August 18, 2013
I am opposed to the current proposed regulations for crowdfunding. If these regulations had been in place when my startup first started raising money, we would have failed to comply with them for the simple reason that we had to raise capital in order to afford an attorney in the first place.
New founders are faced with a bewildering array of new entities to comply with - the IRS, their State, federal regulations, your office. Many of these founders are first time business owners and the education process is intense. This adds to an already overwhelming set of time-sensitive, opaque requirements.
Startups like ours are constantly changing and pivoting their initial idea, fundraising strategy, marketing strategy, etc. To expect that they will file every time they change their offering is unrealistic.
The SEC should require a startup looking to fundraise to register with them, and allow third party sites (like the crowdfunders) to facilitate this registration. The SEC is perfectly capable of using these third party sites to establish what the current offering of the startup is independently, with no additional need to file. If a filing is necessary for every change to the offering, it should be doable through the third party site.
Young innovators like us are doing the best we can to make America competitive again. Regulations must not conflate those who are overwhelmed with those who seek to defraud, and a one year penalty box is unbelievably excessive. Our startup was several months old before we were able to afford a professional attorney who filed our Form D - one our investors had to pay for. I hope you can recognize the irony of forbidding startups from raising capital due to not complying with regulations, for which they need the assistance of professional service providers (at hundreds of dollars per hour) in order to comply.
There are plenty of punitive recourses available for those who defraud, not the least of which, the ability for investors to sue them in court. If there must be a penalty box, make it that they the startup can't fundraise until they've remedied the initial violation at most.