(Random example: let's say I, as an author, announce that I'm going to write and sell a book if I can get enough pre-purchases; let's set the gate at 10,000 readers willing to pony up $10 each in order to receive an ebook when I've written it, a year down the line. Right now, as I understand it, if I was in the US I'd be expected to undergo the same accounting procedures as a corporation prepping for an IPO because of the number of people involved -- which would make it a non-starter: the accountant's bill alone would exceed the total revenue, especially as writing a book is a one-off project. The JOBS Act is supposed to relax that requirement for the sort of venture I'm describing. But Taibbi doesn't seem to get this at all.)
I do think the JOBS Act has been touted as enabling Kickstarter-like things where you actually invest in the enterprise, though: money can be raised from small-net-worth individuals as long as the sums are modest.
Consider the case of someone who wants to launch a small business to do something that can't be doled out in small chunks to backers. Let's say I want to build a better wheelchair, for example. Well, even if people can tell from my descriptions and existing work that I really know what I'm doing and have a fantastic idea, few people actually need a wheelchair. So with the kickstarter model this could be a tough project to get going, but if equity could change hands it could be a lot easier.
Yes, there's going to be fraud with this, lots and lots of fraud. But there's already a lot of fraud in the market. It's not important to attempt to eliminate fraud, it's more important to make sure people have enough information to know when they're doing something risky. On the whole I think it's vastly better for everyone if we enabled startups at the low end at the risk of widespread small scale fraud than if we keep everyone's investments locked away with the "too big to fail" companies where large scale fraud and malfeasance has the potential to topple governments and destabilize the world economy.
I suspect it's at least as hard to do the latter as it is to do the former, and almost certainly harder. At least with the regulatory framework in place, the person you have to con is a professional auditor. Without that regulation, it's going to be trivially easy to con the average investor.
But it still seems to me that Taibbi is focussing on one particular aspect of it without any indication that he noticed the other angle.
Fraud exists. Fraud will exist after this bill goes into effect. So will non-fraudulent business models and investment opportunities that were unworkable before the bill. Does the benefit of those new opportunities outweigh the cost of the increased fraud potential? I think so, perhaps you think not, neither of us know for sure.
What I do know is that I worry more about the entire economy being destroyed by the current powers that be through both fraud and simple incompetence than I worry about losing money to fraudsters preying on unaccredited investors like myself, and I very much look forward to having the opportunity to do so.
Post JOBS act, I believe a tool like kickstarter could be used to sell micro portions of equity in a company.
"What violates our terms?
- Offering any monetary return on investment or real property, including: real estate, annuities, lottery contracts, profit-sharing, cash, securities, equity or debt-repayment"
The site actually had some excited-sounding announcement about the JOBS act recently, but I can't seem to find it.
Taken from http://www.kickstarter.com/help/faq/kickstarter%20basics#Doe...
"Does Kickstarter take some percentage of ownership or intellectual property of things made through Kickstarter?
Absolutely not. Project creators keep 100% ownership of their work."
If I'm not mistaken in this context I'm pretty sure "percentage of ownership" is synonymous with equity. At least the way equity as a word is being used in the context of this conversation.
I suspect existing law forbids them from selling equity.
That's because, at this point in time, fraud should be the focus of anything related to the financial sector.
i'm buying a book from this guy, but it's not a product still, as he will work on it. but it's not service either, because i have no say on what he will write. and i will get a book in the end, so it's a product. unless he never get's to write it.
oh well, one more experience ruined by tax filling month paranoia.
Though I think with kickstarter you're technically making a donation. Either way I don't see how that could affect your taxes (other than sales tax) unless you're backing something you want use as a deduction...
but i was thinking mostly for the guy receiving the money. There's then a distinction for selling and servicing.
The pizza analogy is not that fitting, because there's no wording saying the pizza may not materialize.