
SEC Approves Equity Crowdfunding from Unaccredited Investors - akg_67
http://www.sec.gov/news/pressrelease/2015-49.html#.VRSPA_nF8qx
======
ChuckMcM
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.

~~~
staunch
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?

~~~
hkmurakami
I think people are able to evaluate their odds of winning in Vegas better than
the odds of their tech investments paying off.

~~~
gojomo
Here's a cheatsheet:

Vegas expectations = always negative, no matter how much time or thought you
put into it

Private investing expectations = usually negative, but sometimes positive (and
more likely positive with experience and effort, or within domains of personal
expertise)

So why is the first a better deal to open to everyone without regard to
wealth, whereas the second is so dangerous it must be encumbered with wealth-
tests (not knowledge/skill/credential tests) and major legal barriers/overhead
costs?

Here's an idea: let anyone invest, on the same basis as a traditional
"accredited investor", whatever amount of cash they could also obtain, via
withdrawals or loans, at a casino cashier cage. If it's OK to hand someone
$10-20K in chips for negative-expectation games, why not let them invest
$10-20K in maybe-positive-expectation learning experiences, without prejudice?

~~~
alasdair_
Poker in vegas has +EV in the right circumstances, as does card counting
blackjack when coupled with player reward bonuses. Hell, roulette with a
martingale system has a positive expectation if you have more money than the
house and the bet size is unlimited.

~~~
gojomo
So occasional +EV situations in Poker and Blackjack for a tiny fraction of the
most disciplined players (and only at the direct expense of others) are why
non-rich people are allowed to wager their entire life savings at roulette,
lottery, and slot machines? And then even more than their net-worth, via
lines-of-credit?

But then those same people – no matter how disciplined – must face large
(practically insurmountable) paternalistic legal barriers against putting even
a few dollars into private investments? Even in domains where they have
personal expertise? And where the results can be positive-sum for all
involved, rather than strictly zero- or negative sum?

The nonsense is still strong in the dichotomous regulation of gambling and
investments. It's almost as if the paternalists want to protect poor people
from becoming wealthy!

------
rdlecler1
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.

~~~
brudgers
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
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.

------
zaroth
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.

~~~
anigbrowl
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.

------
matthewmcg
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
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
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
The good news is they can still invest the other 90% in penny stocks!

------
mqsley
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
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
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)

------
neovi
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.

------
toddbcrosland
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.

------
shawnee_
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-m...](http://ink.hackeress.com/2013/09/what-title-ii-of-jobs-act-means-
for.html) [b] [http://blogs.wsj.com/digits/2015/03/25/sam-altman-why-
hardwa...](http://blogs.wsj.com/digits/2015/03/25/sam-altman-why-hardware-
could-yield-the-next-10-billion-startups/)

------
carbocation
> 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
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
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-
crowdfund...](http://www.seedinvest.com/blog/regulation-a-equity-crowdfunding-
rules/)

[2]
[http://www.mofo.com/~/media/Files/ClientAlert/2015/03/150326...](http://www.mofo.com/~/media/Files/ClientAlert/2015/03/150326RegulationA.pdf)

------
capkutay
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
_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
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.

------
Nursie
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.

------
dataker
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.

------
Everhusk
> 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?

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

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

~~~
Nursie
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
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.

------
mellavora
Interesting that this shows up on HN on the same day as: "fantasy angel
investing" [http://exchangel.co/](http://exchangel.co/)

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

------
raithe1337
before getting too excited, let's see how it looks when it is ready.

------
arikrak
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
It does and it should make you happy a story you found interesting enough to
submit is getting enough traction now for discussion.

~~~
waterlesscloud
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
Karma isn't a reward.

~~~
nickysielicki
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
For some reason there is a leaderboard though :-)

[https://news.ycombinator.com/leaders](https://news.ycombinator.com/leaders)

~~~
hamburglar
On the upside, since this isn't a competition, I'm not losing!

------
curiously
year 2000 here we go!

------
mapgrep
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
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
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.

