September 8, 2014
To The Honorable Mary Jo White, Commissioner Luis A. Aguilar, Commissioner Daniel M. Gallagher, Commissioner Kara M. Stein, Commissioner Michael S. Piwowar, and Title III Team (Sebastian Gomez Abero, Jessica Dickerson, Division of Corporation Finance, and Joseph Furey, Joanna Rutkawski, Leila Bham, Timothy White and Carla Carriveau, Division of Trading and Markets):
First of all I would like to thank you for accepting this late commentary on Title III of the jobs act.
I have been an entrepreneur for several years now (since 2010).
I have had to bootstrap my technology company, despite it actually generating revenue as well as jobs for a half dozen people. Recently I have completely pivoted our company to make it more favorable to early stage angel investors (whom are taking over the venture industry in dollars invested). This will ultimately allow us to access adequate amounts of capital and advisory/mentorship to properly grow. Also, I am hoping that this will lead to rounds of equity crowdfunding in the future. I am extremely optimistic about the fact that this has been so front and center of your regulatory/legislative agenda. Thank you for working so hard on this. We entrepreneurs are watching this with great excitement.
We are building a subscription based on-demand errand-running application. We believe that with equity crowfunding, we’ll be able to hire a dozen highly paid software developers, as well as create upwards of 100 jobs that range in the 45,000 dollar per year range in salary.
My experience recently has shown me that the fears of 2000 (not to mention 2007) still prevail. These have been traumatic times, across a multitude of cross sections in the economy. Labor market stagnation, a tepid recovery and now continuing demand issues are keeping the economy from growing as much as it could.
What I have noticed is that the commercial banks are not necessarily an ideal place to find operating capital, and more shadowy parts of the banking industry seem to be filling in some gaps. This lack of operating capital is just a drop in the bucket of issues that are keeping the economy growing at an even stronger clip than it is. PE’s are enormous in the public markets but wages haven’t followed. In order to get that boost I believe that Title III of the jobs act should be sorted out. After all, new and even small companies are the engines of job growth… not necessarily the large combines.
While issues with fraud, costs of auditing, and other potential challenges exist; they will dwarf the potential benefits that companies can enjoy from equity crowdfunding. Right now you have a bunch of companies that are offering ‘rewards-based’ crowdfunding campaigns. This is a problem. These companies can’t just release a product out of the gate without equity infusions, so a symptom of delaying Title III could potentially be MORE fraud - not less. There is no way that all of these rewards-based campaigns can be legitimate, because these companies have not raised enough capital to realistically build the products that they are boasting.
Beyond that, I believe that equity crowdfunding can be enormously financially beneficial to investors. If done smartly, and right, investors can participate in the profits of large exits. If the risks are managed through egalitarian regulation and fraud is prosecuted, this can be a true watershed for Americans. Imagine if the original funders of oculus rift could have benefited from that exit to Facebook? Imagine the flood of capital that would come from investors after a few success stories. This is healthy; but again, there is inherent risk.
I hope that you are able to sort through the audit cost issues and can find ways of not only monitoring for fraud but also have the will to full prosecute it when it happens.
In closing, equity crowdfunding will allow companies to flourish, and for small investors to benefit from the profits of large exits. These types of activities are in line with the traditions of America, and I can’t think of any reason we should let other countries do a better job of chasing after life, liberty and the pursuit of happiness than us. Equity crowdfunding; its subsequent oversight and regulation may be the boost we need to get momentum in this economy.
Sincerely,
Anindya Ghosh
ErrandRunner