Subject: File No. 4-605
From: Seth Elliott
July 10, 2010
There follows my comments in regards to the petition for rulemaking change #4-605
I wish to express my support for this proposed rule change for exemption from registration.
I myself am an entrepreneur and have advised entrepreneurs for nearly 15 years. Over time, the economic environment for small business has changed dramatically.
For example, a decade ago, it effectively cost $1,000,000 for a technology startup to produce any amount of substantive code. Substantively expensive hardware coupled with proprietary development environments were hallmarks of a technology startup environment. Additionally, real estate costs for office space, including a usable internet connection could run in excess of $2,500+ per month. These components were further exacerbated by the needs for hosting and/or collocation space. These costs were the basics to merely DEVELOP a business offering — the process of execution and promotion simply piled on more expenses.
Today's environment could not be more different. Today, technology companies (particularly web service based companies) can be conceptualized, developed, tested and even deployed to tens of millions of customers at 1/10 the cost of 1999. This has coupled with a broader (and deeper) market understanding and participation in these products and investments by the general public. As such, a more facile mechanism is needed to allow early stage ventures to obtain limited amounts of funds in manageable amounts from individual investors.
For these reasons, I wholeheartedly support the petition for rulemaking as offered (file #4-605). I would offer 2 further comments:
- If the Commission responds positively to the idea of such an exemption and develops a more comprehensive proposed rule change, I would recommend increasing the size of the aggregated amount raised to $250,000. In today's environment, a $250,000 cap should allow most companies to achieve the milestones to allow for either break-even cash flow or proof of concept leading to additional institutional level financing.
- If the Commission responds positively to the idea of such an exemption and develops a more comprehensive proposed rule change, I would recommend increasing the maximum individual investment to $250. The mandate to protect the general public can easily be satisfied at this level, as that individual amount should still present a level of non-material risk for participating investors.
- If the Commission responds positively to the idea of such an exemption and develops a more comprehensive proposed rule change, I would also be in favor of setting a small MINIMUM aggregate amount — perhaps $10,000 - $25,000. This will further protect individual investors from circumstances in which the aggregate funds raised are too small to enable any material advancement by a company.
- Finally, with the safeguards inherent in this proposal, I would suggest that the Commission utilize Section 3(b) for this exemption rather than Section 4(2). Given the de minimus size of each individual investment, a large number of investors will be needed for companies using this exemption. As such, Section 4(2) places solicitation restrictions on the process that may vitiate any advantage that would otherwise be gained by implementing this exemption.
Seth Elliott — Miami, FL