Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The SEC Just Voted To Lift The Ban On General Solicitation

wefunder.com

Post reply on HN
Print view View original

1–10 of 107 posts

Re: The SEC Just Voted To Lift The Ban On General Solicitation

#2

Post by hapless »

I have little doubt that this will accelerate the super-seed trend, wherein small startups avoid VC for extended periods of time.

One thing that struck me: the wefunder guys clearly believe this is going to be a big deal for small-time investors. How will firms accept those "$1000" checks? As far as I know, privately held securities can be issued to only a very small number of investors.

Will Facebook/Goldman style investment vehicles become a common mode of skirting the law? Is the SEC going to loosen that 500 investor limit?

Re: The SEC Just Voted To Lift The Ban On General Solicitation

#3

Post by gbelote »

hapless wrote: post #2

I have little doubt that this will accelerate the super-seed trend, wherein small startups avoid VC for extended periods of time. One thing that struck me: the wefunder guys clearly believe this is going to be a big deal for small-time investors. How will firms accept those "$1000" checks? As far as I know, privately held securities can be issued to only a very small number of investors. Will Facebook/Goldman style i…

Good questions. The Facebook/Goldman style investment vehicles have been blessed by the SEC in the form of a No Action letter back in March. For readers unfamiliar: an LLC fund is created that investors invest in, and that fund makes a single investment in the target company. The company only has one investor listed on their cap table and it makes several things (e.g. collecting signatures) significantly simpler. Investors maintain financial rights, but don't have voting rights in the company.

We can offer that vehicle to companies as a fundraising option. We also have a standard convertible note specifically for a large number of small investors that we've been using ourselves which addresses "large number of investor" concerns in a different way.

The JOBS act has already increased the accredited investor limit to 2000, and once the unaccredited investor legislation takes effect, those unaccredited investors won't count against that total.

Re: The SEC Just Voted To Lift The Ban On General Solicitation

#6

Post by cantankerous »

I've been a bit out of this loop, but what kinds of protections remain in place to protect small investors from hucksters "starting a company"? Is it pretty much caveat emptor or is there stuff not mentioned in this article?

I think this approach is pretty cool, but there are these drawbacks. Are there going to be limits, protections, or restraints? Is the solicitation still only limited to qualified investors or how does this work?

EDIT: I see I missed that the article says "qualified investors", but I'm still not sure if that's the legal term or a more loose term.

Re: The SEC Just Voted To Lift The Ban On General Solicitation

#8

Post by ChuckMcM »

I think this is a mixed blessing. I agree that the ban has been a hindrance on people trying to find investors but lifting it may not be the best solution.

If you look at the way YC demo day works, its a pretty reasonable way for potential investors to find startups which are compatible with their investment goals. I think this addresses the challenge of the general solicitation rule (finding the startups) without the negative of creating a bunch of unvetted startups advertising for dollars. Basically, I believe lifting this ban increases the noise significantly without much boost to the signal.

The analog I thought about when I saw the SEC was thinking about going this way was the lift on advertising prescription drugs. That really hasn't been a 'win' for me, while I'm sure some folks have discovered there are drugs available their doctor didn't know about (signal), a whole lot more people are asking their doctors to give them drugs which aren't really appropriate to their symptoms (noise). It has made the national news shows practically infomercials for a variety of meds for 'old people problems'.

Re: The SEC Just Voted To Lift The Ban On General Solicitation

#9

Post by Echo117 »

cantankerous wrote: post #6

I've been a bit out of this loop, but what kinds of protections remain in place to protect small investors from hucksters "starting a company"? Is it pretty much caveat emptor or is there stuff not mentioned in this article? I think this approach is pretty cool, but there are these drawbacks. Are there going to be limits, protections, or restraints? Is the solicitation still only limited to qualified investors or how…

I'm assuming that qualified investors means accredited investors. SEC definition here: http://www.sec.gov/answers/accred.htm

Re: The SEC Just Voted To Lift The Ban On General Solicitation

#10

Post by btipling »

ChuckMcM wrote: post #8

I think this is a mixed blessing. I agree that the ban has been a hindrance on people trying to find investors but lifting it may not be the best solution. If you look at the way YC demo day works, its a pretty reasonable way for potential investors to find startups which are compatible with their investment goals. I think this addresses the challenge of the general solicitation rule (finding the startups) without th…

And what do you think an "unvetted startup" is? Who decides what is vetted and isn't?
Post reply on HN