I think this is a mixed blessing. I agree that the ban has been a hindrance on people trying to find investors but lifting it may not be the best solution.<p>If you look at the way YC demo day works, its a pretty reasonable way for potential investors to find startups which are compatible with their investment goals. I think this addresses the challenge of the general solicitation rule (finding the startups) without the negative of creating a bunch of unvetted startups advertising for dollars. Basically, I believe lifting this ban increases the noise significantly without much boost to the signal.<p>The analog I thought about when I saw the SEC was thinking about going this way was the lift on advertising prescription drugs. That really hasn't been a 'win' for me, while I'm sure some folks have discovered there are drugs available their doctor didn't know about (signal), a whole lot more people are asking their doctors to give them drugs which aren't really appropriate to their symptoms (noise). It has made the national news shows practically infomercials for a variety of meds for 'old people problems'.
I think this is a positive step, but doesn't go far enough. It looks like investing is still limited to accredited investors (individual income above $200k, household income above $300k, or net worth above $1M). So basically, most engineers who work at these companies can't invest in companies in their industry, but inexplicably their doctor can.<p>I'm not one to beat the drum of deregulation, but I think the accredited investor requirements are stupid and wrong. The beauty of the securities laws is that they democratized investing by addressing some of the information asymmetries in the public markets. Regimes that reduce disclosure requirements at the expense of creating accredited investor requirements throw the baby out with the bathwater. Essentially, you cut off many promising investments to the masses, and also artificially prop up the returns to a certain class of investors by lowering the supply of capital. It's a solution that's worse than the problem.
I have little doubt that this will accelerate the super-seed trend, wherein small startups avoid VC for extended periods of time.<p>One thing that struck me: the wefunder guys clearly believe this is going to be a big deal for small-time investors. How will firms accept those "$1000" checks? As far as I know, privately held securities can be issued to only a very small number of investors.<p>Will Facebook/Goldman style investment vehicles become a common mode of skirting the law? Is the SEC going to loosen that 500 investor limit?
I've been a bit out of this loop, but what kinds of protections remain in place to protect small investors from hucksters "starting a company"? Is it pretty much caveat emptor or is there stuff not mentioned in this article?<p>I think this approach is pretty cool, but there are these drawbacks. Are there going to be limits, protections, or restraints? Is the solicitation still only limited to qualified investors or how does this work?<p>EDIT: I see I missed that the article says "qualified investors", but I'm still not sure if that's the legal term or a more loose term.
I think it's going to be very interesting to see how this plays out.<p>For one thing, I expect it to continue the trend of shifting the balance of power from investors to founders. Basically, this will be a huge amount of new competition for angel investors. And crowdinvestors don't have voting rights or a board seat. In order to continue to get into deals they want, angels and VCs will have to bring more value to the table and accept less favorable terms. So I would guess, anyway.<p>On the other hand, it isn't necessarily going to be a river of cash for anyone who wants it. Along with the art of pitching to individual investors, one will also have to learn the art of pitching to the crowd -- and will be competing against everyone else doing the same thing. I expect to see a small industry of companies assisting founders in this new kind of marketing.
I was listening to Alan Kay on the More or less blog today, and what he said resonated here.<p>Basically the stock market no longer bears any relation to the simple business of providing capital to companies to grow.<p>The trade in secondary markets is so huge that the stock market can happily ignore smaller growing companies - and it is it seems if VCs and similar are to be believed.<p>Plus we know it is - reaching IPO should be when a company really starts to deliver, takes the capital and expands. Not when the founders leave, and the growth halts.<p>So yes, a new stock market, not bound to the financial gaming house, is needed to supply capital to growing companies.<p>It wont be kickstarter. But it will be something. And I doubt it will be American. It will be a federation of small markets across India and Brazil and China.<p>And it wont be tech-led. We can barely use the capital.
You still need to be an accredited investor to take part in these potential general solicitation rounds (net worth above $1 million, minus primary residence, or annual income of more than $200,000), right?
One thing I noticed in passing when reading the articles about this today: the accredited investor rules have not been updated for inflation since they were passed in 1982.<p>If they had been, by my calculations, the net worth requirement would be $2.41m instead of $1m and the income requirement $482k instead of $200k. Definitely easier to get accredited these days...
I don't have a particular objection to the change, but it's a <i>little</i> overstating the previous situation to say that only people with access to private networks could fund startups. Startups couldn't advertise overtly with "Got $1000? Fund us!" banner ads on Facebook, but nothing prevented a potential investor from emailing the contact addresses of interesting companies the investor saw on TechCrunch or HN, and asking if the company is interested in discussing an investment. Some companies will even telegraph their openness to such contacts on their website (not phrased as a solicitation, but making it clear they are in a fund-raising phase).
How does this affect state securities ("blue sky") laws? It doesn't do a lot of good to be allowed to solicit under federal law if you have to comply with 50 (well, some are null, but still close) different regulations. IIRC NY and CA are particularly tough.
Good points on the opportunities/challenges today's SEC ruling on general solicitation brings to startup funding. At Bison.co, we believe the important changes from these new rules will have less to do with accredited investors and more to do with increasing data openness in the private equity industry. Check out our latest blog post for details on how it will play out... (<a href="http://blog.bison.co/2013/07/10/hello-private-equity-marketing/" rel="nofollow">http://blog.bison.co/2013/07/10/hello-private-equity-marketi...</a>)
But the people who invest still need to be accredited investors, i.e. meet some criteria of annual income and/or net worth? Otherwise you will see a flood of scam and trash public image of the whole idea of starting a startup.
General solicitations must still be directed only at accredited investors, not the general public. I feel that this is an important point missing from this conversation.