Small investors could be permitted to invest in startups online under new U.S. Securities and Exchange Commission (SEC) rules:
America's financial watchdog says anyone with spare cash will be able to buy a slice of a startup online without having to fill out mountains of paperwork.
Until now, if you fancied plowing some of your savings into a fledgling biz — say a trendy but privately held San Francisco tech startup — there are all sorts of requirements and red tape you must overcome, all pretty much put in place after the 1929 US stock market crash.
Under new rules from the SEC, a startup can raise $1m a year by selling stock in itself to investors, although the individual amounts will be regulated. Those with an annual income of up to $100,000 can spend either $2,000 a year or five per cent of their net worth in startups, or 10 per cent if they make more than a hundred grand.
"There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need," said SEC chairwoman Mary Jo White. "With these rules, the Commission has completed all of the major rulemaking mandated under the JOBS Act."
From the SEC release:
The new crowdfunding rules and forms will be effective 180 days after they are published in the Federal Register. The forms enabling funding portals to register with the Commission will be effective Jan. 29, 2016. [...] The SEC is seeking public comment on the proposed rule amendments for a 60-day period following their publication in the Federal Register.
(Score: 4, Interesting) by MichaelDavidCrawford on Monday November 02 2015, @09:25AM
My concern is that everyone is starting up a startup without putting a lot of thought into the long-term value of the company.
AFTER the investors have exited what will their be? Are you creating a company because you like craft beer and ping-pong, or because you want to create something of value to leave to your children?
There's lots of easy money the last while because interest rates are zero, if not actually negative. The rich people need to put their money somewhere. They know to diversify their investments - they're rich people see, not like you and me - so they'll invest a modest amount into any manner of damnfool ignorant ill-advised idea.
Particularly disturbing to me is that the company founders become managers of dozens, hundreds, even thousands of people despite not having learned not so soil their own didies yet.
Yes I Have No Bananas. [gofundme.com]
(Score: 0) by Anonymous Coward on Monday November 02 2015, @02:51PM
SEC rules allow a fool and their money to be parted, now with less paperwork. That said, I greatly prefer this to kickstarter.
The kickstarter model:
"If you pay for us to make this , we will give you a single copy. If you pay for 3 copies, we will also give you a special hat."
The way it should work:
"If you pay for us to make this , you will be an investor in the thing, entitled to a percentage of its worth based on the percentage you have purchased."
Under both situations, if you pay for a worthless thing, you get no-thing. The whole concept of "accredited investor" is crap. The Government is telling its citizens where they can and cannot spend their money. You are worth $300K and want to invest $50K in your friends software shop so he can try to make the next Angry Birds? Sorry, you are not legally allowed to.
(Score: 2) by MichaelDavidCrawford on Monday November 02 2015, @10:14PM
Suppose someone who earned $100k/year wanted to invest in silly hats. That's OK!
He just can't invest in startups.
I can see the point of certification if one qualified by passing some manner of professional exam. Like do you even know what it means to "Buy Puts" or to "Go Long"? Even some people who qualify due to their wealth don't have a clue how to sensibly invest.
Yes I Have No Bananas. [gofundme.com]
(Score: 2, Interesting) by khallow on Monday November 02 2015, @04:14PM
My concern is that everyone is starting up a startup without putting a lot of thought into the long-term value of the company.
That's not a concern I would have. The problem is easily resolved by running out the clock. Either the startup happens to have enough value (doesn't even need to be long term value) to justify itself or it doesn't. The first case is not a problem obviously. The second is a learning opportunity which the founders can apply to their next start up.
There's lots of easy money the last while because interest rates are zero, if not actually negative. The rich people need to put their money somewhere. They know to diversify their investments - they're rich people see, not like you and me - so they'll invest a modest amount into any manner of damnfool ignorant ill-advised idea.
And it would be terrible to help rich people with their inability to invest well? The disease is the cure.
Particularly disturbing to me is that the company founders become managers of dozens, hundreds, even thousands of people despite not having learned not so soil their own didies yet.
Learning opportunity.
(Score: 2) by MichaelDavidCrawford on Monday November 02 2015, @10:12PM
I came within five days of foreclosure.
My understanding is that 400,000 computer programmers were thrown out of work. A friend who once worked at Be, Inc. told me that one of their very best engineers managed to get by by driving a forklift at Home Depot.
I don't consider "learning opportunities" to benefit anyone if it comes at the cost of mass homelessness or desperate poverty.
Yes I Have No Bananas. [gofundme.com]
(Score: 1) by khallow on Tuesday November 03 2015, @12:49PM
My understanding is that 400,000 computer programmers were thrown out of work.
By what? If it was something I did, then I'm not getting enough to fire 400,000 people.
I don't consider "learning opportunities" to benefit anyone if it comes at the cost of mass homelessness or desperate poverty.
One of the reasons small investors are useful. They both lower the threshold to starting another start up and the failures are smaller when they actually occur. Both which help rather than hinder in the above situation. And I consider the situation where 400k people get thrown out of work in a couple years time to be a genuine learning opportunity. Whether you actually learn anything from it is another story.
(Score: 2) by MichaelDavidCrawford on Tuesday November 03 2015, @01:54PM
Is there but one ounce of human compassion to be found on your person?
I honestly do not regard startups as a good thing.
Yes I Have No Bananas. [gofundme.com]
(Score: 1) by khallow on Tuesday November 03 2015, @02:49PM
Is there but one ounce of human compassion to be found on your person?
I honestly do not regard startups as a good thing.
First, I want to mention for people who may be wondering what we're speaking of, we're speaking of the dotcom bubble from about 1995 through to 2001 or 2002. It resulted in a vast creation of start ups with frankly little long term value and resulted in a lot of employment when things were going well followed by a lot of job loss when things tanked in 2000 and 2001.
To answer your question, I think there are plenty of ounces of compassion left in this frame, but not much reason to bring them forth. There just wasn't that much harm or problems in the first place. For example, 400k people losing their jobs sounds harmful, but what else were they going to do? They spent at least a few years doing high tech work, which even in flaky dotcom start ups was good pay. They experienced business creation and learned some life experiences which they can apply either to high tech or something else. And fake wealth turned out to be fake. Not a serious loss on the economic side.
And really, what of those problems of the time or of the current rules had anything to do with start ups and their problems? I grant that there probably will be a bunch of people losing money through these new investment rules. They probably would have found some other way to lose that money and I really don't think public policy is the best way to try to fix people intent on being fools. And start ups are just new businesses. Should we get upset over all the new restaurants that are created each year?
(Score: 0) by Anonymous Coward on Monday November 02 2015, @12:58PM
That will clearly never be used by yhe unscrupulous to rip people off.
(Score: 1) by khallow on Monday November 02 2015, @04:23PM
(Score: 0) by Anonymous Coward on Monday November 02 2015, @06:30PM
So one more of the vestiges of the rules we put in place in the 1930s to stop rampant corruption and market crashes is being removed. About the only thing left is FDIC.
I have advice for anyone thinking of investing like this. *run*. Do not look back. You are more than likely are going to lose all of your money. Do not do it. If you are dead set on doing this. Ask the key questions. What sort of assets are you creating? What is your ROI timeframe? How will you accomplish it? Why do you think this timeframe holds up with that plan? If they can not answer even those 4 questions, RUN. You are not losing an opportunity. They do not know what they are doing and are going to flail around for awhile while they figure out, on your dime.
(Score: 1) by khallow on Monday November 02 2015, @09:25PM
So one more of the vestiges of the rules we put in place in the 1930s to stop rampant corruption and market crashes is being removed.
This is one of the many vestiges we can do without. If you want to know how to stop this rule from leading to rampant corruption and market crashes, then continue to keep fraud illegal and don't let me borrow gobs of money to throw on the next kickstarter project. The combination of keeping illegal stuff illegal as well as not letting investors become highly leveraged is all it will take to keep this particular investment feature from becoming a problem.
I have advice for anyone thinking of investing like this. *run*. Do not look back. You are more than likely are going to lose all of your money. Do not do it. If you are dead set on doing this. Ask the key questions. What sort of assets are you creating? What is your ROI timeframe? How will you accomplish it? Why do you think this timeframe holds up with that plan? If they can not answer even those 4 questions, RUN. You are not losing an opportunity. They do not know what they are doing and are going to flail around for awhile while they figure out, on your dime.
Good advice. And people will probably often get burned anyway even if they can answer these questions. But the point here is that eventually you'll get a community of founders who consistently deliver results for their investors and investors who know what to ask and what to look for. I think that will more than outweigh the enlargement of this particular way to scam people.
(Score: 0) by Anonymous Coward on Monday November 02 2015, @11:38PM
If you're not rich you can invest $2000. If you're rich, you can invest whatever you want. What's next, no investments if you're AA or Latino?
(Score: 2) by gidds on Tuesday November 03 2015, @05:57PM
The last time we let the big corps persuade us that some century-old legislation wasn't needed and that financial markets are much safer now, we laid ourselves open to the Global Financial Crisis.
What would we be laying ourselves open to this time?
The requirements and red tape were put in place for a very good reason. Isn't it up to those who want change to prove (not just claim) that the reason no longer applies?
[sig redacted]
(Score: 1) by khallow on Wednesday November 04 2015, @01:18AM
What would we be laying ourselves open to this time?
A golden age of business creation?
The requirements and red tape were put in place for a very good reason.
The reason was a bunch of patronizing idiots who took investing out of the hands of the common man for more than a half century until online trading opened things up again.
Isn't it up to those who want change to prove (not just claim) that the reason no longer applies?
I think it's telling that critics here can't even come up with a relevant reason in the first place.