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

11–20 of 107 posts

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

#11

Post by gbelote »

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…

There are no new protections for accredited investors. To be accredited you need to either have over $1m in net worth (excluding your primary residence) or have earned an income of $200k/yr as an individual (or $300k/yr as a joint couple) for the past two years. The philosophy here is and has been: if you're wealthy then you can probably take care of yourself.

The last remaining piece of the JOBS act is Title III, the part that allows non-accredited investors to invest. There are protections for this class of investors, including income-based limits (you can't invest more than 5%-10% of your income a year) and it requires investments to be made through a crowd on a crowdinvesting platform. The SEC is still working on the exact rules and regulations for this.

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

#13

Post by [deleted] »

Echo117 wrote: post #9
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

[deleted]

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

#14

Post by smokeyj »

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…

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

The best solution for what? What's the point of this regulation and how is it measured?

> That really hasn't been a 'win' for me

If I understand this correctly, the SEC should prevent entrepreneurs from soliciting investments so you don't have to watch informercials? I can't argue with that!

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

#15

Post by wallio »

Echo117 wrote: post #7

You still need to be an accredited investor to take part in these potential general solicitation rounds (net worth above $1 million, minus primary residence, or annual income of more than $200,000), right?

This article confusingly referred to "qualified" investors but according to other reporting it is actually "accredited" investors [1]. This is particularly confusing because "qualified purchasers" is an even higher standard required for some investments [2].

[1] http://www.reuters.com/article/2013/07/10/us-sec-advertising...

[2] http://globalfundexchange.com/about/230

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

#16

Post by ChuckMcM »

btipling wrote: post #10
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?

Its the same thing as an "unreviewed Android App", which is to say a completely unknown entity.

So in the YC process, folks compete to be selected and then they work to make sure they are ready on demo day. Investors know that Paul and his partners have spent many weeks with these people helping them achieve the maximum potential possible. That is a form of validating their authenticity or 'vetting'.

However, with the general ban lifted, startups will now appear "out of the blue" because they used some funding to 'reach out' to "you" a person they bought from a list (typically the HNWI list [1]). That is the noise part. If you're currently getting postal mail (or spam email) from folks who are congratulating you on your success and offering to help (personal wealth management, car dealers for high end cars, high end credit cards) then you are on that list (whether or not you think you should be :-)

Because of that, in my 'bad' scenario of how this could be a not good thing, I expect that we'll see lots of "next big thing" pitches showing up on the nightly news (it scores well in the HNWI demographic) and tucked in with those platinum card offers. What is worse, we'll see the rise of companies that prey on individuals who think they have a great idea but just can't get it off the ground. They will offer to "get them funded" by putting them in touch with hundreds of "angels." And they will just be high pressure sales guys who sell lots to unbuilt housing developments in Utah or time share condos in vacation spots. So the real opportunities get lost in all the noise.

However, I recognize I'm somewhat cynical here and this could be a really good thing. I'd like it to be a good thing because there are ideas that don't get funded today that should (or would do well if they were). But watching Shark Tank now and then you are reminded there are a lot of people who want to change the world and don't have the benefit of an incubator's advice or tutoring. Those folks are going to be victimized here.

[1] The High Net Worth Individuals or HNWI list is sold in various forms by meta-data collection agencies which identify such individuals through public records (vehicle registrations), web purchasing tracking, and other social "cues".

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

#17

Post by sageikosa »

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…

> Basically, I believe lifting this ban increases the noise significantly without much boost to the signal.

I do believe different investors look for different signals, sometimes their ability to pick the signal is so finely tuned that they simply need more inputs, rather than relying on regulated "noise" reduction which might squelch into their signal processing band.

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

#18

Post by [deleted] »

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…

[deleted]

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

#19

Post by gbelote »

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…

I think you're right this will be a mixed blessing. There will be companies desperate to raise money, and when a "million bucks of funding" is at stake some companies will spend a lot of time and energy creating noise and spam. In fact you might find that the companies who are making great progress spend less time promoting themselves, because they're busy kicking ass. (We've already seen behaviors similar to that at Wefunder.)

My hope is that the noise most people hear will be like my experience with Kickstarter: I only hear about the projects that are up-and-coming and have merit.

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

#20

Post by wissler »

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…

Heaven forbid that the peasants should get to decide what to do with their money.
Post reply on HN