September 6, 2013
Re: Comments on Proposed Rule: Amendments to Regulation D, Form D and Rule 156 under the Securities Act
[Release Nos. 33-9416, 34-69960, IC-30595; File No. S7-06-13]
As most observers are aware, AngelList has whipped its users into a frenzy of fear and panic by spreading false information about a new death sentence for startups that the Commission is allegedly proposing for any startup that engages in general solicitation and advertising without complying with the Commission's new rules requiring, among other things, the filing of a Form D prior to commencing general solicitation and advertising of unregistered securities. See:
"Help the SEC understand why new fundraising rules will hurt startups"
and see also: http://www.sec.gov/comments/s7-06-13/s70613-37.pdf
AngelList is wrong about the intended regulatory impact and the plain language meaning of the proposed one-year "disqualification" period.
The proposed disqualification pertains only to NEW Regulation D Offerings that the offenders (not just the startup, but its directors, executives, co-founders, etc) might try to commence within one year in addition to the non-compliant Offering which was the source of the regulatory compliance offense!
Furthermore, the Commission is NOT proposing that the non-compliant Offering (in which the non-compliance occurred) should be halted for any period of time at all. When the SEC's offenders continue their present Offering for one year after a regulatory compliance violation, rather than abandon the current Offering and start up a new Offering during this one-year period, there will be NO DISQUALIFICATION of any sort for the SEC's offenders if they follow through with the Offering in which there was a regulatory violation.
In my opinion, it is correct and necessary to prohibit serial entrepreneurs from conducting a series of fraudulent Offerings. The investors who buy securities in a Rule 506(c) Offering deserve at least one full year of effort from the team of people in which the investors invested. The Commission should not cave in to political pressure from the users of AngelList who think it is a good idea for serial entrepreneurs to pivot every 15 days to a different Offering to different investors. Startups and their insiders and promoters must abide by the implied covenant of good faith and fair dealing that is supposed to govern lawful business relationships.
It is astonishing that 20,000 of the world's most experienced Accredited investors (the members of AngelList) have failed to comprehend the plain language meaning of the proposed Rules. It is almost as if these 20,000 Accredited investors did not bother to read the 186-page Proposed Rule published by the SEC before these 20,000 Accredited investors chose to invest their time and their personal reputation on the risk of investing in an idea that might turn out to be wrong.
Trusting other people is not a reasonable basis for investing in anything, and the ease with which AngelList was able to spread fear and panic with misinformation demonstrates this clearly. This is a teaching moment for the startup community, and for all of us who were born and raised in Silicon Valley. We must temper transparency with reason, and innovate within the security measures of a new "forensic social media" ecosystem in which the SEC and other regulators are first among equals.
So there you have it, I just demonstrated that I am the smartest person in this particular room. Will that help me to raise capital? Probably not. The popularity contest that Silicon Valley calls "raising capital" is part of the problem. It is not the solution.
Co-Founder and CEO
Public Startup Company, Inc.