated with 506(c). It sounds like you basically want Rule 506 offerings without the accredited investor requirements. Debate over the wisdom of that notwithstanding, this was never the intention of the crowdfunding portion of the JOBS Act to begin with.

gbelote 13y ago
That's what many critics said before 506(c) but that's not how the market is behaving [1]. There's more value to a crowd of investors than easy dumb money, and I don't see why the personal wealth of an investor really matters. I disagree with your interpretation of the intention of the JOBS Act. As I interpret it it's meant to allow all Americans the opportunity to invest in startups and small businesses while protecting them from losing all their money. Introducing regulations that cause severe adverse selection outweighs the benefit of those specific rules, in my opinion. [1] I think the quality of companies raising publicly on Wefunder and AngelList speak to that, but I'm heavily biased. I respect your opinion even though I disagree with it. :)
- mbreese 13y ago
  > I don't see why the personal wealth of an investor really matters Because you don't want people gambling with money that they can't afford. These regulations are about protecting investors while still opening up funding for startups.
  - gbelote 13y ago
    That excerpt is taken out of context but to respond to the point you make: that's why there are income-based caps to how much you can invest as an unaccredited investor.
- 7Figures2Commas 13y ago
  Obviously "healthy, high-caliber" means different things to different people. As for how the market is behaving: I have personally heard several attorneys state that they're advising their clients to be very cautious about Rule 506(c) and according to media reports[1], this is the advice of many attorneys. I am aware that companies are relying on Rule 506(c) for offerings on AngelList and services like yours, but in terms of the overall market for Regulation D offerings, this is a still a small number. > I disagree with your interpretation of the intention of the JOBS Act. You cited the $1 million cap as an example of a rule that is of concern to you. To my knowledge, this cap was an explicit part of the bill that Congress passed. As such, I don't see how the SEC could eliminate that restriction. [1] http://www.crowdsourcing.org/editorial/ban-on-general-solicitation-lifted-but-caution-prevails/28964 http://www.crowdsourcing.org/editorial/ban-on-general-solici...

tslathrow 13y ago

- Forcing unnecessary financial disclosures Have we not learned a damn thing from 1999? The whole reason retail investors have a chance is because public companies have to file an 8k every time the CFO farts

mbreese 13y ago

Regarding the $1M limit, the SEC document included comments regarding this limit. It looks like the limit is congressionally mandated. From the proposed rules: Section 4(a)(6) specifically provides for a maximum aggregate amount of $1 million sold in reliance on the exemption in any 12-month period. The only reference in the statute to changing that amount is the requirement that the Commission update the amount not less frequently than every five years based on the Consumer Price Index. Additionally, statements in the Congressional Record indicate that Congress believed that $1 million was a substantial amount for a small business. We do not believe that Congress intended for us to modify the maximum aggregate amount permitted to be sold under the exemption when promulgating rules to implement the statute. Therefore, we are not proposing to increase the limitation on the aggregate amount sold.