November 13, 2013
Comment on Securities and Exchange Commission, Crowdfunding, File Number S7-09-13
To: Elizabeth M. Murphy, Secretary, Securities and Exchange Commission
My name is Jonathan Schatz, and I am pursuing a JD-MBA degree at Stanford Law School and the Stanford Graduate School of Business. I spent two years in the Peace Corps in Ghana working with women entrepreneurs in rural areas, and I have seen first-hand the value of local and small-scale sources of funding for small business owners. Now that I am based in Silicon Valley, I can attest to the burdensome nature of extensive disclosure requirements for startups. I propose that the following requirements be changed:
4.B(1) Disclosure Requirement – Request for Comment #22 – Page 12
The Rule 306 requirement of Regulation S-T mandates that all electronic filings made with the Commission be made in English. This regulation disproportionately burdens non-English speaking entrepreneurs. While high-tech companies like Kickstarter may have pioneered crowdfunding, it has the potential to extend far beyond the high-tech world. Crowdfunded projects include local restaurants, small-scale consumer projects, artwork and music. Some entrepreneurs behind these projects will speak English as a second language or not all. Crowdfunding’s purpose is to allow small business owners to raise funds from a community of investors without the sophistication required for investments from Venture Capital funds or banks. This avenue for financing should not be foreclosed or diminished for non-English speaking entrepreneurs. Indeed, non-native English speakers may benefit most from crowfunding, as traditional funding channels are likely unavailable to them. According to a 2011 report by the U.S. Census, sixty million Americans speak a language other than English in the home, and of those, 22.4% speak English “not well” or “not at all.” Certainly, entrepreneurs who can communicate their story in English will have an advantage in the marketplace, as they will be able to reach a wider audience of English speakers. Given these market forces, it makes little sense to preclude entirely the use of other languages – further disadvantaging an already disadvantaged group.
A.I(F) Ownership and Capital Structure Disclosure – Request for Comment #37 – Page 16
The Ownership and Capital Structure Disclosure requirement is overly burdensome for less sophisticated entrepreneurs. Many of the items required here are inconsistent with the purpose and nature of crowdfunding – which is that it is democratic, flexible and informal compared to traditional funding sources. Instead, entrepreneurs should disclose (1) the price of a share and (2) the percentage ownership represented by a share.
Many of the crowdfunded businesses begin with an idea or prototype. The principal may not consider the business’ capital structure nor whether the shareholders will have voting rights. Extensive disclosure requirements disadvantage less sophisticated or first-time entrepreneurs.
Additionally, too much disclosure obscures the key investment terms. The issues critical to investors in crowdfunded companies are the percentage ownership of the company and the price at which they purchase that ownership. Even for sophisticated Venture Capital investors, the key terms are “valuation and the amount raised.” For crowdfunding investors, keeping the information simple will highlight the important aspects of the investment.