August 18, 2013
The proposed rules defeats the purpose of allowing startups to raise money publicly. It will have the unintended consequence of putting large numbers of otherwise promising startups (and most of the job growth in the U.S.) out of business.
This proposal appears to be targeted to the way startups raised money 20 years ago: with long prospectuses designed by bankers who were facilitating the deal. Today, startups raise money without bankers, through informal conversations with investors. It is unfeasible to notify the SEC in advance, file documents every time there is a new communication with investors, and include boilerplate with every communication. Worse, since everything is public, startups will see other startups break the rules and assume there are no rules. So startups will either accidentally break the rules or decide to raise money privately.
The stated purpose of these rules is to help track investment activity so you can adjust general solicitation regulations over time. There are ways to do this without putting good startups out of business or moving investment activity underground.
First, allow third parties like AngelList to do the filing on the startup's behalf, with a simple URL that is delivered via API. Second, only require boilerplate when startups are communicating financing terms. Finally, remove the 1-year ban for noncompliance. It will do far more harm than good.