Subject: File No. S7-06-13
From: Abraham Kamarck
Affiliation: Maendeleo Ventures, LLC

August 20, 2013

America's vibrant and growing startup economy is one of the sole sources of economic growth for the country. the whole reason it has operated so effectively to date is that capital can move into these early stage, high-risk companies - rewarding high-risk enterprises and investors for taking limited risks. These risks have high upsides for the economy and limited downsides (very limited negative externalities). Most capital markets (e.g. structured derivatives markets or high capacity trading markets) have incentives that drive bankers to make high risk, short term bets with other people's money in interconnected markets - creating all kinds of negative risks for the greater population should these bets fail. Startup investing is a long-term play, not a get-rich-quick scheme. It (startup investing) creates jobs and fuels innovation and the downside risk is limited to individual investors (there is minimal risk of contagion).

Under this version of the law, Startups may be forbidden from raising money at all if they accidentally break the rules—effectively putting the startup out of business and destroying innovation. Startups cannot afford the lawyers needed to meet these regulations and startup founders do not have the bandwidth to be experts in these areas. It's a lose, lose situation.

Startups will likely decide that these rules are too difficult and will raise money privately lowering their chances of raising money and moving their conversations to forums that can't be tracked by the SEC.

Either outcome defeats the purpose of letting startups raise money publicly. And 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 will enrich bankers and lawyers (rent seekers) and put innovators and entrepreneurs (job creators) out of business.

It is hard enough for me to explain to my fellow founders about 83b elections and vesting schedules, when we are concentrated on building a product. It is highly unlikely that a startup will notify the SEC in advance, file documents every time there is a new communication with investors and include boilerplate with every communication.

The stated purpose of these rules is to help the SEC track investment activity so they can adjust general solicitation regulations over time, but the suggested system is based on processes developed 100 years ago. Today, there are ways to deliver the intent without putting good startups out of business or moving investment activity into a black market.

Information can be communicated and transactions can be transparent without a nightmarish amount of paperwork and filing.

For example, allow third parties to file on the startup's behalf, with a simple URL that is delivered to the SEC via API. And, only require boilerplate when startups are communicating financing terms. Finally, remove the 1-year ban for noncompliance—it is incommensurate with any harm.