

Crowdfunding passed in the Senate and here's what they changed - vnchr
http://www.scottbrown.senate.gov/public/index.cfm/2012/3/senate-passes-brown-merkley-bipartisan-crowdfunding-bill

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tptacek
How much does this really change the game for any company that long-term
thinks it may take VC money? Doesn't stuff like this crud up cap tables and
drastically increase the legal cost of obtaining the protections VCs typically
demand? Won't the best prospects among startups avoid crowdfunding, creating
an adverse selection problem among available companies to fund through it?

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wmf
Yes, it seems like "crowd money" is another form of dumb money, which many
people say entrepreneurs shouldn't bother taking. Crowdfunding really plays to
the "misunderstood genius who the angel establishment refused to fund" story.

Of course, we're all probably thinking about silicon valley style startups.
It's possible that crowdfunding will be used for lifestyle businesses as well
(not that that's a good idea either).

~~~
tptacek
I think the "dumb money" meme deserves some suppression too. Also, after a few
seconds more thought: one reason current low-net-worth investors are a problem
with VCs is that they're unaccredited, and unaccredited investors incur
liability for companies (as I understand it they can more or less claim at any
moment to have been ripped off by the company).

That's not a problem you have if the investments are explicitly aboveboard.

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JumpCrisscross
_“For investors with an income of less than $100,000, investments will be
capped at the greater of $2,000 or 5% of income. For investors within an
income of more than $100,000, investments will be capped at 10% up to
$100,000.”_

Is the cap per investment or per person? E.g., if I make 100k, does that mean
I can invest 5k total, or no more than 5k in any one company?

Also, is this an annual cap? What happens if I invest in January and the
investment appreciates (or depreciates)? Does my cap move with MtM, or just
record the cost?

Finally, isn't the "10% up to 100k" part redundant, since someone who is
earning 1 million is an accredited investor by the traditional definition? Or
is the 100k similar to the 2k, in that it's one part of a greater of function?

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waterlesscloud
From the bill-

(B) the aggregate amount sold to any investor by an issuer, including any
amount sold in reliance on the exemption provided under this paragraph during
the 12-month period preceding the date of such transaction, does not exceed--
`(i) the greater of $2,000 or 5 percent of the annual income or net worth of
such investor, as applicable, if either the annual income or the net worth of
the investor is less than $100,000; and (ii) 10 percent of the annual income
or net worth of such investor, as applicable, not to exceed a maximum
aggregate amount sold of $100,000, if either the annual income or net worth of
the investor is equal to or more than $100,000;

EDIT- Wait, what if say your income is $150k but your net worth is only $80k?
Section one says it applies if either net worth or income is less than $100k,
but section two says it applies if either is greater than $100k. Hmmm.

~~~
JumpCrisscross
So Grandma with $50k could invest in 25 start-ups at $2k each? I suppose if
they each have at least a 8% probability of more than 10-bagging it...

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mbreese
No, she could invest $100 in 25 startups or $2500 total (5% of $50K). The
limit was on total investment.

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sudonim
Can anyone explain why 25 Democrats + Bernie Sanders (Independent) voted
against the bill?
[http://politics.nytimes.com/congress/votes/112/senate/2/55?r...](http://politics.nytimes.com/congress/votes/112/senate/2/55?ref=business)

Do they want to protect unsophisticated investors from being tricked? It seems
like it's a really positive movement in support of small, innovative
businesses.

~~~
tptacek
Yes; it rolls back investor protections. To understand the concern (you don't
have to agree with it to understand it), stop assuming that all or even most
of the people who take advantage of Crowdfunding will be businesses run in
good faith, or that there will be any effective way to impute reputations to
all, most, or even _any_ of the people offering equity on these sites.

~~~
littlegiantcap
To be fair people said the same thing about ebay. Any sort of quality
crowdfunding site will be able to prevent fraud through a mix of identity
verification and leveraging their users expertise to weigh in on a businesses
viability. (At least that's the model we're using)

~~~
jellicle
I think you and I both know that there is no shortcut way to evaluating the
viability of a startup company.

EITHER you will put them through a Y-combinator-like interview and evaluation
process, with sophisticated evaluators and a lot of man-hours spent per
company, OR you aren't doing shit to evaluate them and you're going to be
hosting scammers left and right. There is no shortcut.

~~~
littlegiantcap
You crowdsource the viability and the platform makes sure they're a real
company and verifies their legal status. Who better decide whether or not a
company has a viable idea than their potential customers or users? In fact, I
can't think of a better way to assess the viability of a company than to put
it out there in front of 1000's of eyes to see.

The truth is that the Y-Combinator evaluation style, or other more tradition
financing routes for that matter, aren't the end all be all. We're working our
tails off to leverage our users knowledge and make a system that roots out any
sort of scammers.Crowdsourcing isn't a short cut, it's just a decentralized
system versus our current more centralized one. In fact, I suspect more man
hours will be put into assessing viability through a crowdsourced model just
because of the sheer number of people.

~~~
jellicle
Scammers are going to slaughter you.

Company: "We're going to cure cancer!"

First 20 crowdsourcers, all paid by company: "These guys are totally legit! I
visited their offices! Saw a hamster that was totally cancer-free!"

Next 500 crowdsourcers, not paid by company: "Looks legit! Take our money,
please!"

Company founders: {fly to Switzerland in their ROFLcopter, having committed no
crime whatsoever}

1000 or 100,000 or 100,000,000 eyes looking at a subject shallowly are not a
replacement for one set of eyes looking at a subject deeply. The great thing
is, the marks won't even realize they've been scammed for years or perhaps
ever, due to the long delay between providing money and expecting results.

~~~
wmf
I think a more subtle approach might work better, like promising a distributed
social network written in Rails.

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nextparadigms
Will this make Kickstarter illegal in any way? I mean are people still free to
give money (capped of course) without having to receive stock in return?

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tptacek
Kickstarter isn't an investment vehicle.

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Mizza
> SEC-registered crowdfunding portal.

This is interesting to me. Where can I find more information about the
specifics of this?

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littlegiantcap
I'm actually working on a crowdfunding for equity site that we're going to be
launching here in the next couple of weeks. I had the opportunity to read the
bill and it stipulates that those of us acting as crowdfunding intermediaries
be either broker dealers or this new class of financial institution called a
"funding portal"

From here on this is pure speculation. Basically, the gist that I've gotten
from the various SEC officials making comments on the bill is that a funding
portal is going to a be very loosely regulated compared to other financial
intermediaries. Mostly funding portals will exist as a way for the SEC to keep
tabs on us to prevent fraud, and to make sure we're meeting all our various
reporting requirements to the Federal and State level governments. Again, all
of this is speculation based off of the various committee hearings, and
comments from SEC higher ups regarding the crowdfunding bill.

Edit: I also should have included that the SEC is using "funding portal" as a
way of limiting the scope of our activities. It prevents us from doing things
like actually performing the money management functions etc.

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wheelerwj
this is pretty exciting. Although, I am still curiou about the portal and
timeline for this.

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jellicle
This sounds like an excellent - and legal! - way to fleece the public with
fake startup companies.

If you have a legit company, you better get in now, because it won't be long
before a wave of scammers is busy promoting their new "give us $2,000 and MAKE
MONEY FAST! Approved by Congress!" schemes.

Those of you who have flexible ethics should consider it yourselves. For a
couple thousand dollars you can easily work up a website and suitable
promotional materials, form a corporation and so on, and then you just wait
for the money to roll in. Cure for cancer! Spaceship to Mars! Cold Fusion!
Doesn't really matter, just make sure you emphasize that the investment may
not pay off. If you can keep it going for a while it should provide an
excellent source of income for a couple of years, before you regretfully
announce bankruptcy.

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wheelerwj
That is a bit dramatic. I don't see how this opens people up to any additional
scams than are already out there. What it does is provide another avenue to
get money from people who have it into the hands of the people who need it.

It's like y-combinator for the little guy.

~~~
jellicle
Yep, that will be exactly the angle to push. You too can get rich just like
venture capitalists, with as little as $2,000 down!

It will just be a sad, unhappy coincidence that none of their investments ever
pay off. Oh, too bad, you just got unlucky. But if you put another $2,000 into
my next company, we're definitely going to make you rich, rich, RICH!

