I agree to Idea Have the SEC create a $1M exemption for Crowd Fund Investing
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Have the SEC create a $1M exemption for Crowd Fund Investing

Following the principals of crowd funding (e.g. crowd vetting, all or nothing funding, small dollar investments, community forum for knowledge sharing), allow SEC registered Internet platforms to offer limited offerings for entrepreneurs and small businesses (small businesses being defined as less than $5 million annual gross income). The window will allow for a maximum capital raise of $1M from micro-angels (capped at $10,000 per person).

Full framework and proposal at www.startupexemption.com

Submitted by sherwood 3 years ago

Comments (11)

  1. Americans currently have trillions of dollars sitting on the sidelines in money market accounts.

    Our society should encourage investment in entrepreneurs and innovation in every way possible and provide a fast track system to launch viable new ventures. The road blocks that for too long have prevented access to capital to create sustainable new businesses should be removed.If the funding process is changed to broaden access to capital, we will change the results and lead ourselves out of this recession and back into prosperity.

    We said this in our first blog post "A Call to Action" in February 1 2010 http://fundingroadmap.com/blog and it's time it happens now.

    Entrepreneurs have always spurred the successive technological revolutions that have driven economic growth

    We support the Startup Exemption and you should too.

    3 years ago
    0 Agreed
  2. It would be great to see a financial vehicle to help starting entrepreneurs build new business. This is exactly what the USA needs to build a stronger leading edge in the world marketplace.

    3 years ago
    0 Agreed
  3. What a great idea!

    3 years ago
    0 Agreed
  4. A clear way to help grow the economy by making it easier for small businesses and entrepreneurs to raise money!

    3 years ago
    0 Agreed
  5. You're right. It would be great to see the government get behind something like this to show support for small business and new ideas. At the very least it is a way to cultivate the tough economy we are in and aid startups.

    3 years ago
    0 Agreed
  6. This is vital to restoring our economy. It opens up opportunity on both sides of the deal. For entrepreneurs it frees up capital. For investors it gives new options that will stimulate economic development where we need it the most.

    3 years ago
    0 Agreed
  7. And to add 3rd party validation by industry and VC experts. We pitched this idea as a venture at this weekend's (May 21 -22) Miami StartupWeekend Challenge. Out of the 60 plus ideas not only was Startup Funding Network the WINNING idea but it was the missing link to all the amazing ideas that were sprouted there - Getting them the critical seed capital from the community to keep going. This idea is a "zero cost government initiative" that WILL spur innovation, businesses and JOBS in the USA. And jobs stimulate the economy. Need we say more?

    3 years ago
    0 Agreed
  8. I think it's a great idea; but it already existed in the 1990's w/o the Internet component. It was the Reg. D-504 Offering. For some reason people think that the Internet can solve all problems (because they are usually technologically savvy), but whether or not you use the internet to create these ideas for people to find funding routes, how do you match them with the Investors? One of the key factors in doing successful Reg D 504 offerings was the Investment Bank was taking the company "Pubic;" so there would be a market for these "Early Stage Risk Capitalists" to have an exit strategy and for others to be able to participate in buying and selling in that co's stock. If the Company preformed, then a subsequent Private Placement at a discount to Market Price or a Public Offering of more registered Securities was arranged and the company was further funded to the next level and was able to secure a NASDAQ Listing, and additional lines of credit, and continue growing. The problem is not laws, as frankly the new laws permit Private Placement Stock to be trade-able in 6 mos (Provided the Co. is reporting under the Act of 1934 (Quarterly), the problem is that there are NO SMALL FIRMS LEFT to take these co's public... I'm all for this idea, but if you can get the company's stock to trade after the Funding, then you have a winner!

    3 years ago
    0 Agreed
  9. zak

    Tony, I can see your point however what occurred in the 1990's is different than what is being proposed here. The internet component is one of the most important parts in that it allows for thousands, if not millions, of eyes to vet the deal before it is funded. The internet has provided a level of transparency that can't be under valued.

    Also what is being talked about here in this proposal is both seed capital as well as working capital for companies when there will never be a public offering. The exit strategy for the investors in this case would be if the company is bought out or merged with a larger company. Another option would be if the new rules allowed for the company to pay their investors dividends in accordance to the amount of capital they contributed.

    To your question about how companies would be matched with investors. These crowd funding platforms being proposed would not actually do the matching themselves. What they would do however is act as the platform that would allow investors to find companies they are interested in investing in. They'll be able to search through all the companies listed, read reviews of the entrepreneurs, ask the entrepreneurs questions, review questions that other potential investors asked, see their credit scores, and if after all of that due diligence they can then choose to invest. Note that most investments will most likely be below $300. The current average donation today on crowd funding websites is below $80.

    3 years ago
    0 Agreed
  10. To anyone who is involved in crowdfunding, it's obvious that the SEC rules that were enacted in 1933 are antiquated. They were created to protect small investors and that may have worked at the time. However, today, they are hindering small investors and perhaps more importantly, they are hindering entrepreneurs.

    Recent congressional committee hearings indicate that the SEC and particularly SEC chairperson Mary Schapiro are taking the need for change seriously.

    There are good reasons why current SEC rules are not needed to protect investors in crowdfunding initiatives:

    1. As I read in one of the comments, crowdfunding is all about transparency. Any project that posts to a crowdfunding platform is in effect, vetted by thousands of individuals.

    2. Crowdfunding investments are small (and can be limited by the SEC). As zak rightly pointed out, the average crowdfunding donation today is under $80. Can we assume that a person who invests $80 in a crowdfunding initiative can afford to lose it? Let's remember that the purpose of the SEC rules is not to prevent people from making mistakes. It's to protect investors from financial ruin.

    3 years ago
    0 Agreed
  11. I applaud Woodie on his efforts to advance this important topic. For those interested in a number of in-depth articles about the problems with the SEC, securities laws et al. with respect to small businesses, go to http://www.commonwealthgroup.net/regulations

    There you will find a suggestion (first article) on how to deal with this overall problem in the form of a proposed new SRO (like FINRA) dedicated to small business. I have added this suggestion as entry #200 here. http://reducingbarriers.ideascale.com/a/dtd/Have-the-SEC-authorize-a-new-SRO-dedicated-to-small-business/136840-10332. I suggested this to the leaders of the Roundtable in Palo Alto and it was positively received. If we can get them to back this idea, we could get the SEC to offload the crowd funding implementation, along with a host of other similar needed changes to this new SRO which the small business community could establish and implement on its own. Keep in mind that FINRA is such an independent, non-government organization that is run by its own membership and not the government. They currently largely govern the securities industry, but they like SEC do not understand small business. Thus the role of oversight of small business should be carved out from FINRA and given to our own SRO.

    3 years ago
    2 Agreed

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