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?
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
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!
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.
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.
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.
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. :)
> 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.
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.
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.
> Obviously "healthy, high-caliber" means different things to different people.
That's true, there's definitely subjectivity here. I make the assumption that YC companies are a proxy for "healthy, high-caliber" startups and my opinion of what will be deal breakers for that category of company is shaped by our customer development in the YC network. I could be wrong for a few reasons.
> 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.
Indeed. I think there's a natural lean for attorneys to be more conservative and wait for things to play out a little. I believe that in the next year or two it will be commonly accepted, I've already seen a lot of attitude change over the past year. We'll see. I think this is something startups ultimately want - assuming all the concerns can be addressed. More fundraising options and a wider pool of value-add investors is a good thing if crowdinvesting can be done practically, IMO.
> 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.
I did, in the 585 page document the SEC released they suggest a few adjustments to address the concerns people have. For example, the $1m limit might be applied to the fees collected by the funding portal.
> There's more value to a crowd of investors than easy dumb money
I disagree with this. I'll take advice from 2 people that I trust and admire before I'll poll 10,000 people. In my opinion, it's a distraction. That's why I believe it to be more valuable to have a couple of very smart & helpful investors rather than a lot of people with individual opinions and voices.
Maybe a little off-topic, but in some ways, this is what I admire about Steve Jobs, is seeing what people wanted before they realized they wanted it. I don't know if it's real or not, but the quote attributed to Henry Ford, "If I had asked people what they wanted, they would have said faster horses" does hold a grain of truth. He could cut past the noise of the crowd to see the potential of an idea. Ask someone in 2004 what they wanted in a phone, and "bigger" probably wasn't on the list.
We actually have 35 unaccredited investors in Wefunder and they have been valuable investors, some have been a lot more helpful than some of our accredited investors. A crowd of investors doesn't have to be all strangers and randos. They can be other founders, VPs in big tech companies (who don't quite pass the accredited bar yet), domain experts, someone famous (or internet famous), and people you know and trust. Or they could be your customers who love what you're doing.
I'm actually most excited about allowing customers to invest. There's some people who see what we're doing at Vidpresso, and basically nobody in media has enough money to be accredited, but I'd love to provide upside for people who believe in what we're doing.
> I'm actually most excited about allowing customers to invest.
You can already do that, they should buy your product. If they are so jazzed about it, they should tell their friends, and it should be easy for them to do so through whatever your product is.
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
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.
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 ?
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.
> 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.
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!
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.
$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.
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?
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.
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.
38 comments
[ 4.9 ms ] story [ 48.6 ms ] threadFloated at £3.30 now £5.30 in not much more than a week.
After the "British Petroleum" debacle, what sane company would voluntarily expose itself to such risks unless it had to?
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
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:
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!
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
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.
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. :)
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.
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-solici...
That's true, there's definitely subjectivity here. I make the assumption that YC companies are a proxy for "healthy, high-caliber" startups and my opinion of what will be deal breakers for that category of company is shaped by our customer development in the YC network. I could be wrong for a few reasons.
> 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.
Indeed. I think there's a natural lean for attorneys to be more conservative and wait for things to play out a little. I believe that in the next year or two it will be commonly accepted, I've already seen a lot of attitude change over the past year. We'll see. I think this is something startups ultimately want - assuming all the concerns can be addressed. More fundraising options and a wider pool of value-add investors is a good thing if crowdinvesting can be done practically, IMO.
> 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.
I did, in the 585 page document the SEC released they suggest a few adjustments to address the concerns people have. For example, the $1m limit might be applied to the fees collected by the funding portal.
I disagree with this. I'll take advice from 2 people that I trust and admire before I'll poll 10,000 people. In my opinion, it's a distraction. That's why I believe it to be more valuable to have a couple of very smart & helpful investors rather than a lot of people with individual opinions and voices.
Maybe a little off-topic, but in some ways, this is what I admire about Steve Jobs, is seeing what people wanted before they realized they wanted it. I don't know if it's real or not, but the quote attributed to Henry Ford, "If I had asked people what they wanted, they would have said faster horses" does hold a grain of truth. He could cut past the noise of the crowd to see the potential of an idea. Ask someone in 2004 what they wanted in a phone, and "bigger" probably wasn't on the list.
You can already do that, they should buy your product. If they are so jazzed about it, they should tell their friends, and it should be easy for them to do so through whatever your product is.
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.
Where was this rule when greedy banks sold them expensive mortgages ?
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.
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.
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!
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.
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/mo... [2] http://www.kickstarter.com/projects/559914737/the-veronica-m... [3] http://www.kickstarter.com/projects/1458134548/arkyd-a-space...
Would it work like Kickstarter except you'd receive shares of a company? Would there be a lot of overhead?
> 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.
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.
1) Those are esoteric. People don't do them. However the dotcom boom shows us that they will fund bullshit stock issues.
2) MPT is bullshit. Systems fail in a cascade fashion, not independently. Furthermore investors do not diversify.
For example, PixelPin - https://news.ycombinator.com/item?id=6366343 - raised $240k at a $2.4m valation: https://www.seedrs.com/post_investment/9385#1976