September 4, 2013
To whom it may concern,
I would like to recommend that that the penalties associated with the JOBS Act general solicitation procedure be amended out of the Act. The 15-day period for when a startup must notify the SEC that it has begun fundraising is impractical for early stage companies. Unlike public companies, which plan out a detailed fundraising timeline well in advance, startups often act quickly in their fundraising efforts in order to take advantage of financing opportunities that present themselves. I suggest that notifying the SEC be a requirement AFTER the fundraising has taken place, or at the very least at the time it has begun.
Furthermore, the 1-year penalty associated with startups that fail to keep the SEC updated with the most recent fundraising material is excessive, and will be the cause of unintended consequences. Given that a startup violating this part of the Act are by definition, raising money, not allowing the company to accept funds for a year will kill the company.
I fully support the intended action of keeping the SEC updated with the most recent fundraising documents. In doing so, there is an opportunity for all stakeholders to benefit: the SEC, the startup, investors, and the funding platforms.
What needs to be done is to enable registered broker-dealers that process crowdfunded transactions to communicate the most recent fundraising documents to the SEC through an API. Startups will continuously make updates to its fundraising material directly on the fundraising platforms (such as AngelList), investors will instantly be notified that a change has been made, investors can back out of their commitment if needed (unchanged from the current version of the Act), and the SEC is updated as soon as a change is made. In addition, the SEC can charge broker-dealers / funding platforms more money for such a process to work, and all fundraising platforms will pay the fee because they wouldnt be in business if such a process is allowed, and they are not using it. (Same as how banks charge additional fees for wire transfers, where cashing a check is free).
I believe that the suggestions above will promote a healthy early stage financing environment for all stakeholders involved, and will avoid the drastic unintended consequences that are currently included in the Act. Failure to do so will further expand international Crowdfunding sites that do not have these restrictions (and in fact have very favorable Crowdfunding laws for early stage companies). Thank you for providing the startup community a forum to express our concerns on this matter.
Please contact me at any if you would like to discuss further.
Phone: (408) 691-3409
Niv Dror, CPA