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The SEC Is About To Make Crowdfunding More Expensive
PapayaSF writes "Proposed new rules require that funding portals register with the Securities and Exchange Commission and the Financial Intermediary Regulatory Authority. In addition, investors must have access to a business plan, use of proceeds, a valuation of the company, and financials, so Certified Public Accountants may be needed. The SEC estimates that for amounts under $100,000, the fees will be 12.9% to 39% of the money raised, though it may drop to under 8% for higher amounts. Is this needed regulation, or bureaucratic overreach?"
It's overreach
There should be an upper limit, perhaps around 10% of revenues.
Table-ized A.I.
So the solution is to just use croudsourcing outside of the US? If you want to start a croudsourced business, move to Canada or elsewhere in the world?
You can tell how powerful someone is by the magnitude of the crime they can commit and be able to get away with.
They want it
They will get it
And what will we be getting in return for their wise and valuable oversight?
Fuck. If a company can put all of that together, they probably don't need crowdfunding in the first place. That's the ENTIRE POINT of having kickstarter in the first place! For ideas by small groups or single people who have nothing but a good idea. Everyone donating already understands the risk.
Or maybe big business trying to squash competitors.
While one often imagines left-leaning socialists wanting more regulations on everything, many times such legislation is merely big companies lobbying to stifle smaller companies, or even big competitors in slightly different industry categories.
In Utah, some big companies lobbied to regulate the cosmetic industry in a way that put a lot of mom-and-pop beauty salons out of business. Thus, people would go to big-co franchises instead. (That's why Utahians are so ugly :-) .... just kiddin'
Businesses only hate regulations that hurt themselves, but love regulations that stifle competition.
Existing patent laws appear to be a form of this: they favor big patent portfolios and big lawyers, because smaller companies and individuals don't have the lobbying money behind them to make the patent rules more small-company-friendly.
Table-ized A.I.
Having not read the actual legislation, the following quote from the article seems quite important: "The legislation requires that the selling of crowdfund securities take place on registered websites."
Notice the phase "selling of crowdfund securities." I think that most crowd funding doesn't involve the sale of securites and in fact most are just clever ways of pre-selling merchandise not yet made without having to give away any equity at all.
Although I could be talking complete nonsense.
I'm not completely sure, but I think the SEC is talking about situations where a company avoids the traditional IPO process and instead "crowdfunds" the sale of securities in their company (either debt or equity). Kickstarter is generally different, because the return on "investment" is in the form of a set non-monetary reward that is more similar to a purchase than an investment.
What is needed, though, is some clarity in the rulemaking process to ensure that Kickstarter and other similar sites can feel comfortable that they are not at risk of being caught up in this net.
But is trying (as directed by that law) to allow crowdfunding where the donor award is a security; the current regulatory structure, based on the Securities Act, largely makes this sort of model impossible due to the various requirements of public offerings.
If so... it's an improvement.... but the requirement that the entrepreneur front, essentially 39% of the funds, to raise less than $100K.. would appear to be unduly burdensome. The requirement for a CPA audit would also appear to be unduly burdensome.
The person raising this money, should have a less-expensive option: that does not require losing a significant amount of their funding. And they should have an option of disclosing that no audit has been or will be performed.
Whether no audit makes the offer unsatisfactory or not, should be the decision of potential investors, to be made based on their careful judgement in selecting potential investments, not the federal government.
No mutual funds, retirement funds, or anything similar should have anything to do with crowdfunding. The SEC has no place here. Crowdfunding is similar to buying raffle tickets at a Church bazaar and the SEC has no business messing with those, either.
Sorry, nope. Prizes for a raffle should be obtained before tickets are sold, so that everyone knows what they're buying. I may not be guaranteed to win anything, but I know somebody will, and that the winning is determined by random chance. In crowdfunding, I may personally be taking a gamble, but if I "win", so does everybody else, and that winning is not regulated by chance, but by the ability of the project team to deliver.
These abilities vary from project to project, unlike the rules of statistics, which are universal. It is therefore vital that someone assesses the credentials of crowdfunding projects, rather than leaving uninformed members of the public confused and convinced by pseudo-scientific technobabble.
Got them moderator blues I blieve I walk out the do', With these mod-points I been gettin', I 'most never post no mo'
That may be so, but what this amounts to is closing a door we just managed to open for small operations. Here we go again, only ops with access to big business resources will typically be able to meet these proposed criteria. If you had doubt that big business interests drive our legislation, this should help resolve those doubts. Small operations can pose a huge threat because they are, at times, considerably quicker off the mark than your average corporation with its bean counters, lawyers, middle management, reviews, and HR making sure you only get the most mediocre employees possible.
This is mommy government at its typical get-in-the-way pursuits. The problem is, aside from complaining in fora like this one, there isn't much we can do about it unless some interested party's got deeper pockets than the corporations. Not too likely, seems to me.
I've fallen off your lawn, and I can't get up.
You're local EPA can measure it's success in PPM of various pollutants. But we sorta forget that (which is odd, what with all the news of China's cities, or with the "Smog Days" in major American Cities).
Police measure crime rates. The Fed Reserve can measure economic growth. And the SEC can measure how much money was lost by investors on shoddy investments.
A bit more regulation before the housing bust woulda been nice. Anyone remember Glass-Seagal? As Liz Warren pointed out we had 50 years w/o a major bust until we repealed that...
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