October 24, 2013
My name is Chuck Hamman and I started a small business in Chicago. I make a powdered supplement drink called Sleepyhead.
I invested 100% (about $160,000) of my personal savings into my business. Im tapped out. I am considering crowdfunding to raise much needed capital for my business to support our growth.
I was thrilled to hear about the SECs proposal. After reading it, Im incredibly disappointed.
Heres an outline of the flawed rules and possible solutions.
1. A company would be able to raise a maximum of $1,000,000 annually
a. Problem: What if a company needs to raise more? What if investors want to invest more? When a company experiences exponential growth (i.e. if I land a national contract with Walgreens), they need to raise capital at a moments notice. If a company has good traction with crowdfunding, let them continue to lean on it. Forcing them to find another source of capital wastes an incredible amount of time and money. Valuable resources that a small company like me doesnt have. Putting a ceiling on the amount of capital is putting a limit to a companys potential to grow when opportunity strikes. Investors lose, owners lose and consumers lose. What a shameful waste.
b. Solution: Eliminate the cap. Give company owners the flexibility adapt to their unique needs. If a company is growing like a weed and investors want a piece of the action, let them Investors win, owners win and consumers win. Let the market decide the cap. Not you
2. Investors are permitted to invest up to $2,000 or 5% of their annual income
a. Problem: What if an investor wants to contribute more? Who are you to say where someone can put their money?
I have a moral problem with the principal behind this rule. It is like mandating the amount someone could spend on a new car. What if you said people are not allowed to spend more the 5% on a car? Or a house? On education? What kind of society does that sound like? Its worse than communism.
Oddly enough, its perfectly legal to go to Vegas and put 100% of your income on black.
Here are the consequences of this rule. It will severely limit the total sum of capital invested. Investors will have less experience investing, less money will be available in the crowdfunding universe for owners to get their companies started. Less money for new jobs, new products, new ideas, everything. This is the most deplorable rule youve created yet.
b. Solution: Again, eliminate the cap. Require only that investors are sound-minded adults. After all, were adults. Dont treat investors like children. People should be allowed to spend/invest our money however we wish. This limit accomplishes very little, but it does great harm to everyone.
3. Securities could not be resold for one year.
a. Problem: Buy low, sell high. Thats the rule for anything (not just the stock market). To follow this rule, you need to be nimble to buy or sell.
b. Solution: Get rid of this rule. Once an investor owns a security, let investors buy and sell whenever they want.
Everything else looks agreeable. I don't think many of the additional rules are necessary, since there's a strong incentive for crowdfunding sites to do exactly what you suggest.
Your proposed rules will do vastly more harm than good. Please change them to give us (investors and owners) more freedom.
Crowdfunding is rocket-fuel for our economy. There are endless possibilities. Please stop interfering this brilliant new concept. Give it space to flourish and great things will come.
If you would like more, heres where to find me:
Chuck Hamman
[phone number and address redacted]
Thank you for your sincere consideration.
Chuck Hamman