New bill to allow $1m crowdfunding rounds • Hacker News Board

Re: New bill to allow $1m crowdfunding rounds

#21

Post by damoncali » Tue, Dec 13, 2011, 3:01 PM UTC

jedberg wrote: post #20

Am I the only one on HN who thinks this is a bad idea? I can only see this going one of two ways: - Minimally regulated so that it is easy to get money, but then full of scams. - Heavily regulated so that it is hard to get money, which makes it not much better than the current system. I'd love to see smaller investors able to invest in startups, but it just seems like a bad idea to let any old person invest. Can some…

No, it's a pretty bad idea. It comes with great intentions, but there is a good reason the current laws exist. People have to trust the financial system, and this sort of activity will (because of the obvious and easy fraud) deliver a solid blow to the public's trust. You think bankers have a bad rep? Wait until you see what people think of "entrepreneurs" after a few rounds with this.

Re: New bill to allow $1m crowdfunding rounds

#22

Post by damoncali » Tue, Dec 13, 2011, 3:06 PM UTC

_wp3r wrote: post #4

In what way is crowd funding illegal now? I am assuming that is what the gentleman was implying with "legalize and regulate." Doesn't regulation of a 'crowdsourced' anything, kind of defeat the purpose? The entire idea is that many small failures lead too faster successful iterations.

My understanding is that it's the solicitation that is prohibited. You can raise $1000 each from 50 people if you want, but the SEC won't let you "advertise" the offering on the internet. You also get into the whole accreditation mess, but that's sort of a different issue.

Re: New bill to allow $1m crowdfunding rounds

#23

Post by shareme » Tue, Dec 13, 2011, 3:09 PM UTC

this is a bad idea on the level of the TSA idea

Re: New bill to allow $1m crowdfunding rounds

#24

Post by Tuna-Fish » Tue, Dec 13, 2011, 3:09 PM UTC

dmix wrote: post #6

joshu wrote: post #5

Earlier quoted context omitted.

Crowd donating is legal. Crowd investing is not; currently, investors must be accredited or qualified.

I never really understood the reasoning behind accredited investors.

The present rules came into force with the Securities Act of 1933, which was written during the great depression to protect people from the kind of predatory "investments" that caused a lot of people to lose their savings in the crash.

The last part of the bubble in late 20's was characterized with the lower middle class, which previously didn't have much investments, getting involved with the stock market. A lot of companies of all sizes advertised their stocks and "expected returns" in everything from radio to milk labels. Too many people bought into it at the worst possible time, on the top of the bubble.

Re: New bill to allow $1m crowdfunding rounds

#25

Post by clavalle » Tue, Dec 13, 2011, 3:21 PM UTC

jedberg wrote: post #20

Am I the only one on HN who thinks this is a bad idea? I can only see this going one of two ways: - Minimally regulated so that it is easy to get money, but then full of scams. - Heavily regulated so that it is hard to get money, which makes it not much better than the current system. I'd love to see smaller investors able to invest in startups, but it just seems like a bad idea to let any old person invest. Can some…

Scams are going to happen.

The accredited investor rules have been around long before the internet and all of the tools we can now use to follow up on start up companies and the people behind them.

I am certain that if this bill passes, there will be plenty of services offered to dig up this kind of information and make this kind of due diligence easier and more complete.

Sure, grandma and grandpa might be targeted by scammers (not that there is any shortage of Utah based pyramid schemes and other n'er do wells out there doing just that) but there should be /severe/ penalties attached to discourage bad actors.

I don't think we should be protecting people from themselves as much as we do as a society, and I really think this is going to be a net positive when all of the wrinkles are ironed out.

Re: New bill to allow $1m crowdfunding rounds

#26

Post by DennisP » Tue, Dec 13, 2011, 3:41 PM UTC

Interesting. Here are two similar bills: http://thehill.com/blogs/floor-action/house/191669-bills-eas...

One of them passed the House recently: http://www.govtrack.us/congress/bill.xpd?bill=h112-2930

Re: New bill to allow $1m crowdfunding rounds

#27

Post by vaksel » Tue, Dec 13, 2011, 3:55 PM UTC

jedberg wrote: post #20

Am I the only one on HN who thinks this is a bad idea? I can only see this going one of two ways: - Minimally regulated so that it is easy to get money, but then full of scams. - Heavily regulated so that it is hard to get money, which makes it not much better than the current system. I'd love to see smaller investors able to invest in startups, but it just seems like a bad idea to let any old person invest. Can some…

yeah agreed, they can just setup a landing page talking about how the company has created an awesome new search engine to take on Google...and then get a few thousand people to invest "$250" each...then "operate" the business for a year, and close up shop, pocketing the money...or paying $100,000/mo for web hosting from their other company.

Re: New bill to allow $1m crowdfunding rounds

#28

Post by vannevar » Tue, Dec 13, 2011, 8:05 PM UTC

jedberg wrote: post #20

Am I the only one on HN who thinks this is a bad idea? I can only see this going one of two ways: - Minimally regulated so that it is easy to get money, but then full of scams. - Heavily regulated so that it is hard to get money, which makes it not much better than the current system. I'd love to see smaller investors able to invest in startups, but it just seems like a bad idea to let any old person invest. Can some…

One way to possibly make this work is to require the money to go into an escrow account at a bank, to be used to guarantee a loan to the business getting funded. The business would put up its stock as collateral. If the business defaulted on the loan, the bank could seize the stock and the escrow account (but only after pursuing all possible avenues to recover from the debtor business). If the loan was paid back, the stock would be disbursed to the investors. This arrangement wouldn't prevent the possibility of a loss, but by introducing the bank as an intermediary (with the attendant requirements for a loan application), it should help weed out complete scams.

Re: New bill to allow $1m crowdfunding rounds

#29

Post by jedberg » Tue, Dec 13, 2011, 10:40 PM UTC

vannevar wrote: post #28

jedberg wrote: post #20

Am I the only one on HN who thinks this is a bad idea? I can only see this going one of two ways: - Minimally regulated so that it is easy to get money, but then full of scams. - Heavily regulated so that it is hard to get money, which makes it not much better than the current system. I'd love to see smaller investors able to invest in startups, but it just seems like a bad idea to let any old person invest. Can some…

One way to possibly make this work is to require the money to go into an escrow account at a bank, to be used to guarantee a loan to the business getting funded. The business would put up its stock as collateral. If the business defaulted on the loan, the bank could seize the stock and the escrow account (but only after pursuing all possible avenues to recover from the debtor business). If the loan was paid back, the…

Why would having a bank involved weed out scams if it were impossible for the bank to lose money?

This is basically what happened during the mortgage bubble -- the banks lowered their standards because they knew the government would back up the loans.

Re: New bill to allow $1m crowdfunding rounds

#30

Post by jedberg » Tue, Dec 13, 2011, 11:52 PM UTC

clavalle wrote: post #25

jedberg wrote: post #20

Am I the only one on HN who thinks this is a bad idea? I can only see this going one of two ways: - Minimally regulated so that it is easy to get money, but then full of scams. - Heavily regulated so that it is hard to get money, which makes it not much better than the current system. I'd love to see smaller investors able to invest in startups, but it just seems like a bad idea to let any old person invest. Can some…

Scams are going to happen. The accredited investor rules have been around long before the internet and all of the tools we can now use to follow up on start up companies and the people behind them. I am certain that if this bill passes, there will be plenty of services offered to dig up this kind of information and make this kind of due diligence easier and more complete. Sure, grandma and grandpa might be targeted b…

> I don't think we should be protecting people from themselves as much as we do as a society

That much I do agree with you. This is definitely a case of the government protecting people from themselves. Just the same, I'm still not sure it's a good idea because it will give entrepreneurs a bad name, so in a sense, it is protecting that reputation too.