The SEC Just Voted To Lift The Ban On General Solicitation • Hacker News Board

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

#71

Post by clavalle » Wed, Jul 10, 2013, 9:02 PM UTC

wwweston wrote: post #46

JumpCrisscross wrote: post #37

Earlier quoted context omitted.

My instinct is to lash out against this move. General solicitation lowers the amount of social vetting a manager must go through before being able to raise funds. It also makes un-accredited investors more aware of the investment barriers around them, which could loosen resolve for maintaining those walls. But 2013 isn't 1933. The average sophisticated investor is more versed in finance, more wary of solicitation if…

> But 2013 isn't 1933. The average sophisticated investor is more versed in finance, more wary of solicitation if they are not, or closer to one of the former. "This time, it's different." http://www.reinhartandrogoff.com/

I think things are fundamentally different now than in the early 30's. Not pie in the sky 'well people are more sophisticated now' different.

There are a ton of tools that people can use to gather information on a potential investment and the people involved.

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

#72

Post by neilk » Wed, Jul 10, 2013, 9:06 PM UTC

jmj42 wrote: post #42

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 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. Not really. We, here on HN, tend to frame things around tech startups, but there's a larger world out there that incubators don't (and often can't) address. Consider this (real life) example: Recently a local pub came up for sale. The ask…

I don't see what the difference is. Bars and other small businesses are risky investments too.

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

#73

Post by jmj42 » Wed, Jul 10, 2013, 9:09 PM UTC

7Figures2Commas wrote: post #62

jmj42 wrote: post #42

Earlier quoted context omitted.

> 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. Not really. We, here on HN, tend to frame things around tech startups, but there's a larger world out there that incubators don't (and often can't) address. Consider this (real life) example: Recently a local pub came up for sale. The ask…

>... getting investment funding for small businesses is very hard. This rule change makes it much easier. That isn't necessarily true. Just because small businesses can freely solicit investment doesn't mean that actually raising it will be easier. People seem to be making the assumption that there's this huge untapped market of rich people (read: accredited investors) who are not actively investing in businesses tod…

While it's not _necessarily_ true, it is possibly true, and that's the bit that folks are latching on to. They're assuming that there's a "market" of investors who are both interested in and willing to diversify their investment portfolio by, in part, making smaller high risk investments. My experience with, admittedly smaller investment firms, is that this may be true. Organizations like IllinoisVENTURES (I know several of the folks there) aren't interested in big C-round investments. The bulk of their information comes from their proximity (physically and virtually) to Enterprise Works (a UIUC run incubator). I've heard partners declare, on several occasions, "I wish we knew about these guys while they were still looking for seed money." I guess in, at least one, anecdotal case, it does bear out to be true.

As for my bar, let me re-phrase, just for accuracy: We couldn't come close on our own without liquidating existing investments. It didn't make mathematical sense to do so (returns were higher on existing than expected returns on the bar). From our perspective, it was an expensive hobby, not a money making investment (for us).

On the other hand, if we could raise, let's say $50K from investment, $50K converted from other investments (our own money), and $25K from family, then cover the remaining $75K through bank loan collateralized by the building (the building is valued at $125k)... Yup, that would have been easier.

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

#74

Post by tomkarlo » Wed, Jul 10, 2013, 9:13 PM UTC

pjlegato wrote: post #52

qdog wrote: post #41

Earlier quoted context omitted.

He's insinuating that people should be allowed to do whatever they want with their money and that any protection via regulation must be bad. However, if you are someone who isn't an arbitrager(investor isn't the right term) in their daily job, the pressure to join the tulip buyers is a lot heavier than the available knowledge. The root of this problem is lies, because the tulip sellers are always going to give false…

And yet, these people are perfectly free to buy (goverment run) lottery tickets, or walk into a casino and put their entire life savings on the roulette wheel, both of which have a guaranteed negative expected value. At least with a startup investment, there is some small chance that they'll make money. At the very least, regulations designed to protect the financially unsophisticated from themselves are massively hy…

Both lotteries and casino gambling are heavily regulated in terms of their returns to consumers, and there are reasonable methods of recovering value if they fail to perform as promised, because the entities are generally still operating.

You can't do that with business investments -- there's no way to mandate a particular minimum return to investors, and no way to recover lost funds if the business fails to perform as promised. If I promise you safe 15% returns, and then I run the business in a high risk way and it goes under, there isn't any way for the state to really regulate that level of risk and return except in very highly regulated industries like insurance where money is being invested in rated securities (and even then, it's not great.)

The biggest problem with private investments is that there generally isn't any liquid market to provide a "real" price. It's just whatever the company can convince an investor to pay. Nobody can short or sell you their shares easily, and if you buy in it can be impossible to sell out.

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

#75

Post by neilk » Wed, Jul 10, 2013, 9:13 PM UTC

wissler wrote: post #45

diminoten wrote: post #32

Earlier quoted context omitted.

Can you make an actual argument, please? I'm interested in hearing what you have to say if you've got something to say other than snarky one-liners.

First of all, it's none of anyone's business what some individual wants to invest their money in. It's a moral obscenity to forcibly prevent him from investing. It's not only presumptuous to say "if someone's not rich, they must not be smart enough to invest", it's a self-fulfilling kind of thing, isn't it? Nothing prevents people from gambling in Vegas. So clearly these laws are not about protecting fools from their…

To my knowledge, casino gambling has not actually crashed the entire economy. Multiple times.

I agree with you that the rules are not really about protecting ordinary people. At this point in history, it's about protecting one set of elites from another, with the side effect of (perhaps) protecting the entire economy from certain disasters.

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

#76

Post by jmj42 » Wed, Jul 10, 2013, 9:14 PM UTC

neilk wrote: post #72

jmj42 wrote: post #42

Earlier quoted context omitted.

> 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. Not really. We, here on HN, tend to frame things around tech startups, but there's a larger world out there that incubators don't (and often can't) address. Consider this (real life) example: Recently a local pub came up for sale. The ask…

I don't see what the difference is. Bars and other small businesses are risky investments too.

Yes, but my point was, incubators serve as a fine information channel for technology companies, but there is an entire class of small business which are not suited to incubators, such as bars. The rule change gives these small businesses a channel to inform potential investors that they're out there. Investors that they would not, otherwise, be able to reach.

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

#77

Post by qdog » Wed, Jul 10, 2013, 9:21 PM UTC

sageikosa wrote: post #60

qdog wrote: post #41

Earlier quoted context omitted.

He's insinuating that people should be allowed to do whatever they want with their money and that any protection via regulation must be bad. However, if you are someone who isn't an arbitrager(investor isn't the right term) in their daily job, the pressure to join the tulip buyers is a lot heavier than the available knowledge. The root of this problem is lies, because the tulip sellers are always going to give false…

> yet you hear stories about the Maddoff's of the world running 30 year schemes which very much hit 'sophisticated' investors. Proving that the scam artists will find a way no matter what the regulations say.

Regulations aren't binary. Some good, some bad, but not binary.

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

#78

Post by qdog » Wed, Jul 10, 2013, 9:26 PM UTC

pjlegato wrote: post #52

qdog wrote: post #41

Earlier quoted context omitted.

He's insinuating that people should be allowed to do whatever they want with their money and that any protection via regulation must be bad. However, if you are someone who isn't an arbitrager(investor isn't the right term) in their daily job, the pressure to join the tulip buyers is a lot heavier than the available knowledge. The root of this problem is lies, because the tulip sellers are always going to give false…

And yet, these people are perfectly free to buy (goverment run) lottery tickets, or walk into a casino and put their entire life savings on the roulette wheel, both of which have a guaranteed negative expected value. At least with a startup investment, there is some small chance that they'll make money. At the very least, regulations designed to protect the financially unsophisticated from themselves are massively hy…

Giving money to companies is fine by me. The only desire is that a company that provides false data must be held accountable. Also someone running a scam facade, prosecutable, imho.

I don't see the lottery as analogous to putting money into companies. Whether the lottery is good or not is a separate issue.

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

#79

Post by notahacker » Wed, Jul 10, 2013, 10:14 PM UTC

pjlegato wrote: post #52

qdog wrote: post #41

Earlier quoted context omitted.

He's insinuating that people should be allowed to do whatever they want with their money and that any protection via regulation must be bad. However, if you are someone who isn't an arbitrager(investor isn't the right term) in their daily job, the pressure to join the tulip buyers is a lot heavier than the available knowledge. The root of this problem is lies, because the tulip sellers are always going to give false…

And yet, these people are perfectly free to buy (goverment run) lottery tickets, or walk into a casino and put their entire life savings on the roulette wheel, both of which have a guaranteed negative expected value. At least with a startup investment, there is some small chance that they'll make money. At the very least, regulations designed to protect the financially unsophisticated from themselves are massively hy…

I think you can justify preventing people from gambling whilst thinking they're investing even whilst permitting regulated gambling marketed as gambling. Similarly, the government permits the sale of alcohol, but not marketed as medicine.

Vegas seduces with glamour rather than prospectuses filled with seductive, irrelevant statistics and passionate, sincere bullshit about how the team of MIT-educated croupiers, striking design and ambient temperature make the ball more likely to land on 27 than at any other venue.

I think only one of the below needs to be true to suggest investment restrictions might be advisable even in the presence of legal gambling.

(i) "unsophisticated" investors are significantly more likely to put their life savings into RandomStartupX than they are to put them on a roulette wheel (ii) RandomStartupX is more likely to return zero than a roulette wheel (even if market returns are positive there's a power law distribution and it's probability of returning zero that's more important to those without a well-constructed portfolio) (iii) Retail investors' realistic early stage "investment" options' expected value may well actually be lower than that of a spin of a roulette wheel assuming the top startups prefer the experience of top-tier investors, which doesn't seem unreasonable even when comparing between different tiers of VC funds

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

#80

Post by JabavuAdams » Wed, Jul 10, 2013, 10:25 PM UTC

JumpCrisscross wrote: post #37

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…

My instinct is to lash out against this move. General solicitation lowers the amount of social vetting a manager must go through before being able to raise funds. It also makes un-accredited investors more aware of the investment barriers around them, which could loosen resolve for maintaining those walls. But 2013 isn't 1933. The average sophisticated investor is more versed in finance, more wary of solicitation if…

Tough call. As someone who doesn't quite meet the accredited investor thresholds, this is good for me, but I can see it being used to scam lots of people.