S.E.C. Gives Small Investors Access to Equity Crowdfunding
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Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#2This is a really exciting development, and one that is quite overdue!
Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#3I'm not a fan of this idea. After the Startup podcast did an episode endorsing the idea, I wrote a blog post and circulated drafts to friends, but never got around to finishing it. Instead of doing that now, here's a rough list of arguments, all of them about how tech startup equity will work out poorly for retail investors:
* The core issue: professional startup investors rely on (a) relatively large portfolios where (b) the winners succeed so outlandishly that they pay for the losers. Savvy investors --- most investors aren't savvy --- intuitively understand (a), but not (b), and you have to fully grok both concepts to make money from startup equity, because it's an equity class that is almost by definition way more risky than normal stock.
In particular: the math on "value investing" probably just doesn't work with startups.
* We have a distorted view of the win/loss ratio of startups, both because so many exits are in fact not net-positive for investors, and because so many startups fail without actually telling anyone (the lights are on, but nobody's home).
* There's probably a market-for-lemons effect bound to apply to equity-crowdfunded startups. Professional investors compete for dealflow. The whole system is designed to route the most lucrative prospects to the pros. There's no countervailing force that routes good deals to mom-and-pop investors who can't offer anything other than incredibly complicated cap tables to startup operators.
* A negotiated event that strikes 25% off the value of a publicly traded company's stock is a major news story (and a likely class action suit). But an event that dilutes startup common stock holders down to 50%, 25%, or 10% of their original valuation? Or that wipes it out entirely? In startup parlance, that's called Tuesday.
* Startups aren't like Kickstarter projects. Crucially: people put money into projects on Kickstarter, not teams. Professional startup investors do mostly the opposite. A project page on Kickstarter is a good prospective for a Kickstarter project, but it's not even close to a prospectus for a company.
Retail investors should get exposure to startups through carefully managed funds that own lots of different startups, not by trying to pick individual winners themselves.
Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#4> “I think it’s going to really make a difference for businesses that are not especially fashionable for professional investors,” said James Dowd, the chief executive of North Capital Private Securities, a broker-dealer that focuses on private fund-raising. “They want to invest in companies that have the potential to be disruptive to an entire industry. You don’t see a lot of capital flow into ordinary consumer and retail businesses.”
The statement about professional investors "want[ing] to invest in companies that have the potential to be disruptive to an entire industry" is really not accurate. The vast majority of dollars raised through Regulation D offerings go to financial issuers (investment funds), not "disruptive" startups. Reg D is also commonly used to raise capital for real estate ventures and funds.
Although they certainly don't constitute the majority of Regulation D offerings, "ordinary consumer and retail businesses" do use private placements to raise capital, but the real reason it's more challenging for these businesses to raise capital is not that all professional investors are looking for hundred-baggers. It's that they know there's a strong likelihood they'll never see their capital again at all.
This said, I don't have a real problem with Title III. The SEC can't protect investors from themselves, as evidenced by the fact that investors are still defrauded to the tune of more than a billion dollars a year by penny stock schemes. But it's worth observing that the biggest proponents of equity crowdfunding are usually those who stand to profit from facilitating the sale of securities to investors. You'll notice that very few of them ever talk realistically about how those investors are going to get their capital back.
Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#5This is just a distraction.
Our unfortunate reality is that of a socialization of investment; something discussed from Marx to Keynes.
In the next decades, the idea of investing become blur and centralized.
https://www.contentful.com/developers/docs/references/conten...
Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#6I have a talking extraterrestrial.
It should be really easy to get world wide attention.
Venture capital is not needed.
I made God's official temple.
I am here to put the world in submission to God where all people do offerings in God's temple.
God says... walkway's rooms minted strangulated stigmata sideswiping bullet waistbands undershoot copy backlogged Taipei exhorting Muskogee's ineffective Marvell Iowans dauntless Westminster collaborating tantrum sweetheart rogue's tasseling coordinating illogically obscurest indefinable Rhenish Mercuries mortgaged barrings expressing avalanches citronella's flyover MacLeish's smooching Faraday towpath Leila detests hooted seasick Cheri's fondles opiate's deflector pubescence recondite artlessness naiveté's Altman tapestry's polyps bulldogged reclined insisted aluminum pieces poised summarized Justice thirteenth bleacher salsa's fueling ennobles immigrate quailed longshoreman's admonished present's gentiles pulsations aircraft's stiffened anticipated leases phloem's memorizes naturalized mushy yearnings Geo's insure arboretums dehumanized invaders balkiest gypsum trollop yearning transpired unconvincingly telecommuted pivoted counterclaimed Kongo patronized
Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#7If only we'd had this last summer, we could have all participated in that hot Theranos equity round!
Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#8If only we'd had this last summer, we could have all participated in that hot Theranos equity round!
No, with equity crowdfunding, muppets get the down rounds, not the up rounds.
Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#9I'm not a fan of this idea. After the Startup podcast did an episode endorsing the idea, I wrote a blog post and circulated drafts to friends, but never got around to finishing it. Instead of doing that now, here's a rough list of arguments, all of them about how tech startup equity will work out poorly for retail investors: * The core issue: professional startup investors rely on (a) relatively large portfolios wher…
All of your points are true.
The only big question is if protecting potential investors should be done through limiting (as it is now), education (example how it is done by AL [1]) or controlling (the startups)
My personal POV is (as with any investments) education.
[1]: http://cl.ly/image/1T3W372A3q0P/Image%202015-10-30%20at%2017...
Re: S.E.C. Gives Small Investors Access to Equity Crowdfunding
#10I'm not a fan of this idea. After the Startup podcast did an episode endorsing the idea, I wrote a blog post and circulated drafts to friends, but never got around to finishing it. Instead of doing that now, here's a rough list of arguments, all of them about how tech startup equity will work out poorly for retail investors: * The core issue: professional startup investors rely on (a) relatively large portfolios wher…
Startups aren't like Kickstarter projects. Crucially: people put money into projects on Kickstarter, not teams. Professional startup investors do mostly the opposite.
That's actually a great reason why this may work. Apple was Woz and Job's first company and they hadn't finished college, going into a non-existent sector. No current investor would look at them.
I know several startups that are working on something truly revolutionary with either no funding or very little funding, and I know several highly-funded startups that must be the punch line of a joke (honestly).
Software is the next oil. It's the next great explosion, and it has just started. And if anyone tells you that we're funding tech startups properly, they either don't know what they're talking about -- or they're an investor.
Will some people lose their shirts? I hope not. But we let the poor play the lottery whose odds are calculated and defined to not be possible to win. It seems if we know they can't win, we don't mind; it's when they can win that there's a bit of concern.
I don't want people to lose money either, but it's their right to spend $50 on something they find interesting with the hope of making life better for themselves and their children. And it's liberating to startups that they have more choices than suckle at the teat of the current set of angels and VC's or go home. It's like what happened to music: you can either have a sound and look that fits the major labels and their categories or go home. Angels and VC's have to win so they minimize risk. The people who invest in crowdfunded equity, though, are more likely to forgive losing that $50, so they'll take bigger risks.
And what we need right now, in this software and technology explosion, is more risk and experimentation and new ideas. The winner, in the end, may be the future itself.