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The SEC Just Voted To Lift The Ban On General Solicitation

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

#81

Post by 7Figures2Commas »

clavalle wrote: post #67
7Figures2Commas wrote: post #62

Earlier quoted context omitted.

>... 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…

Is it a fact that only accredited investors can be solicited? I remember reading when the Jobs Act was first floated that non-accredited investors could invest as well but were capped at how much they could invest in a given year based on their income.

Yes, there is a separate portion of the Jobs Act that deals with crowdfunding and non-accredited investors.

That is an entirely different can of worms, but there too, I think there is a general overestimation of how easy it will be for the average small business or startup to raise capital.

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

#82

Post by 7Figures2Commas »

jmj42 wrote: post #73
7Figures2Commas wrote: post #62

Earlier quoted context omitted.

>... 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 sev…

I wish somebody had alerted me when a few guys in a Harvard dorm needed capital to pay the hosting bills for their new social network!

My missed opportunity to take a huge equity stake in Facebook for $20,000 aside, what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a particular company.

That's not what we're talking about though. Your prior comment suggested that the lifting of the ban on general solicitation will make it easier for small businesses that cannot realistically raise capital today to do so.

There's a huge difference between a startup that is already working the angel and VC networks and a group of guys who want to buy a bar as a hobby and, perhaps not surprisingly, have no contacts eager to pony up even $50,000 so that the founders can keep most of their money in investments that are producing better returns than the bar would.

In other words, you're confirming one of my original observations: a lot of folks seem to believe that general solicitation will enable startups and small businesses that are less-than-compelling investments to raise money from stupid rich people.

Although I wouldn't be surprised if somebody somewhere has a list of accredited investors over the age of 80 who are likely to have Alzheimer's, that is not going to happen in significantly larger numbers as a result of this change.

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

#83

Post by gohrt »

jmj42 wrote: post #76
neilk wrote: post #72

Earlier quoted context omitted.

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.

Starbucks did an experiment in "white label" (non-SBUX-branded) storefronts. It didn't continue, but one could imagine developing a national network of white-label restaurants to be run by locals.

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

#84

Post by myke_cameron »

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…

> At the very least, regulations designed to protect the financially unsophisticated from themselves are massively hypocritical.

But are they _really_ designed to protect the financially unsophisticated from themselves? These regulations were enacted in response to the great depression. The motivation was to protect SOCIETY from systemic problems rooted in the actions of unsophisticated investors, not to protect the investors from themselves.

I agree that rules designed to protect the stupid from their own stupidity are to be avoided at all costs, but I don't agree that this is an example of such a policy. And I certainly don't buy the idea that people should be able to do whatever the fuck they want, to hell with everyone else, so long as they are not directly causing physical harm or property loss to another person.

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

#85

Post by skue »

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…

> 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 it addresses the challenge of the general solicitation rule...

Sure, YC demo day addresses this problem, but there are many startups out there who will never attend YC. And because these startups still need validation and a network, this has fueled an accelerator bubble as more and more accelerators throw open their doors.

I don't believe having all these accelerators is a good thing. Many are run by folks who have very little experience, and in some cases they offer little value other than a demo day stage.

So although I'm also unsure whether this rule change is good public policy, I do hope it helps pop the accelerator bubble and forces the remaining accelerators to focus more on building value and less on playing matchmaker.

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

#86

Post by jsams »

jplewicke wrote: post #53
oijaf888 wrote: post #44

Earlier quoted context omitted.

I don't believe the club would have to meet the requirement. I think if you do your investing via an LLC or Corporation you could subvert that rule but I'm not really sure.

The "club" would have to have at least $5 million in assets, according to current SEC guidance: http://www.sec.gov/answers/accred.htm .

Actually, 501 already requires that the indivual investors of the 'club' also be accredited, and the club cannot be formed for the purposes of 'an' investment. However, a group of engineers could form an entity and each become active managers, and their club is able to accept funds from the engineers via a 4(2) exemption under the '33 Act. Then, so long as they didn't run afoul of the '40 Act, they could invest so long as they had $5m in assets. And the neat thing about intellectual property is that the engineers could purchase their stake in the club via a combination of cash and IP, easily and lawfully exceeding the $5m threshold.

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

#87

Post by jmj42 »

7Figures2Commas wrote: post #82
jmj42 wrote: post #73

Earlier quoted context omitted.

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 sev…

I wish somebody had alerted me when a few guys in a Harvard dorm needed capital to pay the hosting bills for their new social network! My missed opportunity to take a huge equity stake in Facebook for $20,000 aside, what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a…

>what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a particular company.

Had they know about it. Yes, that's exactly what we're talking about. Sure there's a difference between a startup that is already working the angel and VC networks and a group of guys who want to buy a bar as a hobby, but there isn't much difference between the bar and a bakery who want to expand, or an established bar who wants to open a new location, or the two guys who want to turn recycled junk into interesting furniture. None of these are looking for large investments, and none have access to VC and angel networks. Though the risk is high, there may be investor who are willing to take the gamble.

Lifting the ban provides a channel, where one doesn't currently exist, for these organizations to reach potential investors. Likewise, it provides a channel for interested investors to find out about opportunities they would otherwise not know about.

I didn't imply that lifting the ban would make funding automatic. Nor, do I expect, does anyone actually believe that it would (though you seem to think that's what people are saying). What it does do is allow the two ends to connect when there's mutual interest.

What this does is open a channel of communication. It's a way for small businesses to reach investors. That doesn't imply that the small business is going to get funding (or even a conversation with an investor) any more that getting on Shark Tank implies that Mark Cuban is going to invest in your fancy new shoelace company. On the other hand, there may be an investor out there, somewhere, who just happens to have an aglet company in his portfolio that would make your shoelaces a billion dollar company.

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

#88

Post by jjsz »

skue wrote: post #85
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…

> 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 it addresses the challenge of the general solicitation rule... Sure, YC demo day addresses this problem, but there are many startups out there who will never attend YC. And because these startups still need validation and a network, this has fueled…

Perfect examples are local Founder Institutes.

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

#89

Post by rgoksor »

Good points on the opportunities/challenges today's SEC ruling on general solicitation brings to startup funding. At Bison.co, we believe the important changes from these new rules will have less to do with accredited investors and more to do with increasing data openness in the private equity industry. Check out our latest blog post for details on how it will play out... (http://blog.bison.co/2013/07/10/hello-private-equity-marketi...)

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

#90

Post by 7Figures2Commas »

jmj42 wrote: post #87
7Figures2Commas wrote: post #82

Earlier quoted context omitted.

I wish somebody had alerted me when a few guys in a Harvard dorm needed capital to pay the hosting bills for their new social network! My missed opportunity to take a huge equity stake in Facebook for $20,000 aside, what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a…

>what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a particular company. Had they know about it. Yes, that's exactly what we're talking about. Sure there's a difference between a startup that is already working the angel and VC networks and a group of guys who want to…

You do realize that the lifting of the ban on general solicitation does not mean that startups and small businesses will simply be able to advertise at their leisure, right? These are still Reg D offerings, which require paperwork, and under the new rules, companies that are going to be advertising publicly will need to file their Form D with the SEC 15 days before the offering. Interested investors will also need to be vetted to ensure that they're qualified to participate.

You don't put together a Reg D offering without competent legal counsel, and competent legal counsel costs money. So before you and your buddies can even test the fundraising waters through general solicitation, you'll have to make an investment of your own and that could easily run into the five figures.

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