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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 circ

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.
blumkvist 12y ago
Pretty much the only people who will benefit are those looking to run ponzi schemes.
gfodor 12y ago
I think the problem with this type of argument is that all the things you mentioned will have to be reconsidered if the pool of potential investors widens to include the general public. For example, if I have to live with a large cap table in order to have a chance to fund my venture, then of course I'm going to live with it vs not starting my company. The admission fee is a fair point but at a high level if there are tens of millions of potential "investors" out there now for startups who market themselves well enough then the market will find a way around the admission fee.
- rdlecler1 12y ago
  Europe has had a structure in place for awhile and these companies are accepting smaller dollar amounts. Still, raises tend to be a couple hundred thousand dollars when they are successful, and it's not going to be a common avenue for a company to raise large amounts of money. If you're doing something esoteric but popular you can go to Indiegogo/Kickstarter and resell without dilution and without SEC oversight. If the SEC provides a way to pool together smaller investments in a fun structure they would have be able to invest in opportunities like Uber. Probably the safest path (albeit venture investing is very very risky) is when investors get to invest alongside professional VCs because the company will have been better diligences, better capitalized, and there will be management oversight.
brudgers 12y ago
The concern is not about the conduct of people with a former SEC grand poobah on retainer. People running scams won't worry about all that stuff that separates legitimate from illegitimate. What this does is provide an easier way to appear legitimate to a wider section of the population. $70k in legal fees is just chump change if you can get 1000 $2k investors in two hours over the internet. And maybe get a small time lawyer to do the paperwork in exchange for equity.
- rdlecler1 12y ago
  First, these need to be reviewed by the SEC. Second to raise this money on the Internet you are going to have to go to a platform with a large base of investor (Most of those will have broker dealer licenses ame will do their own DD). Next You are assuming that just because something is online that tens of thousands of people are automatically willing to plop $10-$1000 to invest. Well I'm sorry, but that's not how it is going to work. Companies in Europe with lots or press are only raising a few hundred thousand. To move the needle you need much larger checks. At some point, something will slip through but it will be an anomaly and the overall risks are outweighed by the benefits.
  - deleted 12y ago
    [deleted]
api 12y ago
Real companies won't want a bunch of gnats on their cap tables, but scams won't care. Honestly the fact that this still makes it hard for legitimate companies to raise from the public means that the likelihood of the public being exposed to scams is actually higher. It's an either-or thing. Either just open things up, or don't, but going half way is actually more dangerous.

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.

blumkvist 12y ago

Pretty much the only people who will benefit are those looking to run ponzi schemes.

gfodor 12y ago

I think the problem with this type of argument is that all the things you mentioned will have to be reconsidered if the pool of potential investors widens to include the general public. For example, if I have to live with a large cap table in order to have a chance to fund my venture, then of course I'm going to live with it vs not starting my company. The admission fee is a fair point but at a high level if there are tens of millions of potential "investors" out there now for startups who market themselves well enough then the market will find a way around the admission fee.

rdlecler1 12y ago
Europe has had a structure in place for awhile and these companies are accepting smaller dollar amounts. Still, raises tend to be a couple hundred thousand dollars when they are successful, and it's not going to be a common avenue for a company to raise large amounts of money. If you're doing something esoteric but popular you can go to Indiegogo/Kickstarter and resell without dilution and without SEC oversight. If the SEC provides a way to pool together smaller investments in a fun structure they would have be able to invest in opportunities like Uber. Probably the safest path (albeit venture investing is very very risky) is when investors get to invest alongside professional VCs because the company will have been better diligences, better capitalized, and there will be management oversight.

brudgers 12y ago

The concern is not about the conduct of people with a former SEC grand poobah on retainer. People running scams won't worry about all that stuff that separates legitimate from illegitimate. What this does is provide an easier way to appear legitimate to a wider section of the population. $70k in legal fees is just chump change if you can get 1000 $2k investors in two hours over the internet. And maybe get a small time lawyer to do the paperwork in exchange for equity.

rdlecler1 12y ago
First, these need to be reviewed by the SEC. Second to raise this money on the Internet you are going to have to go to a platform with a large base of investor (Most of those will have broker dealer licenses ame will do their own DD). Next You are assuming that just because something is online that tens of thousands of people are automatically willing to plop $10-$1000 to invest. Well I'm sorry, but that's not how it is going to work. Companies in Europe with lots or press are only raising a few hundred thousand. To move the needle you need much larger checks. At some point, something will slip through but it will be an anomaly and the overall risks are outweighed by the benefits.
- deleted 12y ago
  [deleted]

api 12y ago

Real companies won't want a bunch of gnats on their cap tables, but scams won't care. Honestly the fact that this still makes it hard for legitimate companies to raise from the public means that the likelihood of the public being exposed to scams is actually higher. It's an either-or thing. Either just open things up, or don't, but going half way is actually more dangerous.