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SEC Approves Equity Crowdfunding from Unaccredited Investors

249 points by akg_67 12y ago

capkutay 12y ago
This must be good news for FundersClub and crowdfunding startups like Kickstarter (maybe good for P2P lending companies too). It may not be good for people who are unknowingly bad at evaluating companies. Seed stage investment is extremely risky for the common investor.
- meric 12y ago
  A limitation on the amount of securities non-accredited investors can purchase in a Tier 2 offering of no more than 10 percent of the greater of the investor’s annual income or net worth. I think this would contain the risk.
  - otoburb 12y ago
    This contains the risk somewhat, except I think the limitation for non-accredited investors only applies for each Tier 2 offering, and doesn't act as an aggregate limitation on a per year basis.
- arikrak 12y ago
  I don't think Kickstarter is planning on offering equity. Other sites will, and they'll serve as a screening service so users know which startups are worthy.
  - aikah 12y ago
    > I don't think Kickstarter is planning on offering equity. Well, if "crowdinvesting" is a success , as I think it will be ,they may pivot It makes more sense to invest in a business than just handing out free money with no oversight , the later is what Kickstarter is. I would even say the former is less risky.
- rdlecler1 12y ago
  Not good news for FC. See my post above.
carbocation 12y ago
> Additional Tier 2 Requirements: > A limitation on the amount of securities non-accredited investors can purchase in a Tier 2 offering of no more than 10 percent of the greater of the investor’s annual income or net worth. Do these modest limitations on non-accredited investors only apply to Tier 2 offerings? I.e., can a non-accredited investor put 100% of net worth into a Tier 1 offering?
- marcusestes 12y ago
  Tier 1 offerings are available to accredited investors only. Here's a link to the final ruling: https://www.sec.gov/rules/final/2015/33-9741.pdf https://www.sec.gov/rules/final/2015/33-9741.pdf
  - otoburb 12y ago
    I originally thought the same, but I couldn't find in the final ruling where it states that Tier 1 offerings are restricted only to accredited investors. Also, I saw a SeedInvest summary article on the proposed rules and it stated: "Anyone can invest: Not limited to just “accredited investors” – your friends and family can invest. Tier 2 investors will, however, be subject to investment limits described below."[1] A law firm called Morrison Foerster also has a nice summary table on page 9 of their Regulation A+ client alert[2]. [1] http://www.seedinvest.com/blog/regulation-a-equity-crowdfunding-rules/ http://www.seedinvest.com/blog/regulation-a-equity-crowdfund... [2] http://www.mofo.com/~/media/Files/ClientAlert/2015/03/150326RegulationA.pdf http://www.mofo.com/~/media/Files/ClientAlert/2015/03/150326...
arikrak 12y ago
I submitted this earlier today, but without changing the title. I guess HN allows resubmissions if there's meaningless text after the URL? https://news.ycombinator.com/item?id=9269737 https://news.ycombinator.com/item?id=9269737
- sanswork 12y ago
  It does and it should make you happy a story you found interesting enough to submit is getting enough traction now for discussion.
  - waterlesscloud 12y ago
    At the same time, it's useful for the site as a whole if people who submit interesting stories are rewarded with karma and not downvoted.
    - sukilot 12y ago
      Karma isn't a reward.
      - nickysielicki 12y ago
        Totally agree. I see no reason why there needs to be a count of how much karma one has collected. I like being able to see upvote and downvote counts for individual comments and posts, but I need not know how much I've accumulated, and I'll say that I think it's detrimental to any given online community.
        UweSchmidt 12y ago
        For some reason there is a leaderboard though :-) https://news.ycombinator.com/leaders https://news.ycombinator.com/leaders
        hamburglar 12y ago
Everhusk 12y ago
> The exemption would be limited to companies organized in and with their principal place of business in the United States or Canada Any thoughts on why they included Canada?
ChuckMcM 12y ago
Sigh, I remain concerned that if you want to light off a bubble in Tech this is the way to do it. Time will tell of course. The reason I am concerned is that the last tech bubble was fueled by retail investors who got to buy stock in companies that IPO'd (but shouldn't have). A lot of people invested their savings into companies they were not prepared to evaluate reasonably. Relying instead on "trusted advisors" who often were financially invested in the stocks they advised going up. No doubt there are some really honest and worthwhile crowd investing companies, just like there were honest and worthwhile financial advisers in the 90's and honest and worthwhile Mortgage brokers in the naughts. But their existence will not deter nor mitigate their dishonest counterparts who will ruthlessly, and with all the tools available to them (legal and otherwise), separate people from their money under the guise of "getting in on the ground floor of the next Google or Facebook." I want with all my being to be wrong about this, and would love for people five years from now to be able to see this comment and say "Gee what a cynic, he really didn't get it did he?" But that future is not the one I expect.
- neovi 12y ago
  There's a small chance something of the sort could happen, but there are some nice limitations included. In the 90s, the companies were issuing to be publicly traded; which means retail investors were free to put their whole income into a stock if they wanted to. Here they're only allowed a percentage of their income depending on their income bracket (over $100,000k or under). There's also a 30% cap to sell, which is far better than selling the whole entire fridge.
  - wsidell 12y ago
    It depends on if it is in Tier 1 or Tier 2. Tier 1 for companies raising less than $20m/year seems not to have a limit on the percentage of their income.
- staunch 12y ago
  Why should only rich people get to invest in companies? Anyone can go to Vegas and blow their entire life savings, but buying shares in Dropbox or Oculus at launch is just too reckless?
neovi 12y ago
I've been reading through the sections for the past hour, so not enough time to get the full context, and a few questions arose: 1. I see that companies using Rega will have to file with the SEC, but does that mean the registering companies will be private or public? 2. If registering companies have to disclose information and it is available on EDGAR, will it be on EDGAR as a reference to a hard copy or will it be available to view online? 3. Is it possible to see a list of companies actively seeking crowdfunding that are currently pursuing Rega exemption? Or is it considered a private offering? There are more questions, but I think that's a good start to get out of the way for us.
rdlecler1 12y ago
I run http://agfunder.com http://agfunder.com and our General Counsel is a former Chief at the SEC. This is a non-starter and will only be used in special circumstances. Just because you have rules that allow non-accredited investors to invest, most companies do not want investments less than $10-15k on their capable. In effect you exclude most non-accredited investors anyways. The exception of course is for the earliest stage companies, but then they run into another problem: legal fees on a Reg A+ Are going to run you $40k-$70k. Compare that to $2-$5k for legal using a YC/500/TechStars template doc. The cost of admission is to high. FundersClub and AngelList will also not benefit from this either because the New rules don't extend to fund structures like the 506(c) rules. So even if you could create some reusable template document with exhaustive disclosures you can't use it for these purposes. Jobs Act 2.0 may address this next year, but for now these rules are largely useless in practice.
- fapjacks 12y ago
  Thanks for your insight. Can you elaborate on why the "Jobs Act 2.0" might help the uselessness of these rules?
  - rdlecler1 12y ago
    Jobs Act 2.0 may allow for a fund structure model. This potentially has its own issues, but net-net I think it's a positive. Regulation tends to favor large corporations because they can afford the regulatory burden.
- technotony 12y ago
  Can you elaborate if you can do SPV investments with this structure? That's the way Angellist and others avoid having many smaller investors on the cap table - you get one line item for the SPV.
- nowarninglabel 12y ago
  For a slightly different perspective, I could see this making certain forms of loans we do in the U.S. possibly easier and/or allowing for more involvement from lenders (at Kiva). Our legal counsel is very conservative though so I wouldn't imagine that being the case any time soon even if it does allow for that.
AhrowTway 12y ago
So... Mark Cuban was right.
deleted 12y ago
[deleted]
curiously 12y ago
year 2000 here we go!
raithe1337 12y ago
before getting too excited, let's see how it looks when it is ready.
zaroth 12y ago
Access to capital shouldn't require flushing $100k down the drain to get started. I have faith the technology will evolve to make companies click-to-start, and cheap to maintain, even allowing unregistered securities in those companies to be traded freely by the public. To the companies who are trying to build walls and dig trenches around marketplaces which serve this end, personally I hope they all fail, and we end up with a distributed network which can host the necessary ledgers and market-making functions required. If anyone here has the legal chops to help build this, please email me ;-) I've done my own 506(b) and I could build the distributed trading engine (did similar work on colored coins) and I would love to open source and democratize a platform for this. I look at what SolarCity did with SolarBonds, which is a platform built by Common Assets who they acquired (unknown amount), if you've tried that platform, I think you have a taste of how SME companies could sell their equity. I think the right platform can also significantly reduce the burden of an extremely long-tail cap table. From a fund / roll-up perspective, the companies host their own trading platform, there's no reason the funds can't buy shares right on there, bundle, and resell the mix to their LPs. Someone like FounderFund benefits by being able to cheaply (as in transaction fees) acquire equity in many company who are running the A+ platform.
- zo1 12y ago
  Sort of like an open-source stock-exchange? Though I love the idea, I'm positive that you'll hit against all sorts of legal/political walls before it gets off the ground. I've always believed that tech can be a great equalizer, and this would be a step in the right direction.
- anigbrowl 12y ago
  It does seem like a lot of overhead. I've been reading this with interest because I had been wondering if it might have positive implications for indie film financing (which usually goes through regulation D for mid-size projects; there's a real opportunity for seed/small project financing at the bottom end of the market), but don't see these changes having much impact in the short term.
- im2w1l 12y ago
  There are a number of shady bitcoin denominated stock exchanges, that are close to your vision of "click-to-start"
yueq 12y ago
1999 bubble is from secondary market. Now it's the first Primary market.
deleted 12y ago
[deleted]
mellavora 12y ago
Interesting that this shows up on HN on the same day as: "fantasy angel investing" http://exchangel.co/ http://exchangel.co/
mqsley 12y ago
It's about time really. Here in the UK equity crowdfunding has given much needed capital to businesses. Does everyone invest? Hell no. Do wealthy people now diversify their portfolios with risky start ups? Yes. There are vigilant checks every investor has to go through that limits the amount of capital they are allowed to invest which limits the risk for even the littlest of guys. When you go to invest you are warned, I mean REALLY warned several times that you will probably lose your investment. This could actually reduce said "bubble" as private investors are not stupid and the valuations you see are very modest. My final point would be that the fundraising activities are open. The companies are subject to heavy scrutiny through Q&A's and all potential investors can see these conversations occurring. I personally have chosen not to invest in companies that others are flocking too as their answers to my questions are so theoretical and I know many investors who have felt the same.
- DennisP 12y ago
  That's a good point. There's been a lot of scaremongering on this issue, which ignores the fact that in various other countries the general public has been able to invest in startups for a long time, without the ill effects so many people predict in the U.S.
  - beagle3 12y ago
    For whatever reason, the US seems to dislike experience from outside the US - that goes for both regulators and voters. Despite Canada, Europe and Japan having efficient functional socialized medicine for at least half a decade, the discussion in the US was about "death panels" and "health welfare queens" and other completely nonexistent issues anywhere else. There are a lot of other such issues, such as gay marriage, gambling, etc - that I don't find it surprising that crowdfunding is also part of that group of subjects. I only find it sad. (On the other hand, significant gun-associated violence is practically unheard of outside the US, even in places that have comparable gun density such as Switzerland and Israel, where almost all males have access to guns, and some cities in Canada; So maybe the US actually is a special case)
dataker 12y ago
I've seen thousands of equity crowdfunding platforms and numbers are somewhat alarming. While we have leading platforms(think Angellist), there are many competing WordPress platforms with security and marketing issues. In order to compete, these platforms will promise a "money fast scheme" promising to turn $50 into $50k. The main issue is that 1000x unicorns would rather do it the other way and most available startups would be somewhat inferior in terms of investment. While it's good to have this provision, it doesn't change a lot of the landscape of investors.
Nursie 12y ago
So does this enable stuff like, say, crowdcube in the US? Because personally I always thought kickstarter should have been a platform for micro-investment rather than (effectively) a pre-order shop that sometimes lets people down.
fnordfnordfnord 12y ago
Does this mean people may be able to purchase equity through something like kickstarter?
- Nursie 12y ago
  I didn't get an answer on my similar question, but here in the UK we have something like that in operation already - crowdcube.com I've not used it yet myself, but I find the idea compelling because it allows people to actually invest in companies that need funding, rather than just pre-order. It seems to support loans with a set interest rate or actual micro-equity. I might actually get around to investing through it someday...
  - ovi256 12y ago
    There's been a boom in France as well in crowdfunded equity. A startup I did some work for did it, and were happy with the results.
matthewmcg 12y ago
The headline is not quite right. These are rules implementing Title IV of the JOBS Act, which facilitates offerings by small companies subject to certain filing and disclosure requirements. The rules for Title III offerings through an internet fundraising platform (the real "crowdfuding" provisions of the JOBS Act) are still pending. A better headline might be "SEC adopts rules for small public offerings."
- xhrpost 12y ago
  Thank you for that, I was very misled by the title. Can you possibly explain this one bullet point in the text? (Only mention of a non-accredited investor). "A limitation on the amount of securities non-accredited investors can purchase in a Tier 2 offering of no more than 10 percent of the greater of the investor’s annual income or net worth."
  - matthewmcg 12y ago
    Companies can sell to both accredited and non-accredited investors. But non-accredited investors can't purchase more than the 10% annual income/net worth limit.
    - 7Figures2Commas 12y ago
      The good news is they can still invest the other 90% in penny stocks!
shawnee_ 12y ago
A long overdue step in the right direction. Some historical perspective on the history of what I like to think of as the "Cookie Licker Laws" [a]. A middle-of-the-road option for both investors and entrepreneurs in this space has been desperately needed for quite some time. The path from modest wealth to the truly lucrative risk-reward based ROI that comes from being to invest intelligently in emerging ideas and trends ... this path has been littered with roadblocks and land mines for way too long. On the investor side ... a ~couple years ago I remember being pretty upset that Lending Club didn't publish their "investor income / net worth requirements" straightaway transparently their site. Rather, they first send investigators on the wild goose chase through their idiotic application process. As far as the entrepreneur side goes: YC has become a less and less attractive option for companies that might not (at least not obviously) quite make it to the $10B potential breakout point that they're looking for: I always tell my partners that our job is to fund all the companies we can that can be worth $10 billion or more. That’s such a difficult constraint we can’t have any other constraints. [b] Not every business idea should have to be that "big" to be given a fair shot at the route from small-time garage venture to IPO. [a] http://ink.hackeress.com/2013/09/what-title-ii-of-jobs-act-means-for.html http://ink.hackeress.com/2013/09/what-title-ii-of-jobs-act-m... [b] http://blogs.wsj.com/digits/2015/03/25/sam-altman-why-hardware-could-yield-the-next-10-billion-startups/ http://blogs.wsj.com/digits/2015/03/25/sam-altman-why-hardwa...
zekevermillion 12y ago
The important part is preempting state law requirements. That's the only reason this matters.
mapgrep 12y ago
No, no it does not. How is this headline still up? It's totally inaccurate. Equity crowdfunding from unaccredited investors was provided for in the JOBS Act. The SEC doesn't get to set the law, Congress does. What the SEC has been doing has been figuring out rules for how this law will be implemented. NOT allowing equity crowdfunding was never an option. Here is the SEC headline: "SEC Adopts Rules to Facilitate Smaller Companies’ Access to Capital" That is accurate. Here is the fourth sentence of the press release: "The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act. " It's really embarrassing this has been up on Hacker News so long and not fixed (or commented on? wow).
- clavalle 12y ago
  I think anyone interested would already know all of that. Without the SEC rules crowdfunding is in stasis. With rules things can move forward. I don't think anyone thinks the SEC is affecting the existence of crowdfunding beyond that. Accuracy of language is important but so is context.
  - mapgrep 12y ago
    It is simply inaccurate to say SEC "approved" crowdfunding. It is outright wrong. Saying that "anyone interested" would know the truth doesn't change that. "With rules things can move forward. " The SEC is legally REQUIRED to issue rules.
deleted 12y ago
[deleted]
toddbcrosland 12y ago
Shameless plug here - I'm Todd Crosland, one of the co-founders of http://seedequity.com http://seedequity.com, and we are deeply interested in solving these information asymmetry issues, risks, and cap table problems mentioned here. We'd be very interested in getting feedback from any of you about our process and are always seeking better ways to reduce these risks. We are a registered broker-dealer with the SEC, which means that we have extremely high compliance requirements for advertising, employee licensing, bad-actor background checks, data security, audits, and more. We try to go the extra mile with our background checks, rejecting founders and investors with backgrounds with any hint of questionable behavior, even if they haven't broken any securities laws. Our regulations require us to share disclosure documents, which describe the risks faced by each company, allowing investors to have a balanced view of each offering. From what I can tell spending time in Silicon Valley over the years, it appears that some of the discouraging wealth disparity there exists because a select group of employees and investors has had access to equity in great companies, while the rest of the population is shut out. With the SEC's carefully crafted protections in place for non-accredited investors, hopefully more small-time investors will have access to high quality, medium to pre-IPO -sized companies. If such companies are willing to accept many non-accredited investors in Reg A+ offerings, they will need a regulated entity, like a broker-dealer, to help them. In any case, I'd be grateful to hear your feedback. You can reach me at crosland at seedequity dot com.

249 points by akg_67 12y ago

This must be good news for FundersClub and crowdfunding startups like Kickstarter (maybe good for P2P lending companies too). It may not be good for people who are unknowingly bad at evaluating companies. Seed stage investment is extremely risky for the common investor.

meric 12y ago
A limitation on the amount of securities non-accredited investors can purchase in a Tier 2 offering of no more than 10 percent of the greater of the investor’s annual income or net worth. I think this would contain the risk.
- otoburb 12y ago
  This contains the risk somewhat, except I think the limitation for non-accredited investors only applies for each Tier 2 offering, and doesn't act as an aggregate limitation on a per year basis.
arikrak 12y ago
I don't think Kickstarter is planning on offering equity. Other sites will, and they'll serve as a screening service so users know which startups are worthy.
- aikah 12y ago
  > I don't think Kickstarter is planning on offering equity. Well, if "crowdinvesting" is a success , as I think it will be ,they may pivot It makes more sense to invest in a business than just handing out free money with no oversight , the later is what Kickstarter is. I would even say the former is less risky.
rdlecler1 12y ago
Not good news for FC. See my post above.

carbocation 12y ago

> Additional Tier 2 Requirements: > A limitation on the amount of securities non-accredited investors can purchase in a Tier 2 offering of no more than 10 percent of the greater of the investor’s annual income or net worth. Do these modest limitations on non-accredited investors only apply to Tier 2 offerings? I.e., can a non-accredited investor put 100% of net worth into a Tier 1 offering?

marcusestes 12y ago
Tier 1 offerings are available to accredited investors only. Here's a link to the final ruling: https://www.sec.gov/rules/final/2015/33-9741.pdf https://www.sec.gov/rules/final/2015/33-9741.pdf
- otoburb 12y ago
  I originally thought the same, but I couldn't find in the final ruling where it states that Tier 1 offerings are restricted only to accredited investors. Also, I saw a SeedInvest summary article on the proposed rules and it stated: "Anyone can invest: Not limited to just “accredited investors” – your friends and family can invest. Tier 2 investors will, however, be subject to investment limits described below."[1] A law firm called Morrison Foerster also has a nice summary table on page 9 of their Regulation A+ client alert[2]. [1] http://www.seedinvest.com/blog/regulation-a-equity-crowdfunding-rules/ http://www.seedinvest.com/blog/regulation-a-equity-crowdfund... [2] http://www.mofo.com/~/media/Files/ClientAlert/2015/03/150326RegulationA.pdf http://www.mofo.com/~/media/Files/ClientAlert/2015/03/150326...

arikrak 12y ago

I submitted this earlier today, but without changing the title. I guess HN allows resubmissions if there's meaningless text after the URL? https://news.ycombinator.com/item?id=9269737 https://news.ycombinator.com/item?id=9269737

sanswork 12y ago
It does and it should make you happy a story you found interesting enough to submit is getting enough traction now for discussion.
- waterlesscloud 12y ago
  At the same time, it's useful for the site as a whole if people who submit interesting stories are rewarded with karma and not downvoted.
  - sukilot 12y ago
    Karma isn't a reward.
    - nickysielicki 12y ago
      Totally agree. I see no reason why there needs to be a count of how much karma one has collected. I like being able to see upvote and downvote counts for individual comments and posts, but I need not know how much I've accumulated, and I'll say that I think it's detrimental to any given online community.
      - UweSchmidt 12y ago
        For some reason there is a leaderboard though :-) https://news.ycombinator.com/leaders https://news.ycombinator.com/leaders
        hamburglar 12y ago

Everhusk 12y ago

> The exemption would be limited to companies organized in and with their principal place of business in the United States or Canada Any thoughts on why they included Canada?

ChuckMcM 12y ago

Sigh, I remain concerned that if you want to light off a bubble in Tech this is the way to do it. Time will tell of course. The reason I am concerned is that the last tech bubble was fueled by retail investors who got to buy stock in companies that IPO'd (but shouldn't have). A lot of people invested their savings into companies they were not prepared to evaluate reasonably. Relying instead on "trusted advisors" who often were financially invested in the stocks they advised going up. No doubt there are some really honest and worthwhile crowd investing companies, just like there were honest and worthwhile financial advisers in the 90's and honest and worthwhile Mortgage brokers in the naughts. But their existence will not deter nor mitigate their dishonest counterparts who will ruthlessly, and with all the tools available to them (legal and otherwise), separate people from their money under the guise of "getting in on the ground floor of the next Google or Facebook." I want with all my being to be wrong about this, and would love for people five years from now to be able to see this comment and say "Gee what a cynic, he really didn't get it did he?" But that future is not the one I expect.

neovi 12y ago
There's a small chance something of the sort could happen, but there are some nice limitations included. In the 90s, the companies were issuing to be publicly traded; which means retail investors were free to put their whole income into a stock if they wanted to. Here they're only allowed a percentage of their income depending on their income bracket (over $100,000k or under). There's also a 30% cap to sell, which is far better than selling the whole entire fridge.
- wsidell 12y ago
  It depends on if it is in Tier 1 or Tier 2. Tier 1 for companies raising less than $20m/year seems not to have a limit on the percentage of their income.
staunch 12y ago
Why should only rich people get to invest in companies? Anyone can go to Vegas and blow their entire life savings, but buying shares in Dropbox or Oculus at launch is just too reckless?

neovi 12y ago

I've been reading through the sections for the past hour, so not enough time to get the full context, and a few questions arose: 1. I see that companies using Rega will have to file with the SEC, but does that mean the registering companies will be private or public? 2. If registering companies have to disclose information and it is available on EDGAR, will it be on EDGAR as a reference to a hard copy or will it be available to view online? 3. Is it possible to see a list of companies actively seeking crowdfunding that are currently pursuing Rega exemption? Or is it considered a private offering? There are more questions, but I think that's a good start to get out of the way for us.

rdlecler1 12y ago

I run http://agfunder.com http://agfunder.com and our General Counsel is a former Chief at the SEC. This is a non-starter and will only be used in special circumstances. Just because you have rules that allow non-accredited investors to invest, most companies do not want investments less than $10-15k on their capable. In effect you exclude most non-accredited investors anyways. The exception of course is for the earliest stage companies, but then they run into another problem: legal fees on a Reg A+ Are going to run you $40k-$70k. Compare that to $2-$5k for legal using a YC/500/TechStars template doc. The cost of admission is to high. FundersClub and AngelList will also not benefit from this either because the New rules don't extend to fund structures like the 506(c) rules. So even if you could create some reusable template document with exhaustive disclosures you can't use it for these purposes. Jobs Act 2.0 may address this next year, but for now these rules are largely useless in practice.

fapjacks 12y ago
Thanks for your insight. Can you elaborate on why the "Jobs Act 2.0" might help the uselessness of these rules?
- rdlecler1 12y ago
  Jobs Act 2.0 may allow for a fund structure model. This potentially has its own issues, but net-net I think it's a positive. Regulation tends to favor large corporations because they can afford the regulatory burden.
technotony 12y ago
Can you elaborate if you can do SPV investments with this structure? That's the way Angellist and others avoid having many smaller investors on the cap table - you get one line item for the SPV.
nowarninglabel 12y ago
For a slightly different perspective, I could see this making certain forms of loans we do in the U.S. possibly easier and/or allowing for more involvement from lenders (at Kiva). Our legal counsel is very conservative though so I wouldn't imagine that being the case any time soon even if it does allow for that.

AhrowTway 12y ago

So... Mark Cuban was right.

deleted 12y ago

[deleted]

curiously 12y ago

year 2000 here we go!

raithe1337 12y ago

before getting too excited, let's see how it looks when it is ready.

zaroth 12y ago

Access to capital shouldn't require flushing $100k down the drain to get started. I have faith the technology will evolve to make companies click-to-start, and cheap to maintain, even allowing unregistered securities in those companies to be traded freely by the public. To the companies who are trying to build walls and dig trenches around marketplaces which serve this end, personally I hope they all fail, and we end up with a distributed network which can host the necessary ledgers and market-making functions required. If anyone here has the legal chops to help build this, please email me ;-) I've done my own 506(b) and I could build the distributed trading engine (did similar work on colored coins) and I would love to open source and democratize a platform for this. I look at what SolarCity did with SolarBonds, which is a platform built by Common Assets who they acquired (unknown amount), if you've tried that platform, I think you have a taste of how SME companies could sell their equity. I think the right platform can also significantly reduce the burden of an extremely long-tail cap table. From a fund / roll-up perspective, the companies host their own trading platform, there's no reason the funds can't buy shares right on there, bundle, and resell the mix to their LPs. Someone like FounderFund benefits by being able to cheaply (as in transaction fees) acquire equity in many company who are running the A+ platform.

zo1 12y ago
Sort of like an open-source stock-exchange? Though I love the idea, I'm positive that you'll hit against all sorts of legal/political walls before it gets off the ground. I've always believed that tech can be a great equalizer, and this would be a step in the right direction.
anigbrowl 12y ago
It does seem like a lot of overhead. I've been reading this with interest because I had been wondering if it might have positive implications for indie film financing (which usually goes through regulation D for mid-size projects; there's a real opportunity for seed/small project financing at the bottom end of the market), but don't see these changes having much impact in the short term.
im2w1l 12y ago
There are a number of shady bitcoin denominated stock exchanges, that are close to your vision of "click-to-start"

yueq 12y ago

1999 bubble is from secondary market. Now it's the first Primary market.

deleted 12y ago

[deleted]

mellavora 12y ago

Interesting that this shows up on HN on the same day as: "fantasy angel investing" http://exchangel.co/ http://exchangel.co/

mqsley 12y ago

It's about time really. Here in the UK equity crowdfunding has given much needed capital to businesses. Does everyone invest? Hell no. Do wealthy people now diversify their portfolios with risky start ups? Yes. There are vigilant checks every investor has to go through that limits the amount of capital they are allowed to invest which limits the risk for even the littlest of guys. When you go to invest you are warned, I mean REALLY warned several times that you will probably lose your investment. This could actually reduce said "bubble" as private investors are not stupid and the valuations you see are very modest. My final point would be that the fundraising activities are open. The companies are subject to heavy scrutiny through Q&A's and all potential investors can see these conversations occurring. I personally have chosen not to invest in companies that others are flocking too as their answers to my questions are so theoretical and I know many investors who have felt the same.

DennisP 12y ago
That's a good point. There's been a lot of scaremongering on this issue, which ignores the fact that in various other countries the general public has been able to invest in startups for a long time, without the ill effects so many people predict in the U.S.
- beagle3 12y ago
  For whatever reason, the US seems to dislike experience from outside the US - that goes for both regulators and voters. Despite Canada, Europe and Japan having efficient functional socialized medicine for at least half a decade, the discussion in the US was about "death panels" and "health welfare queens" and other completely nonexistent issues anywhere else. There are a lot of other such issues, such as gay marriage, gambling, etc - that I don't find it surprising that crowdfunding is also part of that group of subjects. I only find it sad. (On the other hand, significant gun-associated violence is practically unheard of outside the US, even in places that have comparable gun density such as Switzerland and Israel, where almost all males have access to guns, and some cities in Canada; So maybe the US actually is a special case)

dataker 12y ago

I've seen thousands of equity crowdfunding platforms and numbers are somewhat alarming. While we have leading platforms(think Angellist), there are many competing WordPress platforms with security and marketing issues. In order to compete, these platforms will promise a "money fast scheme" promising to turn $50 into $50k. The main issue is that 1000x unicorns would rather do it the other way and most available startups would be somewhat inferior in terms of investment. While it's good to have this provision, it doesn't change a lot of the landscape of investors.

Nursie 12y ago

So does this enable stuff like, say, crowdcube in the US? Because personally I always thought kickstarter should have been a platform for micro-investment rather than (effectively) a pre-order shop that sometimes lets people down.

fnordfnordfnord 12y ago

Does this mean people may be able to purchase equity through something like kickstarter?

Nursie 12y ago
I didn't get an answer on my similar question, but here in the UK we have something like that in operation already - crowdcube.com I've not used it yet myself, but I find the idea compelling because it allows people to actually invest in companies that need funding, rather than just pre-order. It seems to support loans with a set interest rate or actual micro-equity. I might actually get around to investing through it someday...
- ovi256 12y ago
  There's been a boom in France as well in crowdfunded equity. A startup I did some work for did it, and were happy with the results.

matthewmcg 12y ago

The headline is not quite right. These are rules implementing Title IV of the JOBS Act, which facilitates offerings by small companies subject to certain filing and disclosure requirements. The rules for Title III offerings through an internet fundraising platform (the real "crowdfuding" provisions of the JOBS Act) are still pending. A better headline might be "SEC adopts rules for small public offerings."

xhrpost 12y ago
Thank you for that, I was very misled by the title. Can you possibly explain this one bullet point in the text? (Only mention of a non-accredited investor). "A limitation on the amount of securities non-accredited investors can purchase in a Tier 2 offering of no more than 10 percent of the greater of the investor’s annual income or net worth."
- matthewmcg 12y ago
  Companies can sell to both accredited and non-accredited investors. But non-accredited investors can't purchase more than the 10% annual income/net worth limit.
  - 7Figures2Commas 12y ago
    The good news is they can still invest the other 90% in penny stocks!

shawnee_ 12y ago

A long overdue step in the right direction. Some historical perspective on the history of what I like to think of as the "Cookie Licker Laws" [a]. A middle-of-the-road option for both investors and entrepreneurs in this space has been desperately needed for quite some time. The path from modest wealth to the truly lucrative risk-reward based ROI that comes from being to invest intelligently in emerging ideas and trends ... this path has been littered with roadblocks and land mines for way too long. On the investor side ... a ~couple years ago I remember being pretty upset that Lending Club didn't publish their "investor income / net worth requirements" straightaway transparently their site. Rather, they first send investigators on the wild goose chase through their idiotic application process. As far as the entrepreneur side goes: YC has become a less and less attractive option for companies that might not (at least not obviously) quite make it to the $10B potential breakout point that they're looking for: I always tell my partners that our job is to fund all the companies we can that can be worth $10 billion or more. That’s such a difficult constraint we can’t have any other constraints. [b] Not every business idea should have to be that "big" to be given a fair shot at the route from small-time garage venture to IPO. [a] http://ink.hackeress.com/2013/09/what-title-ii-of-jobs-act-means-for.html http://ink.hackeress.com/2013/09/what-title-ii-of-jobs-act-m... [b] http://blogs.wsj.com/digits/2015/03/25/sam-altman-why-hardware-could-yield-the-next-10-billion-startups/ http://blogs.wsj.com/digits/2015/03/25/sam-altman-why-hardwa...

zekevermillion 12y ago

The important part is preempting state law requirements. That's the only reason this matters.

mapgrep 12y ago

No, no it does not. How is this headline still up? It's totally inaccurate. Equity crowdfunding from unaccredited investors was provided for in the JOBS Act. The SEC doesn't get to set the law, Congress does. What the SEC has been doing has been figuring out rules for how this law will be implemented. NOT allowing equity crowdfunding was never an option. Here is the SEC headline: "SEC Adopts Rules to Facilitate Smaller Companies’ Access to Capital" That is accurate. Here is the fourth sentence of the press release: "The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act. " It's really embarrassing this has been up on Hacker News so long and not fixed (or commented on? wow).

clavalle 12y ago
I think anyone interested would already know all of that. Without the SEC rules crowdfunding is in stasis. With rules things can move forward. I don't think anyone thinks the SEC is affecting the existence of crowdfunding beyond that. Accuracy of language is important but so is context.
- mapgrep 12y ago
  It is simply inaccurate to say SEC "approved" crowdfunding. It is outright wrong. Saying that "anyone interested" would know the truth doesn't change that. "With rules things can move forward. " The SEC is legally REQUIRED to issue rules.

deleted 12y ago

[deleted]

toddbcrosland 12y ago

Shameless plug here - I'm Todd Crosland, one of the co-founders of http://seedequity.com http://seedequity.com, and we are deeply interested in solving these information asymmetry issues, risks, and cap table problems mentioned here. We'd be very interested in getting feedback from any of you about our process and are always seeking better ways to reduce these risks. We are a registered broker-dealer with the SEC, which means that we have extremely high compliance requirements for advertising, employee licensing, bad-actor background checks, data security, audits, and more. We try to go the extra mile with our background checks, rejecting founders and investors with backgrounds with any hint of questionable behavior, even if they haven't broken any securities laws. Our regulations require us to share disclosure documents, which describe the risks faced by each company, allowing investors to have a balanced view of each offering. From what I can tell spending time in Silicon Valley over the years, it appears that some of the discouraging wealth disparity there exists because a select group of employees and investors has had access to equity in great companies, while the rest of the population is shut out. With the SEC's carefully crafted protections in place for non-accredited investors, hopefully more small-time investors will have access to high quality, medium to pre-IPO -sized companies. If such companies are willing to accept many non-accredited investors in Reg A+ offerings, they will need a regulated entity, like a broker-dealer, to help them. In any case, I'd be grateful to hear your feedback. You can reach me at crosland at seedequity dot com.