August 19, 2013
We are totally against the following rules which are not conducive to the goals of the Jobs Act, and defeat the purpose of the participation of crowd funding in raising funds for businesses, especially for small business. These are:
1. Startups must notify the SEC 15 days before they publicly discuss raising money
2. Startups must file documents with the SEC every time they update their offering materials
3. Startups must include legal boilerplate every time they talk about their financing publicly
Startups are being forbidden from raising money at all if they accidentally break the rules—effectively putting the startup out of business.
The proposal appears to be targeted to the way startups raised money 20 years ago: with long prospectuses designed by bankers who were facilitating the deal. Today, startups raise money without bankers, through informal conversations with investors. It is unfeasible to notify the SEC in advance, file documents every time there is a new communication with investors and include boilerplate with every communication. Worse, since everything is public, startups will see other startups break the rules and assume there are no rules. So startups will either accidentally break the rules or decide to raise money privately.
The stated purpose of these rules is to help the SEC track investment activity so they can adjust general solicitation regulations over time. There are ways to this without putting good startups out of business or moving investment activity underground. First, allow third parties like AngelList to do the filing on the startup's behalf, with a simple URL that is delivered via API. Second, only require boilerplate when startups are communicating financing terms. Finally, remove the 1-year ban for noncompliance—it is incommensurate with any harm.