The JOBS Bill

This past thursday, the Senate voted 73-26 to approve its version of the JOBS bill. The House had previsiously approved a similar bill and the process will now go back to the House to come up with a modified bill that can be approved by both the House and Senate. I hope they make quick work of that and present the bill for signature to Obama who has committed to sign it.

I suspect most readers of this blog know a bit about this bill. The three provisions that are most meaningful are the crowdfunding provision, the increase in shareholder ceiling for private companies from 500 to 2,000, and the "sub $1bn revenue IPO" provision that we discussed previously here at AVC.

I had held off blogging about the crowdfunding provision because frankly I had some reservations that I had privately discussed with friends, colleagues, and elected officials. I did not want to publicly throw cold water on this provision, but I privately hoped that the provision would be modified to help insure that equity crowdfunding of startups doesn't become a fraud infested sector of the capital markets.

The Senate added a number of measure to address the fraud concerns. This is how the NY Times described these modifications:

Under the Senate amendments, any company using crowd-funding methods must still file some basic information with the S.E.C., including the names of directors, officers and holders of more than 20 percent of the company’s shares, plus a description of the business and its financial condition.

Companies seeking to raise $100,000 or less must also provide tax returns and a financial statement certified by a company principal; those raising up to $500,000 must provide financial statements that are reviewed by an independent public accountant. Companies raising more than that must provide audited financial statements.

The Senate also inserted requirements that intermediaries seeking to help companies raise money through crowd-funding must register with the S.E.C., make sure investors are advised of the risks they are taking, and take measures to prevent fraud.

I am a huge fan of allowing every person, not the just super wealthy and institutions, to participate in the funding of startups. Frankly its a shame that the average Facebook user has not been able to own shares in Facebook during its increase in value from zero to $100bn. The same kind of thing can be said about Twitter and many other of our portfolio companies. The changes to securities regulations in the JOBS bill are fundamental and important and very much needed.

But it is also true that investors are due some basic disclosure when parting with their capital. If they choose to ignore the disclosures, then that's fine. But the disclosures should be there for them when they want it and/or need it. The Senate was wise to add some basic disclosure requirements to the crowdfunding bill. I suspect the disclosure requirements might get toned down a bit in the final bill and that is probably a good thing. Requiring an audit for a $500k seed round seems a bit nuts to me.

As for the changes to the shareholder number rule (increase from 500 to 2,000) and the regulatory relief for "sub $1bn revenue IPOs", I am ecstatic about these new rules. Our portfolio companies have spent countless hours handwringing about the existing rules. They have made important decisions based on the current rules which are unnecessarily stringent and have hampered their access to capital. These new rules are much needed regulatory relief for startup companies.

Finally, I'd like to thank our elected officials for coming together in a non-partisan way to address an important set of issues and deal with them sensibly and corrrectly. This doesn't happen enough in Washington and we need more of this. I know that the majority leadership in the Senate, particularly Harry Reid and Chuck Schumer, fought back a mini revolt among the left wing of its party to get this bill passed. I applaud them for doing that and standing up for something that was not popular in their caucus. That is leadership and I appreciate it and I am sure the readers of this blog do too.


Comments (Archived):

  1. William Mougayar

    Are you happy with the 100K and 500K thresholds too? Or could these have been a little higher? 

    1. fredwilson

      i’m happy they got this bill passed but i do think the thresholds are a bit low and the disclosure requirements are a bit overdoe

      1. William Mougayar

        Yes, that’s what I thought.

      2. sigmaalgebra

        “overdoe” should be “overdue” (late to the party) or “overdone” (stick a fork in it)?  My coin flip came out “overdone”.

        1. fredwilson

          even i know that. its a typo.

          1. sigmaalgebra

            Yes, I assumed “overdoe” was a typo.  I know about typos, have had lot of experience!I just wasn’t sure if you really meant “overdone” or “overdue”. 

      3. Laura Yecies

        Personally I’m ok with where these thresholds ended up but if anything I would have lowered them.  I feel like it’s not a big deal at all to do the audited financial statements for this size of business and it is a matter of respect to the investors – that the entrepreneur takes the investment of their hard-earned cash seriously enough to provide a professional level of accountability for the use of funds.

      4. ShanaC

        what do you think the disclosures should have looked liked…

  2. Mordy Kaplinsky

    This is an awesome result.  Now let’s hope that we can get some leadership on the startup visa.

  3. William Mougayar

    Are there implications or changes for publicly announcing that you’re planning to raise? True story, 2 weeks ago I was a the LAUNCH conference, and company after company came on-stage and at the end of their 5 min demo would say “And we’re raising xyz$ in seed or angel money.”David Cohen (TechStars) who was sitting next to me would whisper in my ear repeatedly “they just violated SEC rules…”, “they just violated SEC rules…”, etc. If for e.g., companies wishing to raise under $500K were allowed to announce their intentions more publicly, wouldn’t that help fuel more startup funding?

    1. fredwilson

      the bill does allow companies to “advertise for investors”. i need to dig into the exact wording of that provision

      1. William Carleton

        Fred, the Senate killed that. The crowdfunding exemption they put in says the company “must not advertise the terms of the offering, except for notices which direct investors to the funding portal or broker.” It really is an old world, prospectus-oriented concept, the marketing document has to be the disclosure document and the official disclosure document is the only place to market.

    2. Richard

      I saw that. I thought it was irresponsible.

    3. Mark Essel

      Isn’t this how Angel List works, by advertising a round to a group of potential investors? Or is the group private?William Carleton commented on this below, mentioning the McHenry broker-dealer safe harbor.

  4. Bill Clark

    I am also happy with the modifications to the fill. As theonly broker/dealer in the US that is currently doing something similar tocrowdfunding online I have seen the potential for fraud when you open upinvesting to everyone without oversight. It will be interesting to see whatplays out over the next 270 days while the SEC modifies the rules. Questions Ihave are:1) Will Broker/Dealers and the funding portals have less risk when putting upcompanies. This is important because right now I have to be very restrictiveand can’t just open up my platform to anyone. I have to do due diligence andcreate a PPM which can take a few weeks plus set up escrow. Not only is cost anissue but I have to be comfortable with every deal on my site because I have aresponsibility to my investors and if I don’t do the proper due diligence I canbe sued. Crowdfunding without these risks is not scalable.2)How will we be able to solicit opportunities.  Anything is better than nothing so I am veryoptimistic about this but of course think there is potential for Fraud so itneeds to be monitored.2013 will be the year for crowdfunding since the laws willmost likely be defined at the end of this year. I am excited to be a part ofit.Quick Shameless plug:If you don’t want to wait until 2013 we have beencrowdfunding at for the last 15 months and have raised 2.5million for startups. We give accredited investors opportunities to invest aslow as $1,000 up to $30,000 online or any amount offline. We also have someopportunities for non-accredited investors and are quickly adding more over thenext month. 

    1. William Mougayar

      Great service. How do you compare yourself to Angel List? 

      1. Bill Clark

        Angelist is an awesome service for startups and Angelinvestors who already have investing history. Angel list is a matching serviceand we are a full service broker. Here are some of thedifferences:1) Anyone can join MicroVentures2) We broker the entire deal. Which means we source the deal, do the duediligence, put together a package for investors and put it online.For investors they can go online read through the material and then decide toinvest. If they want to invest online they can invest from 1,000 to 30,000 andthe money goes into escrow. They can also wire the money instead.When the deal closes we handle the funding and then allcommunication with investors for the entrepreneur as they have updates.

        1. JLM

          How do you see this differing from garden variety Reg D investing?

          1. Bill Clark

            We work within the Reg D framework but allow people to invest small amounts and online. That is how we are different that other private offerings. Brokers don’t typically look at deals as small as ours because the work that they need to do with due diligence and setting up the offering is the same with a small company raising $150,000 vs a larger company raising $5 Million. So they focus on the higher commission opportunities. We can scale online so we can focus on smaller opportunities.

        2. sigmaalgebra

          You are a simplified ‘investment bank’?

          1. Bill Clark

             Yes we like to think of ourselves as an investment bank for seed/early stage startups. They can’t utilize those services at a traditional investment bank because it is too expensive. They are focused on the $5 million and up deals while we are focused on $150,000 to 1 million.

        3. pointsnfigures

          That’s a lot of ground work and potential liability when it comes to the flood of companies looking for funding each year (50-60k by ACA estimates).  

    2. Brad

       Great service. I think there are many investors out there looking for great companies, linking them up is key.

    3. kidmercury

      congrats on your first mover advantage, that’s huge. you’re at the forefront of a movement!i think utilization of social/game mechanics can be an easy way to filter out the bad stuff. i really hope it gets to the point of being like buying from amazon… click checkout and all……free two day shipping on shares…..maybe even daily deals lol 

      1. Bill Clark

         Thanks. We would like to utilize social/game mechanics but are trying to work within the regulations that are a little restrictive. With the new bill this should open it up.We do have a one click investing checkout once you have input your payment method. You input the amount you want to invest and then click to approve and you are done.

        1. kidmercury

          that sounds great, i’m looking forward to seeing how you guys continue to grow, especially in light of the new de-regulation that should make it easier. i may have to write you a check for whopping three digit sum in exchange for startup shares — and badges! 🙂

    4. Richard

      Hi Bill,I believe i was in touch with you when you first got started. Have you also worked with the unacredited investors via a SCOR filing?

      1. Bill Clark

        Hi Rich. If you audit financials plus add disclosures you can allow non accredited investors. We have started to do this in 2012 for some of our offerings.

  5. kidmercury

    “equity crowdfunding of startups doesn’t become a fraud infested sector of the capital markets.”you means like the SEC regulated public markets?i do think there will be more regulatory problems to come as the banking industry realizes this is disruptive. but that is probably a few years away at least, first the killer platform(s) is needed. i wonder if it will be a winner take all market here — meaning if one crowdfunding platform will rule them all. i kinda doubt it, but not sure; i think you can def make a strong argument that it will be winner take all as well. this will be huge. not just for internet startup investing, but for investing in all kinds of small businesses.

    1. fredwilson

      there is the NYSE, the AMEX, the NASDAQ, and then we have all the international marketsi am not sure why there will be a winner take all market for equity crowdfunding

      1. kidmercury

        yes, i guess i should have phrased it as “winner take most.” public stocks seems to be as winner take most, as nyse and nasdaq get most of the attention in the US (capital is largely silo’d so harder to get money into intl markets for regulatory reasons, especially for small timers — a trend i suspect will intensify). so i wonder if there will be just a few mega crowdfunding exchanges in the US, or if there will be a ton of local crowdfunding exchanges. i think crowdfunding could be the point where we “cross over” to where small networks become more feasible than large networks. but certainly internet history thus far favors larger networks, so we’ll see.

      2. Richard

        Let’s not forget the OTC pink sheet market.

        1. JLM

          OTC Markets — OTCQX, OTCQB, OTCBB, pink sheets, grey marketAll available at http://www.otcmarkets.comThese are very real markets in which classifications and distinctions are made based upon whether the issuer is current in all SEC filings.This is where “going dark” gets you and subsumes the old NASDAQ Small Cap listing.The great majority of these securities trade just like GE, on a computer screen.

          1. ShanaC

            what happened to the small cap listings?

      3. pointsnfigures

        I think because in a situation where people don’t have information they like standardization and transparency which the exchanges bring.  There can be several crowdfunding sources, but the ones that actually execute and provide what the market needs-and the companies need will win.  It’s kind of like car sales sites. 

      4. Roger Toennis

        I think there is the potential of a “winner take all” in crowdfunding it will be based on one simple precept. That precept is very simple… The platform that consistently attracts the “best” entrepreneurs will attract the “best/most” investors and the “best/biggest” eventual exits.So I ask myself what is the one thing that would attract ME most, a startup CEO who has raised $1.1M over 3 years and scratched and struggled and now finally has paying customers and bigger investors paying attention?One thing only.That one thing is…The platform that will attract me and I think the most thoughtful, committed and trustworthy entrepreneurs is the one that is set up as a non-profit. Suddenly greed and avarice and bad advice are leeched out of the equation at the front end of the startup evolution process.If you create a non-profit platform to bootstrap entrepreneurs from “wet behind the ears newbie with dewey eyes and a dream” into “leather skinned, can take a punch and counterpunch startup marines” you will see the best and the brightest flock to that platform.Let the best and brightest newbie entrepreneurs both learn quickly and have the chance to compete on an even playing field with exited entrepreneurs on a platform like this and you’ll see something special happen form both newbies and veterans.Innovation genius exists but lies dormant in 1 in 10 people you walk by every day on the street. But there is no both widely available and trusted “boot camp” like there is for the marine corps to expose, fire harden and build on that genius. Things like Techstars are the beginning of this bootcamp but we need things like Techstars to “go to scale”.Imagine if the Marine corps could only take in 1,000 new recruits per year into bootcamp. They couldn’t achieve their global mission. That’s where we are today in the innovation/startup industry.We need a bigger and grander army of trained entrepreneurs to overcome the challenges we now face as a human race in 21st century. This is not just about the USA. This is about global challenges. Social media is leaching the poisons out of the human race and we need more experienced innovators/do’ers to clean up the toxic mess built up over 10,000+ years of human conflict and rebuild for a better, more peaceful global future.This is how important this opportunity is, folks. As innovators we all need to step into the leadership roles that fit us in this battle for the future of innovation. Whether field marshal, general, colonel, major, captain, lieutenant, sergeant or grunt we all have the same goal. That goal is never “money” or “comfort”. “Comfort” is boring.Your goal, my goal, our goal is always “Change the world for the better.”

    2. kidmercury

      one other viewpoint i wanted to share is that i don’t think crowdfunding will initially be a way for people to get in on facebook and other big ticket IPOs. i think that stuff will still be the domain of accredited investors, VC funds, and terrorist organizations like goldman sachs. rather i think crowdfunding is initially best suited for lifestyle businesses, or opportunities too small to be of interest to the terrorist value network. if a crowdfunding platform gains an initial foothold by creating a funding marketplace for lifestyle businesses — and developing new competences to effectively service this market — it will then be in a position to rapidly iterate and swim upstream towards the bigger opportunities, where it can compete utilzing the new competences it has cultivated. crowdfunding will be how we win the war on terror! 

    3. Mark Essel

      The disruptive element is always perceived as a toy at first. Otherwise the incumbents would devour it before reaching maturity. Lorne Greene could be narrating that in a new wilderness episode.

      1. fredwilson

        Classic Christensen

    4. Antone Johnson

      Your criticism of the public markets is right on the money (pun intended), but the logic is flawed.  The fact that SEC-regulated public markets are infested with fraud doesn’t preclude the fact that an unregulated market consisting entirely of small investors and small companies with zero mandatory transparency could be orders of magnitude worse.  In fact I think that’s guaranteed to be the case.  Here’s my whole analysis:http://bottomlinelawgroup.c

      1. kidmercury

        Arguments in favor of regulation always assume the market will not come up with its own regulatory solution — one that is better and less expensive. as government is essentially a monopoly on regulation, the pro government regulation arguments also assume that governments singular idea of regulation is best for all cases.In reality crowdsourcing will allow platforms to compete on regulation, and will enable individuals to choose the platform that matches their regulatory preferences. This illustrates a larger trend of how platforms can disrupt the nation state as a model of governance, which I believe is the ultimate disruption the internet is here to bring to the world.

  6. Bala

    I believe the Bill has a lot of potential and business opportunity. It really provide a platform for someone to raise capital in a Transparent way. The provisions and disclosure requirements that have been added are necessary and not sufficient conditions to prevent fraud. I think therein lies the opportunity, if a platform could address all those issues and provide for safe provisions for the small investor and do the due diligence in vetting companies that get listed in the platform, the Crowd Funding model can really transform early stage companies. I wrote a post about the 3 big challenges in CrowdFunding platforms. http://startupiceland.wordp…

  7. Roger Ellman

    Good news but it should have been less regulated, less restrictive and freer.Companies raising up to 100,000 may not have a ‘meaningful’ financial statement and surely will often have mere projections. That’s if this is to help startups, real starting from scracth startups.Or is this never the case (that a new early stage startup could do with raising capital)? I think there should be a disclosure “template” where a number of key questions have to be answered and it should be a requirement that this is freely, obviously and openly available. 

    1. fredwilson

      great suggestion

      1. Richard…Most states have adopted the disclosure found in the small company offering registration (above link). My guess is that it will be adopted into the current legislation.

    2. Richard

      There already is a limited disclosure in place (form u7 which requires the type of disclosure that you speak about). It is referred to as SCOR (small company registration). It permits companies to raise up to 1,000,000 per year. You can raise money from unsophisticated investors. The only real limitation, in most states, is that you can not publically, via ads, advertise the offering.

    3. Cam MacRae

      As an investor I consider a financial statement where the columns sum to zero to be just as meaningful as any other e.g. disclosure that this is a real starting from scratch startup.

    4. matthughes

      That is certainly a blindspot that needs to be addressed.

    5. ShanaC

      even for smaller companies waiting to expand, this bill seems like a good idea.Lets pretend this was the pinkberry franchise on the verge of it franchising – you’ll have some numbers.  Its investable. The world isn’t just internet startups.

  8. Richard

    I think we are all aware of the inevitability for fraud. Lets not be naive, people are still getting duped into giving money to Nigerian Prince Email solicitations. There are pump and dump professionals who will be given a lisence to print money. Ingenuity and salesmanship unfortunately do not belong just to the honest ( or the incompetent).

  9. Roger Toennis

    Fred,As a startup CEO I’m thrilled to see progress in this area.On the audit requirement for $500K raise: I’m not as concerned about that as you seem to be. When a startup is at early phase raising $500K, and has most likely litte or no revenue, an audit will not be expensive or time-consuming, unless there are scary things happening, and actually will provide big value to the company IMO. If the founders are being transparent and diligent in keeping financial records of spending and capital at that point the audit will come back clean. That will be a good learning experience early for the founders and set the correct tone for the future for that company of being above board in financial reporting.So for me $500K as a level seems about right as at that point the first audit will be easier and any changes that need to be made less painful.Again I am thrilled by this progress and kudos to you and Brad Feld and the whole forward thinking segment of the VC community for supporting this for the benefit of people like me.Good on ya, sir!Roger

    1. JLM

      Exactly right, Malcontent, when you only need $500K and are a start up what do you have to audit anyway?A year of numbers?We are talking a large Butterfingers bar in cost here.

  10. Roger Toennis

    Fred,One other point on increasing access to startup investing.I sent Brad Feld a note/ this week with an idea for how VCs like USV and Foundry could act as sponsors/players in opening up startup investment acces to the public in a way that balances the concerns of fraud with the concerns over too many restrictions.The idea involves having forward thinking VCs to spin off a firm from your main business with the new entity aimed at inviting non-accredited investors to register to be “accredited” as “nano-LP” investors.  Once through some basic legal paperwork and credit line check, most people with jobs could pass, these folks could invest as little as perhaps $100 per paycheck into “startup mutual funds”. These funds  would be formed, managed and offered from each of these new VC-managed entities. The funds would be created out of their portfolios which of course as you know sometimes have various themes they invest in when picking investments. So for example: Foundry has their “Adhesive” theme under which they have maybe a half dozen or more companies. So as a qualified and legally accredited “nano-LP” I could invest $100 per paycheck in Foundry’s Adhesive Theme and maybe another $100 per paycheck in their “Glue” theme. So I’d be hedged pretty effectively against any one company going dead-pool.  I could also then invest some into some of the USV theme funds you might offer, etc, etc.You get the idea.Then if I qualify as a “bit more highly accredited”, according to some standards and after signing off legally on the risk, I could start to “stock pick” among some of your portfolio companies and invest in specific companies.  I pick out companies I like and in effect create my own “startup investment fund”.Obviously this is all analogous to regular stock market investing with funds and individual stocks.While USV and Foundry don’t have a pressing monetary “need” to do this kind of thing, I believe it would create a net positive good to society as a whole. It would make startup investing more available to the middle class and provide a new kind of ladder for the middle class to climb up while also helping our society become more innovative overall.  So why should it be *you* and Brad and guys like you? I think thats obvious.Simply because you all already have the expertise, all the insight, all the connections to Washington and all the legal and accounting resources already in place to do this quickly and do it well in a way that is fair to all.This is posible and it would be great for all.The challenge will be Wall St would hate it.It would take money out of their stodgy old mutual fund game of thrones and into the hands of visionary VC investors and visionary entrepreneurs who want to change the world for the better instead of build giant piles of cash that serve only the privileged Wall St insider class..I’d love to work on a project like this.Roger

    1. fredwilson

      can you send me that email too?

      1. LE

        “Danger Will Robinson”

        1. Roger Toennis

          What? You know my buddy Rick Robinson’s son who is named Will? “Danger” is their nickname for him. Oh wait, you were implying I’m a crank?Or is it you are saying that Fred is not to be trusted in this kind of thing?Sorry, I’m clearly not following on the “danger” warning.R

      2. Roger Toennis

        Hi Fred, Sure. it was a Facebook message though and actually was shorter and lighter in content about the concept than what I wrote above in my comment post.  Here is what I sent Brad last week in a FB message…”With all this crowd-funding talk and legislation going on was wondering what you think about the concept of existing VC firms like Foundry opening their own “mutual crowdfunds”. Imagine you create a portfolio of “mutual crowdfunds” aligned with your investing themes. You then allow “Regular Joes/Janes” with middle class net worth numbers to legally register somehow as “accredited crowdfund investors” and start investing in your mutual crowdfund themes and the crowdfunds of other VCs. Their risk gets hedged across your theme buckets and secondarily across many buckets as they diversify. Ben Franklin, once he was established as a successful printer in Philly in his late 20s/early 30s, began investing in younger local tradesmen and allowing those tradesmen to invest with him on bigger projects. Am I crazy? Whats the “can’t do it” on this idea other than Wall St fund managers would hate this? Brad’s reply was he didn’t think he could see Foundry doing this because They…”(a) don’t need additional capital to invest, (b) don’t want the overhead of it, and (c) don’t want the downstream liability of an investor losing their money and saying “I want it back.”My reply was…”Brad, All your points are true BUT…if you DID do it, AND you created a trend of all VCs doing it, you would change the world for the better for the embattled middle class in a very fundamental way and set off an explosion of innovation like we’ve never seen before. IMHO of course.” Brad replied and said that in 2001 at end of bubble a company called MeVC tried this and it “didn’t end well.I’m wondering if that had more to do with the bubble pop than the idea being necessarily infeasible. Seems like timing is everything and as of Thursday last the world has certainly changed a lot with the passage of this Bill and lots of other context that perhaps makes this idea timely now and possible now.Today, versus 2001, we have the transparency and interconnectedness of the social networks and with that comes a lot more ability for investors to quickly and accurately evaluate whether they can place their trust and their money into various investment vehicles. We can now reach out to rich social nets an invest in things that people we trust have invested in.I realize there are lots of real and significant hurdles and problems to be worked out to achieve the vision of the positive outcomes of an idea like this. But it seems to me that you and everyone who spends any time at all on your blog are sort of “in that business” of overcoming hurdles to achieve visions of a better world.John Adams said to his sons…”If wise men don’t rise to run for public office, others will.”In this case I think if wise men who deeply understand innovation investing don’t rise to drive and guide crowdfunding to the “better angels of it’s nature”, others will.And the outcomes may result in reactionary clampdowns on the “Crowdfunding Spring” we saw dawning at the break of the spring of 2012.Sometimes the wheels of the universe align in a way that results in each of us finding ourselves in the right place at the right time with the right knowledge and the right strength and the right vision. At those times it is our duty to community, family and self to step forward and engage and lead others into battles we are more prepared than others to fight and win for the good of all. 

        1. Mark Essel

          From a devil’s advocate perspective:Some businesses work best with few partners, historically VC Limited Partners has been that type of business. It’s up to someone outside of traditional LP raising to show the viability of crowd funding “private” investment.Fred and Brad are doing well managing just a few LPs. You’re asking that they consider a very different type of business.We just don’t have the investment options that LPs have, at least not yet.

    2. Robert Thuston

      I’d participate.  Thanks for sharing.

    3. pointsnfigures

      So would I. I looked at setting up an exchange to provide more transparency to corporate and muni bond trading-no possible way to set it up without a lot of capital and Wall Street would kill you before you got off the ground.  Once you invested in some rope they would hang you with it.After sitting on the board and trading for 25 yrs at the CME, I love the transparency free markets can bring to the public.  Having more investors in the process will make VC’s more efficient in their allocation of capital.  

      1. ShanaC

        why – theoretically you could make more money if there was transparency, albeit not through fees.

      2. Roger Toennis

        You were really jousting at a windmill going after Wall St from the inside-out. Good for you though for trying. I think with this bill passage you have one of those rare opportunities in history where all the planets are nearly aligned to see a positive quantum change/enhancement in how capital investing can happen.I’m reading the Theodore Roosevelt biography series right now from Edmund Morris. “The Rise of TR, Theodore Rex, Colonel Roosevelt”. Every entrepreneur should read these to learn how to lead with force of will and the biography of Ben Franklin to understand the essence of leading through innovation mindset.The essence of TR’s genius, besides being one of the most brilliant minds in history, was his fearlessness in recognizing and seizing on what I call “moments of inflection” in history. At these moments a person with deep understanding of the cycles of recurrence in history, and a proper sense of balance in understanding both the human desire for “status quo” and the human desire for “progress”, can with well placed words and actions send all of future human history on a trajectory to arrive at better places.As of last Thursday, and likely for about 6 to 18 months, we are at one of those moments where those who can step up to lead best, should step up and lead.For all Roosevelt’s brutal energy and honesty TR was perhaps the most gifted leader in history in the judo of global diplomacy. Though he said publicly “Speak softly and carry a big stick” it was in fact his ability to “Speak loudly but carry on delicate private conversation on soft cushions and with amazing empathy.” that was his true genius.He single handedly ended the Russo-Japanese war in 1905 in just such a manner. Same is true with the Coal strike of 1902 and the near war the US was about to have with Germany over Venezualen debt in 1903. If you are an entrepreneur you will be extremely effective if you learn how to handle all difficult decision and persuasion situations “as Teddy would have”, with a brilliant mix of force of indomitable will, brutal but fair honesty and the deepest empathy for both sides of every debate.

    4. Matt A. Myers

      This resonates with my thinking, which I posted my thoughts in reply to JLM’s concerns, here –…

    5. Richard

      Markets prices require buyers and sellers. Depending on where the liquidity comes from (newly issued, secondary offering etc.)  this format starts to become and behave like an exchange. 

      1. Roger Toennis

        This is a very interesting point and would need much debate and thought put into it. Generally in startup investing the investors are “in for a penny in for a pound” in that once you invest you are “on an express train” until it either crashes or arrives at a “success/liquidity destination”.  It would seem to me on first thought that once I buy into a “crowdfund” or select a “startup stock” it would seem appropriate to keep that characteristic of staying in and not being able to transfer/sell that stock. Trading on the private stock in nascent startups would I think bring in unwanted and damaging speculation that would not have company success as it’s primary goal.The last thing we need as startup CEOs is to have more people speculating that we don’t know what the hell we are doing. ;-)So on first blush I think this model for startup investing should require investors to continue to commit to stay “in” every stock or fund they pick until obvious “exit points” are reached and offered to all shareholders.But I could be wrong on this.

        1. Mark Essel

          Early investors do sometimes liquidate some (or all) of their holdings in later rounds. Agree that large swings in perceived value could be damaging to startups that benefit from not being subject to public market reactions.

    6. Dave Pinsen

      Everyone should get the opportunity to ‘stock pick’ in this situation. Otherwise, the smallest, least ‘accredited’ investors will be at risk of investing in a fund which VCs stuff with their dogs.

      1. Roger Toennis

        Agreed that the opportunity should be there for all to stock pick. But we also must have appropriate training and education steps that help those who “stock pick” to have every opportunity to be as well educated as possible in assuming the risks involved.It is wise for pilots to follow a progression os training and certification before they can fly aircraft solo or fly more complex aircraft. The same I think is true for investing in startup companies.

    7. LE

      While USV and Foundry don’t have a pressing monetary “need” to do this kind of thing, I believe it would create a net positive good to society as a whole. It would make startup investing more available to the middle class and provide a new kind of ladder for the middle class to climb up while also helping our society become more innovative overall.  So why should it be *you* and Brad and guys like you? I think thats obvious.Simply because you all already have the expertise, all the insight, all the connections to Washington and all the legal and accounting resources already in place to do this quickly and do it well in a way that is fair to all.I think you are underestimating the amount of time it would take for Fred (well known at this point for filing several “email” bankruptcies) to get involved in something like this. This idea is something that needs to be driven by someone who has recently sold their company and has an open block of time on their hands.  



        1. Roger Toennis

          Me like Minions who are yellow, short and have one eye. 😉 But that just “despicable me”.

        2. LE

          Still need to manage minions. You are totally underestimating the amount of time and oversight doing something  like this right would require. I don’t feel it’s wise to get involved in something  like this if you can’t devote time necessary to do it right. And you can have the best advisors and people working on this that are available. It still takes time to review and make decisions based on what they tell you and communicate with them. Of course if Fred is willing to take time away from his current investment (and philanthropic) activities and move some of his time over to this (believing it has long term business or other potential) he could do that. But the time to do this will have to come from somewhere. 

          1. Roger Toennis

            LE, I can tell you are a very intelligent person. But you’ll have to forgive my doubts about whether you really can divine how much someone is underestimating something without that person actually giving you a detailed estimate of how much effort they believe that something will take.This approach is a classic “strawman” argument wherein you construct a weak premise, apply ownership of it to your debate opponent without their assent, and then knock that strawman down claiming this proves your argument against them.I do agree however very strongly with your point that doing this right would indeed be a very large undertaking. However large that effort, if it can be accomplished, done “right”, all the effort and time and expense would be, in my opinion, well worth it.

          2. FAKE GRIMLOCK


          3. Roger Toennis


          4. LE

            But you’ll have to forgive my doubts about whether you really can divine how much someone is underestimating something without that person actually giving you a detailed estimate of how much effort they believe that something will take.Ok if you are interested please forward to me the document that you sent to Fred and others. I will be glad to keep it in confidence and give you my thoughts (if appropriate) honestly.I can only base my thoughts on a) what I know about Fred (based on dealing with him) and b) what you have said that I’ve read [email protected]

          5. Roger Toennis

            There is no “document” with a detailed design as yet. I just started socializing the idea to get feedback first with Brad last week and now here. To your well taken point I’m too busy right now to do more. This is especially accurate for me now since I’m right in the middle of raising a $1.5M Angel round. :-)As you know well the entrepreneurs life is “The Strenuous Life”, (La Vie Intense).I’ve done some somewhat deeper writing that started back in 2008 on a possible public/private cooperative model to boost innovation that I called the “Civilian Innovation Corps”. But have been too busy since with my company to push that forward yet either.Once exited I intend to take up the challenge John Adams laid down to his son’s and humbly and expecting more humiliation to go into the “public business”. I hope add value in working with others toward a more optimal government that better strikes the proper balance and focus on solutions to the pressing issues of the day.The thing about getting boiled alive in lava in your 40s doing a startup with kids, mortgage and angry wife is it humiliates you enough while also hardening and strengthening you enough to be trusted with “the public business”.Sitting on a beach somewhere in wealthy, slothful stupor doesn’t appeal to me.

          6. LE

            The “angry wife” (in your reply below) is an issue. That needs to be fixed. It will seriously impede what you can do.  Anyway I can offer advice let me know.

      2. Roger Toennis

        Respectfully, I do not actually believe I underestimate the time or effort. You are quite right on point that this would be a massive effort, as are most things worth doing.I’ve been bootstrapping a company for 3 years now with a wife two kids and a mortgage and am, knock on wood, about to “break though the wall”. I again concur with you that the right person to lead this, with the support of a community of respected and forward thinking VCs like Fred,  would be someone who has “recently sold their company and has an open block of time on their hands.”On this I could not agree more strongly with you.Cheers,Roger



      1. Roger Toennis

        There is no better stamp of approval I can think of receiving than that of the incisive wit of the GRD. After Reading the biographies of Theoore Roosevelt I can tell you he would have LOVED FAKE GRIMLOCK. 

        1. FAKE GRIMLOCK

          ME LIKED HIM TOO.

    9. markslater

      love it love it love it. 

    10. jptucker

      Would also love to work on a project like this.  And if not, then be your first nano-LP

  11. JLM

    “…and terrorist organizations like goldman sachs…”Too damn funny and only overshadowed by the truth of that statement.Long on the 3rd floorShort on the 9th floorHey, what did we do wrong?Well, you left your ethics in the jacket pocket of your other suit for starters, rubes.

    1. JLM

      DISQUS is misbehaving.  Sorry.

      1. pointsnfigures

        I think it’s okay to repeat that comment twice.

  12. JLM

    “…and terrorist organizations like goldman sachs…”Too damn funny and only overshadowed by the truth of that statement.Long on the 3rd floorShort on the 9th floorHey, what did we do wrong?Well, you left your ethics in the jacket pocket of your other suit for starters, rubes.

    1. sigmaalgebra

      > Well, you left your ethics in the jacket pocket of your other suit for starters, rubes.Must have been their Sunday suit.

  13. pointsnfigures

    I don’t want to steal your traffic.  I have thought about this crowdfunding bill a lot. I think we share the same concerns. good idea is a transparent exchange that publicly discloses a lot of information.  The benefit is the average public investor (non-accredited) could get access and have a chance to be as informed as an accredited investor. There are downsides though for a start up company to release too much information. Competitors might get a leg up.  Obviously, I would also not be in favor of setting it up under current SEC regulations that favor a tiered marketplace where the little guy is fodder in a shooting gallery.  There are huge costs to start up and exchange these days.  

  14. JLM

    Like much of life, this will be subject to the “spice analogy” — a pinch is good and a bucketful is toxic.This legislation will likely be more useful to small existing companies who have a story to tell.The start up story is quite dicey particularly given the short gestation period and the low survival rate.  I suspect the survival rate on crowdfunded start ups to be half of that of VC funded start ups — unreasonable given the notion that many of these deals could NOT attract a VC?What seems to be unaddressed is the requirement to report on a regular basis.  Most stock market listings have at their core the requirement to report in accordance w/ SEC requirements which are strict as to timeliness and content.This strikes me as the full employment act for the prospectus chasing legal industry.  Those who troll after meaningless insider trading “wash sale” violations which require the company to pay their legal fees.This is going to be a huge boondoggle.  Though I think it is a worthy piece of legislation to consider, I am worried that you cannot get the safeguards just right quick enough.This will be financial equivalent of using infographics for fund raising.  Not a bad idea but not really a safe idea.

    1. Matt A. Myers

      I agree, though I think there can be curated sources, who take on the roll of pre-vetting – like Kickstarter – and become a trusted source, and help companies determine what value/monies they can seek based on their market knowledge.Below is a bit of an edit I made to one of Fred’s comments yesterday –… -Investments will be reputation based, along with a good plan and solid team presented (hopefully). There will be the first people who prove themselves to be worthy of the risk of your money.This style of funding will allow smaller good ideas to get funding, and at least with online tech, the cost of innovation is low – so the up to $1 mil a year raised allows for a very long runway, and at very small amount of risk if the sums are say $100-$1000 per individual.You will be able to see funding go towards even companies who don’t have a pure focus on profits, and where ‘investors’ merely want to see what wants to be built, to be built.You won’t have to have all of the pieces in place that investors want you to have, which reduces their risk (which the concentration is very high if they’re putting in $100k vs. 100 people putting in $1k) – when you have all of the competencies to successfully guide the advancement of the company, you’re just lacking the funds to hire the resources you need / to develop; I hope people will be taught what makes an investment more sound – for the purpose solely of having an idea of how successful a project/company their funding will be. Ex: Who’s the founding team?I’m wondering if I can find a way to use this new option for myself, though being Canadian it could add a big hurdle – however I really do want to explore this option, as I know everyone I speak to about my plans (there’s a bias who I speak to of course, though I can break it down into layman’s terms and explain the level of depth they’ll understand/be interested in the effects of).

      1. JLM

        You just need a domestic corporation, nothing more.

        1. Matt A. Myers

          I hear Nevada’s a good place to register..

          1. JLM

            Yes, that is the current vogue replacing Delaware which is where most public companies are registered because of their sophisticated Chancery Court and case law pertaining to public company shareholder issues.

          2. Matt A. Myers

            Ah yes, thanks. This other main option slipped my mind.So many possible paths toward the same result, I’m finding it’ll just be a matter of continuing to plan, organize, prepare, and then the investment / money pieces will fall into place when ready – where actually all pieces fall into place when ready to.

      2. LE

        Investments will be reputation based, along with a good plan and solid team presented (hopefully). There will be the first people who prove themselves to be worthy of the risk of your money.Expand a little on “reputation” and “solid team”. (Tell me what you mean by that).

        1. Matt A. Myers

          Well, reputation, I see the process sort of going like online dating – you review someone’s profile, have opportunity to chat, ask questions – maybe read what your friends have to say (qualified experts, or not), and get a chance to feel out the person/people involved and see if you trust. It’d be like Kickstarter, but I see more of a structure method for deeper inquiry, Q&A for due diligence, perhaps first done by a curating platform.On the flip side, if there are only say ‘500 shareholder positions’ being allotted to a round, and much higher demand – it could perhaps go into an auction-style, where investors could be willing to pay up to a certain amount — but then the company fundraising can get choice as to who they want on board, with the idea that there can perhaps be more benefit to having certain people having a vested interested; mentorship offered, connections, expertise, etc..I hope it would work where it’s individuals investing, and don’t see ‘funds’ (co-operatives where there’s managers deciding where money goes) working as well — people need and should decide for themselves, and learn the skills to make good/informed decisions; There’s too much potential bias and potential personal gain that could influence decisions that will exist.Re: Solid team – This won’t look like anything specific, except for filling in critical pieces for the overall plan. For example, I have at least 20 people ready to do work for me, for free, albeit not full-time, that would benefit the ecosystem(s) I’m putting together – though I don’t have all of the tools developed that they’d be using to help me out; I’d be able to find many more than that initial group, but those are confirmed people. I guess moreso what I meant by solid team was more that the companies looking for funds present their ducks in a row, and state how they’re filling in the other ducks (presumably using the money they’d raise). I see the people showing the more prepared they are doing best.It will be interesting too to see what projects stay in the Kickstarter-style funding, without equity being given, and what kinds of projects/companies will warrant/require the equity to be given.Something I can see being valuable, to some degree, is having ‘experts’ who rate projects/companies in areas they choose – and over time can create a prediction algorithm based on based ratings, though platforms might not implement this as it could stifle investment, perhaps even simply by taking away from the excitement of investing on more of a purely emotional way; I could be wrong though, as people who are actually investing, in say amounts of $1,000 or more, would be the logical/analytical type and would want this kind of system to refer to — and then just have the other observers/evangelists of the project/service to show their support/promote/share the fundraising.Apologies if there’s a loose end in something I said. I’m fighting a bit of a cold at the moment, so energy is a bit low. 🙂

          1. LE

            I like most of what you are saying and you have some really good ideas. But with respect to this:I see the process sort of going like online dating – you review someone’s profile, have opportunity to chat, ask questions – maybe read what your friends have to say (qualified experts, or not), and get a chance to feel out the person/people involved and see if you trust.I would fear that it would be biased toward people that look and quack like a duck and talk a good game. Con men you know are con men for a reason. They instill confidence in the people they talk to. That said with a few tweaks and it could be managed. I think you should  do a blog post and then put on HN to collect comments. From there you would have the basis of throwing something together that could work. I think the most important thing is to pre think all of the potential issues and problems and design something in advance with appropriate protection. Not to roll out lean and fix ad hoc as problems develop. (Like what happened with airbnb..)

          2. Cynthia Schames

            “I would fear that it would be biased toward people that look and quack like a duck and talk a good game. Con men you know are con men for a reason. They instill confidence in the people they talk to.”How is that different from today’s VC and angel-based investing?  Same thing, in my opinion.  Tell a good story, tick the right boxes, done…whether or not there’s any actual value to your offering.Color is a great example.   So is Jessica Alba’s company raising $27M.  

          3. LE

            “How is that different from today’s VC and angel-based investing?”It is similar in many ways. But in the case of the VC’s they get a chance to meet one on one in private conversations (with I’m guessing no limit to time or quantity of meetings) to vet the people and consequently have a better chance of seeing through things.The number of crowd fund investors will be quite large so the amount of time anyone raising can spend with an individual investor will be limited.

          4. Cynthia Schames

            Yes, I see your point. I think I’m envisioning this in a very Kickstarter paradigm though: basically, the founders must provide excellent “online support” for potential investors. Success in crowdfunding will depend on a compelling story, clearly told in lay terms, and disseminated broadly with social proof implied or explicitly stated.Mail Pilot was a great example, in my opinion. We, the Kickstarter community, have basically funded a startup. Whether that’s legal or not, I don’t know (or care), but there you have it. This model can and does work. Part of the reason Mail Pilot met & exceeded their goal was also that they were constantly engaged and engaging with potential “investors” AKA backers. ABC=Always Be Communicating. It built massive trust.

          5. Matt A. Myers

            I’m not sure what you’re suggesting I should post to HN?

    2. ShanaC

      The legal industry could have full employment if they changed their certification and accreditation structure.  There is a shortage of lawyers to everyday work, and the loans law students take out make it impossible to become that lawyer.

      1. LE

        My wife has several hundred thousand dollars worth of school loans. But she also has 30 years to pay the loans back at a favorable interest rate. When I started my first business years ago I had to buy several hundred thousand dollars worth of equipment. In that case there was no guarantee that the business would survive and I would then be on the hook for the money (or have to declare bankruptcy which back then of course wasn’t something to be taken lightly). I didn’t have the security of a advanced professional degree and I certainly didn’t have 30 years to pay the money back either. And the interest rate was way higher than today’s rates.So while I can appreciate that law or medical school loans are a burden, I think the issue is not the amount of the loan but the fact that there is an oversupply of lawyers. Something that should be thought of before entering the profession. A 200,000 loan for 30 years at 3% interest is $843 per month. Assuming you are employed that’s certainly something you can handle.

        1. JLM

          Not only that, it is the best investment you will ever make.  YOU

        2. ShanaC

          not all the loans are at 30% interest and a lot of people have more than that now because of undergraduate.

    3. Roger Toennis

      This is why I think it would be best if a handful of well-respected and forward thinking VCs would step in to begin the process of getting crowdfunding off on the right foot.Imagine if Fred and Brad and a few others we all know and respect stood up together, and as almost a public service, created first a non-profit crowdfunding entiity. Then under this entity they would sponsor, with Presidential and SEC oversight, a well thought out process and mechanism for beta-testing the crowdfunding concept.Entrepreneurs would apply to it in a way similar to the way we now apply to Techstars or other incubators. Imagine a day in the future where though hard work and testing we have figured out how to build a non-profit “Civilian Innovation Corps” that runs on an intelligent and cooperative mix of government funding and private investment. Government funding and private capital working together in harmony for the benefit of both and for the benefit of all.We are at the moment in time when all this becomes possible. We just have to gather our individual wills into a collective will that can make it happen.

      1. JLM

        I applaud your enthusiasm and thoughtful approach.  I agree with what you say — almost completely — but would oppose the involvement of the Federal government in such a process.The role of the Federal government is inappropriate.  This is a capitalistic endeavor and should be left to the private sector to devise and operate.The government cannot simultaneously be both a sponsor of and regulator of, in particular, capitalistic endeavors — particularly those involved with money.It is not their role in our three legged stool of executive, legislative and judicial branches.  They are not the private sector.The role of government is to create an environment in which capitalism can flourish, not to engage directly in targeted capitalistic enterprises.They are not good at it.The leadership is venal and corrupt. They cannot be trusted with money.They are not good at picking winners and losers.They are always following a political agenda.This will put the burden of losses on the government and the benefit of profits will flow to the private entities.  You cannot Federalize losses and privatize profits and stay in business.So, I think the issue becomes one of what is the right vehicle and how do you execute.  I think we have such a vehicle in place with SBICs directly and the SBA loan guaranty programs indirectly.I think we should find a way to broaden these existing charters rather than starting from scratch and erecting yet another governmental department.  Homeland Security anyone?  Dept of Education?  Dept of Energy?  All things that should never have been created and should have been drowned at birth.When the Fred Wilsons of the capitalistic world wake up one morning and say — hey, maybe I could make a buck doing this, it will happen.

        1. Roger Toennis

          I hear you and I understand what you are saying. I recommend you read the biographies of Ben Franklin and Theodore Roosevelt. These are the two most brilliant leaders in human history in crafting that delicate balance of the 3–body system that is government, capital and labor.The goal is not for one of those elements to succeed at the expense of the other.The goal is for all 3 to succeed together more consistently over time.This was what Ben Franklin and to a even greater extent Theodore Roosevelt understood. TR understood how to manage this in practice perhaps more than any other great leader in all of human history.TR was a “trustbuster” and burr under Wall Street’s saddle who crushed JP Morgan’s “Northern Securities” Railroad Trust in 1903 and yet in 1904 that same JP Morgan contributed over $100,000 to TR’s re-election as President.Roosevelt was a voracious reader of history and this is why he was a brilliant leader who delivered results everyone liked. He read in the original greek ALL the works of all the greek philosophers and historians. He could speed read 2 books a day even while president.”Making a buck” is one side of the coin and it is an important driver. But the other side of the coin is our desire to serve others, even those we don’t know.This is what Lincoln referred to when he talked in his first Innaugural Address about the “Better angels of our nature”.”We are not enemies, but friends. We must not be enemies. Though passion may have strained it must not break our bonds of affection. The mystic chords of memory, stretching from every battlefield and patriot grave to every living heart and hearthstone all over this broad land, will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.” April 4, 1861A successful life and the pursuit of happiness is about balancing our desires with the better angels of our nature. We are in the US a government of the people so we cannot reject the idea of our government without rejecting our very selves.If we have problems in government we should look in the mirror and fix them as Roosevelt did again and again.The only stable path to longterm pursuits of happiness, that will generate happiness in good measure for all, is a balance between a government of the people measured and combined with the inspiration and drive of the individuals among us who are most able to step up and lead and direct the people in generating capital to sustain progress over time.Roosevelt said…”The only true conservatism is constant mild reform in that it protects existing institutions from atrophy and relieves the buildup of radical pressure.”When people who I lead come to me with problems I say…”Excellent! A problem to be solved! What is your plan to fix it and after I give you the resources I can apply to the fix when will the fix be completed?”

          1. JLM

            None of what you write really addresses my reservations as to the collision of government and capitalism. You are just talking around me. That is OK, no offense taken.We have two very different views as to the appropriate role of the Federal government.It is pretty damn clear that the Founding Fathers designed a scheme in which the Federal government only had those powers specifically given to it by the “several States” and that all other powers were reserved.Today we have a bloated government which has now put itself above the States.  And it does not work.The other perhaps insurmountable problem is that the guy in the Oval Office could not hold the jock of any competent President, far or recent past.He cannot even come up w/ a plan to fund the government in a responsible manner and is like a crack ‘ho with a Gold Card. Everything is doable if you can just carry the balance over until next month.There are horses for courses and this President is not the thoroughbred we need just now.  He is a nag — corrupt, venal, thin skinned, inexperienced, unaccomplished.His flailing approach to energy is pathetic and frankly shows a lack of basic energy intelligence.The best candidate we have seen for a while but not a doer.  A fakir, a poseur, a naif.Just for the record I have read all of the Edmund Morris TR books and have found them to be fascinating.

          2. Roger Toennis

            Respectfully I don’t think you know enough yet about my views on the role of the Federal government to propose that we have “very different views”.I suspect you might find my views frustrating based on your point about me “talking around me(you)”.I am an engineer in how I think about technology and in how I think about all topics including politics. That means hyper-rational in driving for optimal solutions in the face of all the boundary conditions and data and that deliver optimal outcomes independent of emotional/political coloring.Then in applying those solutions I have learned the importance of finding and starting from common ground with others, respecting their views whatever they may be, and looking first for and then working together from commonalities, to get to as close to the previously mentioned optimal solutions as possible.Lawyers are trained to be advocates that use emotion to persuade in large part by hiding facts inconvenient to their position and focusing on only the facts that support a preconceived notion of the reality they want to advocate. By definition, profession and training they are not problem solvers. They are rhetoricians.If you find yourself hard over on one or the other side of any issue and exhibiting a lot of emotional rhetoric I will likely see you from my perspective as a “lawyer-type” thinker.Engineers are trained to be problem solvers who have to face and consider ALL the realities and facts of a problem, however unpalatable they might be emotionally, and derive a series of possible solutions that deliver an optimal, but not perfect, outcome.So I think the whole issue of bloated vs. non-bloated, socialism vs capitalism, left vs. right, to all be point-less, doomed-to-fail, “red herring” arguments. From my perspective those who rail against either the evils of socialism or the evils of capitalism are missing the point and wasting their time.The “government” as an institution is not the problem. Neither is it really “the shoes” when I can’t dunk a basketball. “The problem is not in our stars, dear Brutus, but in ourselves that we are underlings.” (Shakespeare’s Cassius to Brutus when discussing the plan to murder Caesar)So the problem is not in our current Caesar (Barack Obama) nor in the prior Caesar (Bush). But rather the problem is those wisest and most rational and balanced and trustworthy among us who should and could rise to public office, choose not to.”Public business, my son, must always be done by somebody. It will be done by somebody or other. If wise men decline, others will not; if honest men refuse it, others will not.” – John AdamsThe more people focus on encouraging in every way the wisest among us to rise to this challenge of the public business the better off we all will be.Step one: Stop voting for lawyers/advocates for public office.Step two:Stop viewing the world through colored lenses, either red or blue. Step 3: Buy a pair of clear lenses and look at the world as it is instead of how your personal Utopia would look if you able to wave a magic wand and create a world that only Willy Wonka could love.Step 4: Start thinking like an engineer thinks instead of lawyers.Shakespeare was right about lawyers.

          3. JLM

            @rtoennis:disqus Engineer, MBA, smidgen of law school.  BTW, law is very much like engineering.  You apply principles to solve problems.  Engineers often have a single right answer while lawyers must advocate for their client’s interest or right answer.You could not possible be more wrong.  It is the principles.Either the FFs intended for the Federal gov’t to be lean or they did not.  They obviously did and today we ignore that fact @ our own peril.No amount of whipped cream and cherries is going to make that cow patty into a birthday cake.

          4. Roger Toennis

            I agree that the study of law and the *process* of crafting a legal “defense” or a “prosecution” is VERY much like the thought process of doing engineering analysis and design.However it is in the step of the *application* of said analysis/design that law diverges from engineering with respect to whether lawyers should run for public office. In our legal system the balancing of the scales of justice are achieved by having two lawyers arguing as committed advocates of each “side” of a case with a judge presiding as arbiter.Whatever issues we have in it’s current execution this is a VERY effective and wise design in generating the most optimal overall outcomes for everyone.However over time most lawyers learn to think about issues primarily as advocates of boldly defined, black vs. white positions versus the way a judge or engineer would think about “shades of gray”.If someone who is an attorney has been a judge for 10 years or more just prior to running for office I would look closely at voting for them. I see it this way because their minds have been solidly in the real world of “the gray” versus the black and white world of attorney advocacy.Engineering mindset of course is also something not all engineers practice well in their technical work much less other topics. Even when they do balance well in technical work sometimes they don’t take that mindset of balance into their political views.Any candidate for public office can “think like an engineer”. It’s up to us as voters to look for the signs of balanced, trustworthy thinking and stop believing in monochrome utopia.By definition a utopia would not be monochrome, at least in my opinion.

          5. JLM

            @rtoennis:disqus I am sure we are boring the snot out of the other readers and commenters, so this is my last comment.You take a very narrow and stilted view of the law limiting it to litigation.  Litigation is what transpires when clients and lawyers cannot resolve their disputes.It is a tiny part of the law really.Even litigators are good at working in the shadows of grey.  For every lawsuit tried, there are a thousand settled and Courts today force settlement through pre-trial mediation and jawboning.The problem w/ legislators of all stripes is that they arrive optimistic and pure and then realize they must be re-elected and the money corrupts them — immediately and completely.The money pours in to obtain favorable legislation — plain and simple.You want a real friend in DC, bring your Lab.

          6. Roger Toennis

            Agreed about the “boring and the snot”.Also agree that we are all human, money is powerful, humans like money and power and power corrupts.The only remedy is to create a clean sandbox for government activities where money cannot corrupt the process we all want to see happen.Has nothing to do with left/right arguments over whether money is speech. Has to do with getting the outcomes we all want which is a balanced and thoughtful debate over the issues of the day.The most robust solution to that is a constitutional amendment creating maximum spending limits for political campaigns, funding those campaigns from public tax money, “government of the people paid for equally by the people” and making it a treasonous offense to be caught bribing candidates or elected officials or government employees.I call it the “NASCAR Elections” Amendment because everybody drives the same car and it’s about being the best “driver”. :-)Cheers!

    4. Mark Essel

      Based on my consumption of iProducts a few hundred lost in crowd funding will be bearable, and an important lesson. Collective action on startup investing hasn’t yet reached “web scale”.I’m optimistic that the winners from this round of unLimited Partner businesses will help more than harm. But they’ll do both.

  15. Carl J. Mistlebauer

    I think this bill is a step in the right direction, I also am excited with the thinking of folks like Roger Toennis (Roger, “innovator” and “malcontent” to be one is to be the other!  🙂  ) and Bill Clark.But, and sadly, fraud is a way of life nowadays.  One of the “issues” that I was never aware of, but became aware of as we shifted to B2C was that there was another company selling shirts as “Turner Tees” and while there were absolutely no similarities at all I started receiving all these complaints via the Better Business Bureau when I started using the domain name “Turner  Tees” for our retailers.  Apparently “a” company has been doing this for years and one day we popped on the radar because of the unveiling of our new site under a domain we owned for years.Talk about a nightmare that I am still trying to clean up.  Trying to sue someone in a foreign country who doesn’t have a physical address…..Its a big world out there and obviously I am naive….Good luck on the fraud part…..

  16. sigmaalgebra

    > …  Senate voted 73-26 …Hmm ….  A veto-proof majority and bipartisan.This bill is not the first such recently.Soooooo, maybe the message between the lines to the White House is, “We’re running the government now, and you get to sign the bills if you want to, or not, it doesn’t really matter, and you can go work on your jump shot for a few more months.  But in particular us Democrats want to keep our committee seats and not go down with you.”Maybe. 

  17. fundingroadmap

     With the passing of this bill one thing is for sure, the inevitable proliferation of thousands of equity based crowdfunding sites and millions of participants will impel reasonable levels of investor protection. To stand out from the rest of the participating Startups and to comply with the financial statements and other reporting requirements, entrepreneurs will need to create a detailed plan for their new business, complete and transparent due diligence information, great execution and popular emotional appeal using video and social networks to be seen and considered by a new group of crowdfunding investors able to make informed decisions, and they will also need to provide some of this same kind of disclosure and reporting to the SEC and state regulators once those rules are established, and the better prepared they are ahead of time the easier this will be.Once funded those new entrepreneurs will also be expected to have the ability to communicate their progress on the cloud to a large group of people who will now be shareholders in their companies. Our society can never completely prevent fraud even in the public markets, but we feel Startups who make the effort to be open and transparent from the beginning will build confidence in a larger group of crowdfunding investors and increase their chances of getting funded. You can see our solution here. http://crowdfundingroadmap….

    1. kidmercury

      love this idea. 

      1. Mark Essel

        I like the idea, but didn’t like the prose. Did you read the site?

        1. kidmercury

          not too carefully, so i’m not sure — maybe it’s the wrong execution of the right idea. i’m a big beliver that platforms will have strong incentive to regulate tehmselves; if they don’t, they won’t have a sustainable investor base. 

          1. Mark Essel

            Word travels fast in the hyper connected world. But hype bubbles can come into existence just as fast.

  18. Alastair Coote

    Fantastic news. I’m hoping that the tech community’s next step will be to bring this same kind of drive and energy to persuade lawmakers to approve the Startup Visa ( As an immigrant in the NYC tech scene, it’s very frustrating that I can’t bootstrap a startup on the side of my main job, and that even changing jobs is a complex, difficult process. It’s very much “life on the sidelines”, and I think that’s a net negative to NYC and the USA, not just to us immigrants.

    1. fredwilson

      Ive been working on that one hard for several years. It is caught up in immigration politics. Very frustrating since this issue itself is not political. But its a situation of opening pandoras box

      1. Antone Johnson

        Such as shame.  IMHO, Startup Visa would have a far greater positive impact on the tech entrepreneurship landscape in the U.S. than the JOBS Act.  Of course, in an election year, it’s much easier to get broad bipartisan support for a bill that at least arguably relates to creating jobs than anything related to immigration.  Business as usual inside the Beltway.

    2. kidmercury

      IMO silicon valley won’t win the immigration battle unless they understand the politics surrounding war which they have virtually no interest in doing at the current time. 

    3. matthughes

      “life on the sidelines”Very well said.Pulling for you and others to get in the game. 

  19. Luke Chamberlin

    Great news. Like most bills I am suspicious because sadly intent and implementation often diverge when pen hits paper through round after round of revisions.And there will be fraud because any system can be gamed and it’s just unavoidable. I hope the law can weather that first publicized scandal and not get watered down.The audits on $500K seed rounds for startups with no revenue and three developers living off ramen money will be fun. More work for the lawyers and CPAs I guess.

    1. JLM

      Perhaps GAAP will become RDAP — ramen driven accounting principles?

      1. ShanaC

        GAAP has its own problems, namely give someone lots of rules and someone will find a way around them.Never solved the issue of forcing people to be honest

  20. Ahartman

    Happy to see the bill pass. Disappointed that both California sanators voted against it (would like to hear their explanations and actions they took to make it better). The formal audit for a $500K raise seems silly. And 2000 shareholder rule will seem pretty low if you eventually raise a few million $1000 at a time.

    1. fredwilson

      great comment and points. silicon valley should wake up and see what their senators are doing

  21. Seth Godin

    My plea to all the fraudsters who are already working hard to take advantage of the scamming opportunities that this bill opens up to them:Please! Instead of spending the time and effort it will take to rip people off while pretending you’re raising money for a real business, consider actually starting a real business.I know, I know, you won’t listen, for the same reason you became a spammer instead of starting Kickstarter or Groupon, and for the same reason you’d rather run a boiler room operation than stand in the light and do work you’re proud of.Still, I had to ask.

    1. LE

      “time and effort”The profit margin in fraud and the effort involved are so much less than running a traditional business.  Plus there is a reinforcement aspect (similar to casino gambling or day trading) that intensifies the gains someone makes just like clipping coupons provides a boost to compulsive clippers.

    2. Roger Toennis

      Small nit: Groupon is the largest and most insidious scam in startup venture history.

    3. fredwilson

      i love this comment seth!

    4. Tom Royce

      Ah, but there is a long history of spammers and scammers using this trick. Let’s never think that this will be a new phenomenon. My question is, what will be the next “Springtime For Hitler” and who will be the next Max Bialystock to emerge to the public consciousness.Loopholes open, loopholes close. Those looking to run a scam will always search for them, find them, profit from them, and risk going to jail for them…

  22. pdobson

    This is going to change how consumer web and app startups get funded.I can forsee brandname VCs (like USV) leading rounds of investment to set a valuation and bring publicity to the round, and the rest of the round being funded by the crowd.I can forsee programmers in North Dakota or Iowa raising small seed rounds (15k-25k ) with a small MVP and quitting their jobs to iterate the product to the next level.And finally, I can forsee a new super user for consumer startups. No longer will it be enough to simply have early adopters who evangelize your product for their own street cred – they’ll be evanglizing your product for their own financial well-being. Your first 1000 users will be your investors as well. Letters to shareholders will provide instructions on how to create content in the app ecosystem that will improve the product. Thus, crowdsourcing won’t just be about financing, but the quality of the product as a whole as the userbase takes ownership of the product like never before.

    1. kidmercury


    2. William Mougayar

      Re: your first 1,000 will be your investors. There’s a startup that facilitates giving shares to users that support the product. Crowd sourcing influence

      1. pdobson

        Now that’s a clever idea. Thanks for the heads up – maybe I’ll become a social advocate.

      2. Roger Toennis

        THIS IS FRIGGIN AWESOME!!! Crowdsourced sales/marketing is the next best thing to, perhaps even BETTER than, crowdsourced funding.NICE!!!

      3. Mark Essel

        Reminds me of travel zoo’s free shares, which ended up being worth a few hundred dollars when I sold them years later.It’s an intriguing concept. I worry that the presence of potentially “false users” will lead startups down the wrong path.

    3. Antone Johnson

      This sounds great in theory, but in practice, most entrepreneurs want as few shareholders as possible.  Dozens or scores becomes unwieldy as it is.  Thousands would be a nightmare unless they have essentially no rights, which would create problems of its own.Look at Facebook as the ultimate example.  It’s being dragged kicking and screaming into being public finally, at a valuation close to $100 billion.  If Zuckerberg had his way, it would never go public.  Why deal with the hassles of transparency, financial disclosure and corporate governance with fiduciary duties to thousands of individual investors if you can just run your own business like a benevolent dictatorship?

      1. pdobson

          You raise a good point. Is it better to have one or two knowledgable VCs in your ear or 1,500 ignoramii who only invested $100 a piece?I suppose my analogy to this would be the transition from having a broker you talk with on the phone to being able to make your own trades via ETrade and the like.For this to work properly, there’s going to have to be a service between the startup and the investors in the same way that kickstarter works. Complaints boards are going to have to be managed like any other venue for complaints on the web, and the crowdsourced investor is going to be placated in the same way that all mass-market stakeholders are placated, by using technology.So I think it’ll still work fine so long as the CEO doesn’t have to give his cell number to every crowdsourced investor.

    4. fredwilson

      did you read my email to my partners the other morning? 😉

      1. pdobson

         By my honor as a hacker, I would never!But if you want to CC me on the next one so we don’t have the same thoughts at the same time, you’re more than welcome. 😉

        1. fredwilson

          I might do that!

  23. Julia Lundemark

    I completely agree with you that every person and not the just very wealthy people and institutions should be able to participate in the funding of startups..

  24. LE

    Companies seeking to raise $100,000 or less must also provide tax returns and a financial statement certified by a company principal; those raising up to $500,000 must provide financial statements that are reviewed by an independent public accountant. Companies raising more than that must provide audited financial statements.In the above paragraph, the only thing that matters and is of any value to me is the audited statements (at whatever level they are required).Certification by someone who is raising money (and very well may have nothing to loose and everything to gain by making up or stretching numbers) is practically meaningless. Sure it’s a lock on a door but not much protection in a “bad neighborhood”.Tax returns can be gamed as well. Nothing to prevent someone from purposely booking revenue (“laundering”), filing a return, paying taxes and then using that return to secure financing. Audits of course can (and are) gamed as well (Crazy Eddy shifted empty boxes from warehouse to warehouse for the auditor to “count”).  But they are much harder to cheat on.  This part (>100k and <500k): “financial statements that are reviewed by an independent public accountant” means nothing as well. That is known as a “compilation”. It is simply something an accountant or CPA will give you based on what you give them. And it says that as well. The reason there will be fraud in this, and people will get hurt ,(and then the shit will hit the fan like it is with that “stand your ground” law in FL) is that the people involved in drawing up this bill probably don’t have the experience to understand all the things that someone can do to scam someone.(I spent a short amount of time doing some forensic work for a nice sized accounting firm as well as having obviously owning businesses. I also spent my entire life in conversations with business people of all types. You’d be surprised the stories that you hear and what people do. )

    1. Carl J. Mistlebauer

      LE,Everything you say is absolutely correct. I learned very early on to only loan/invest money in people and or businesses I knew and or understood (…and never to family!).The reality is that this law will create “vehicles” and or “herds” (much more apt word than “communities”) where investors will follow the “leader.”Its no different than trying to get people to buy low and sell high; everyone wants to do exactly the opposite of what really makes money.I do like the bill because it now creates a way for someone to develop this thing I call “a vehicle” that will open up the door for funding beyond “friends and family.”

    2. Antone Johnson

      All great points.  Audits are helpful, as with getting a legal opinion from issuer’s counsel in a financing deal, because they put another party’s ass on the line with potentially serious liability.  All things being equal, the auditors and law firm have incentives to do their own diligence and probe a little deeper.I’m amazed at the wide-eyed naivety displayed by the cheerleaders for crowdfunding.  I think if they spent a little time chatting over drinks with my friends at the NY AG Investor Protection bureau or folks from the SEC enforcement division, they’d be horrified at the vast range of ways humanity has invented to screw individual investors out of their hard-earned money.  This is, of course, why we have a Securities Act of 1933 in the first place.

  25. ErikSchwartz

    I am of mixed feelings about the crowd funding aspects of this. In theory it is fine, but I suspect we see start up infomercials on TV if the tech start up market remains hot.

    1. Cynthia Schames


  26. dara albright

    Thank you for writing this article. It was really interesting to hear your insight. I personally feel that this is an enormous leap in repairing our damaged capital markets. However, I do not agree that crowdfunding will become “a fraud infested sector of the capital markets” as I don’t believe that crowdfund investors share the same mentality as the typical micro-cap public investor. The liquidity structure of the conventional public micro-cap markets made it appealing to pump and dump schemes and those looking for a quick buck. The crowdfunding platforms are structured entirely differently and breed a different type of investor – the long term shareholder. Crowdfund investors invest in companies because they truly appreciate the business, its mission or its value to the community. Just look at the projects being funded on Kickstarter or RocketHub. Funders are truly interested in the business – so much so that they are currently giving money regardless of whether they receive securities or not. I hope this next evolution of our capital markets encompasses more of this type of investing philosophy.

    1. LE

      “Just look at the projects being funded on Kickstarter or RocketHub. Funders are truly interested in the business”Both have not been around that long, cater to a different crowd, and haven’t been invaded by “normals” yet. 

      1. JLM

        Neither are really investment vehicles with rigorous disclosures.  They are “fun” with money.

        1. LE


      2. dara albright

        As long as crowdfund investors understand that crowdfund investing is a long term high risk strategy and remain more interested in seeing the company’s business succeed than in selling their position the following day, this market can thrive.If by “normals” you mean the manipulators, pump & dumpers, shorters and fraudsters, well I just don’t see the crowdfunding market being invaded by them as “long term high risk” philosophy is just not appealing to that group. That group likes “short term, sure things” and they won’t find it in the crowdfunding space. I hope they never do.

        1. LE

          “Normals” in the context I am using are the people that I run into getting my coffee in the morning (in suburbia) or my aunt or uncle.

          1. Cynthia Schames

            Funnily enough, my 76 year old Dad backed projects on Kickstarter before I ever did.

        2. Antone Johnson

          The problem is that investment risk is a separate issue entirely from the question of reliability of information flowing out of the company.  Without some kind of policing, what’s to stop a fraudster from telling a compelling story (picked up and propagated by social media), garnering investments from hundreds of well-intentioned long-term investors, and then just splitting?  Con artists have been doing these things for centuries.  Without credible third-party oversight, the Internet does nothing to solve this problem.

  27. kidmercury

    all the people crying about fraud…..go look at the market for apple shares. 4 flash crashes in 2 years, 2 in the last month. stock’s gone parabolic and implied volatility is up. this is literally the most valuable company in the world and its price is being completely distorted thanks to quote stuffing (bots putting in orders adn then quickly withdrawing them before they can be executed, so as to create illusions and slow down competing bots). and people are worried about fraud in some dinky little startup?or silver. class action lawsuits going on in the silver market. price of silver fell 10% in 4 minutes in april of 2011. wtf??????? so much naked shorting going on in silver, and then on the flip side folks trying to corner the market and push it higher……MF global. they took customer money and “lost” it. how you lose 1 billion sitting in a bank account is a mystery to me. lots of this money wasn’t in a position, just sitting in cash. situation is STILL not resolved. not to mention the growing number of angels and VCs that regard public stocks as “too risky.” too risky to buy, that is. not too risky to sell though. fraud is enabled by the regulators (SEC), who are bought off by the terrorists (goldman, jpm, hsbc, etc) those who are so passionate about fighting fraud may find it worthwhile to look at the big picture to see where the fraud really is.  

    1. JLM

      There are at least two things which markets could do without and their credibility and structural reliability would be immediately enhanced:Automated computer driven trading of all types which has nothing to do with the most basic desire to buy or sell a share of ownership; and,Short selling of all kinds which is never in the interest of the issuer of the actual securities which are being shorted.At the end of the day, markets were created by issuers for shareholder convenience not as casinos for traders.While I decry most of what this administration says about gasoline prices, there is a great truth that the current price of gasoline is being derived from perceived long term values priced primarily by speculators.We are looking into the wrong end of the telescope.  Current prices should inform long term prices rather than the other way around.

    2. William Carleton

      Kid, the regulators were terrified at the prospect of genuine crowdfunding. What if the wisdom of the crowds did more to surface scams than the disclosure laws! It might change everyone’s attitude about how transparent public companies should be!

      1. ShanaC

        they also could get involved with scams – the crowd has to not know, which isn’t going to be true if people hawk.

      2. fredwilson

        sadly, i think you are right

      3. David Clarke

        Transparency is inherently appealing, and for startups with little baggage, a radically transparent approach could work in loco regulation. But Gladwell’s 2007 piece on Enron:… is germane here; at least as to how transparency applies to large and complex organizations. His essential point is that they had fully disclosed everything -i.e, Enron was the formal opposite of a conspiracy- while not in any way being meaningfully transparent. Even if you don’t agree with this thesis, his puzzle/mystery distinction is virtuosic.

      4. Antone Johnson

        All the wisdom of the largest crowd in the world does absolutely no good if every member of the crowd is wearing a blindfold.  Somebody has to due the diligence.The starting point is massive information asymmetry between the people managing a business enterprise (who know literally everything there is to know about it, including their own motives and values) and people investing in it (who start out knowing nothing).  There is little preventing the former from lying through their teeth, saying whatever they need to say to part investors from their money.  In the absence of any intentional wrongdoing, all of the incentives still line up to create a moral hazard (“gambling with other people’s money,” so to speak).  Without any large investors involved, nobody has the incentive or the resources to force true transparency or accountability on a company.If every entrepreneur started dozens of startups, it would be different — more like eBay, where sellers can earn trust through prior transactions, giving buyers more comfort going forward.  (Sombody still has to be the very first buyer, though.)  But with virtually no track record to work on, the only way — flawed as it is — to impose any transparency or accountability whatsoever is through market regulation.  That’s what the Senate did with the Merkley-Brown amendment.  We’ll see whether it works.

      5. fredwilson

        but we did take a step in the right direction toward crowdfunding. we just didn’t go far enough.

  28. matthughes

    Non-partisan legislation is the only kind I’m interested in any more. 

  29. JLM

    In reviewing the comments to this blog post by Senor Fred, another hit in an unending series of hits, I would caution all to remember that securities and exchanges are regulated by the Securities Act of 1933 and the Exchange Act of 1934 and that all this legislation does is to move a few commas, change a few words and clarify a few issues.These laws were enacted after the Great Depression because of the wholesale manipulation of markets, exchanges and securities by folks like Joe Kennedy.These current proposed laws are not really an invitation to “disrupt” anything and it is not a wholesale change in the regulation of securities and exchanges.  This is not the Internet writ large upon the securities business.  It is nibbling around the edges to grind off a couple of burs.Almost everything contemplated by this legislation is within the framework of Reg D which has been on the books for a long time and which deals with accredited investors.  Reg D is simply an “exemption” to the general obligation of registering public securities.I mention this because the penalties for coloring outside the lines are not really going to be altered and if one decides to harness the power of the Internet without following the rules you have a very, very high probability of going to jail at the hands of those humorless SEC fellows.As a refresher, the SEC does not even want you to use the term EBITDA as it is not a GAAP defined term.  If you want to use EBITDA, then you have to “derive” it by starting with the defined term “earnings” and go from there.

    1. Carl J. Mistlebauer

      Darn JLM,How are we ever going to have a revolution and change the world, if you keep throwing reality in our face? :)I think what we need is a good ol’ fashioned guillotine!Let heads roll because a little house cleaning from time to time, a little weeding of the deadwood can go along way in bringing reality a little more in line with where we want to go!

      1. JLM

        Guillotine, dueling, beheadings on the steps of the NYSE — I long for simpler times.

        1. Carl J. Mistlebauer

          Simpler and leaner times, less lawyers, politicians, and laws. Back in those days you could establish a country with documents as simple as our Declaration of Independence and our Constitution; now it takes thousands of pages to enact anything and still you don’t accomplish anything meaningful.We really need to swap out government regulations and government oversight with something a little more meaningful…Maybe if people had to rely on their aim they might talk a little clearer and act a little more decisively…or not talk and or act at all…

    2. Richard

      Yes Reg D adopted in 1982 consists of 6 rules that relax the offering restictions for small businesses. Reg D amended the 1933 securities act (the tamlud)  which also had a private placement expemption  for small business. Of particular interest is neither the 1933 act, reg D or the current proposed regulation obviate the need to comply with state securities laws in which the “buyer” or “seller” reside. Also, antifraud and civil negligence penalties still apply.

    3. William Carleton

      I agree that the Senate has proved you to be correct. The meaningful reforms were all for the benefit of accredited investors and the startups and entrepreneurs those investors support. All within Reg D. The House did actually float a fairly radical experiment in the McHenry crowdfunding bill, but the more patrician Senate killed it. The Senate listened to the venture capitalists (a good thing) and to the angel investors (a good thing) but they humored the crowdfunding advocates and they let them down. They gave them a dressed up version of the SCOR that Rich mentioned.

      1. Richard

        Thats how i read it

    4. ShanaC

      Getting rid of burrs I thought is a good thing?

      1. JLM

        It is.

    5. Tom Labus

      What’s so great is that Joe Kennedy was the first commissioner of the SEC.  He closed the door for short sellers through the up tick rule.  Of course that’s how he made his money first.  

      1. JLM

        I had forgotten that.  Ironic, no?  He was the greatest crooked stock manipulator of his time.

        1. Tom Labus

          Amazing history.Maybe the SEC should be Corzine’s next stop instead of Lewisburg.

          1. JLM

            Brother Corzine is likely to hold another post in Federal gov’t pretty soon — Prisoner # 234097.And, he deserves it — all the money disappeared and nobody, nobody, nobody knows where it went?I would jail him for that answer alone.

    6. fredwilson

      fortunately an investor can use whatever measure they want and to hell with the SECi believe cash flow is a much better measure of earnings quality than GAAP earnings which includes a bunch of nonsense inserted by accountants

  30. Jason Everitt

    Seems that the desired size of “crowd,” desired scale of capital, and additional unique value will determine the design of platforms, competitive landscape between platforms, and subsequent success/failure.

  31. William Carleton

    Fred, I have a slightly different take on the JOBS Act. I agree it was a big win for startups, but not because of the crowdfunding piece, which was neutered by the Senate (more below), and not primarily because of the IPO on-ramp provisions, though those indeed could be good.Almost not noticed in the legislation is a provision that Rep. McHenry (he being the same McHenry who sponsored crowdfunding in the House) sponsored as an amendment on the House floor when the House version of the JOBS Act passed the House. This provision survived in the version that the Senate just passed this week. I call it the “angel platform and incubator” provision. It basically says it is okay for angel investors to organize online, for incubators to disseminate standard deal documents, and for angel groups to sponsor pitch events. It addresses an ambiguity in the laws around what makes someone a broker-dealer or not. On a technical level, the “angel platform and incubator” provision is a safe harbor to the broker-dealer registration requirements. Not too sexy, hard to talk about, but definitely brings the law forward to take many current activities out of a gray zone. Call it “crowdfunding for accredited investors” (or, more pointedly, “crowdfunding for the 1%).The other big win for startups and angel investing is the Rep. McCarthy provision that will lift the prohibition on general solicitation in Reg D Rule 506 deals, as long as all the investors are accredited investors. Current practice almost always restricts these kinds of deals to accredited investors, so, as a practical matter, this just means that the prohibition on general solicitation in angel-only deals will be eliminated. Will make what AngelList does, what different angel group software and online networking does, much more clearly okay, no gray zone.As for crowdfunding, the Senate took out of the House (McHenry) version the aspect of a crowdfunding exemption that might well have done the most to protect investors, and that was language that would have required that investors be allowed to talk to each other on the company’s website. In other words, McHenry took seriously that the internet may indeed be a game changer, and that it was worth experimenting with something different from the old securities law paradigm, which is that information must be tightly controlled, vetted by lawyers, and “official.” The Senate version never gave credence to crowd wisdom. It substituted what is essentially a very conventional limited registration structure for small offerings. It may be that Reg A will seem more attractive now, by comparison.

    1. jimmystone

      Sorry for the confusion but are you saying that the bill approved by the Senate ONLY allows for crowdfunding by accredited investors? I was under the impression that anyone would be allowed to invest up to a certain % of their annual income? Do you know of any good links that summarize the bill? Thank you!

      1. Richard is a summary of how there will still be two sets of laws, one for accredited and one for non, with lots of ambiguity.

        1. jimmystone

           Thank you, Rich.

      2. William Carleton

        Rich, thank you for the clarification. jimmystone, sorry to be confusing. I was speaking metaphorically. There was no separate “crowdfunding” bill for accredited investors only; I just meant that, in changing the laws to say that it is okay for angels to be “generally solicited” and for angels, angel groups and incubators to organize their consideration and work on deals in online and offline forums (think AngelList, local angel groups, YCombinator), okay to have general advertising (tweets, meetups, etc.) as long as investment is restricted just to accredited investors, IN EFFECT, in a manner of speaking, the House and Senate approved letting angels “crowdfund” with each other (letting angels reach each other, vet deals and syndicate deals via social media). At the end of the day, the Senate decided not to permit this kind of unrestricted social or networking activity when it comes to non-accredited investors. In a very real sense, startup investing is more the province of angel investors today than it was before the JOBS Act, even though something that looks like, or is called, a crowdfunding exemption (for non-accredited investors) also passed.Most of the press I’ve seen takes one aspect of the JOBS Act over others. However, one non-technical article that covers all the major pieces is this one in Forbes.… Sorry if you get ads.The most concise overview, from a more technical lawyerly perspective, but still covering all the features and not just the VC side, the angel side, or the crowdfunding side, is this one from Jim Hamilton.…It may help to have the background that the JOBS Act is an amalgamation of what were once quite disparate bills: Sen. Schumer’s IPO on-ramp; Rep. McCarthy’s repeal of general solicitation (for Reg D Rule 506 all accredited investors only); increasing the cap on number of shareholders a private company can have; Rep. McHenry’s original (and radical) crowdfunding exemption (since greatly tempered by the Senate); and more. These bills all once stood on their own, and in many ways, are somewhat inconsistent. When they were packaged up, for thematic and political reasons, into the ‘Jumpstart Our Business Startups (JOBS) Act,’ many of those inconsistencies remained. One from the original House package was, how will angel investing and crowdfunding overlap? Or will they be mutually exclusive? I think with the Senate’s action, the answer is the latter – the two will not meet. Background on that in this GeekWire post (this one is by me).…

        1. jimmystone

           Thank you, William.

    2. fredwilson

      great comment, as usual. it is so helpful to have people commenting here who really know their stuff

  32. ShanaC

    I’m sort of saddened by the fact that you thanked our elected officials.  For goodness sake- this is their job, and we have to thank them for finally doing it?! This strikes me as something fundamentally wrong with our system. </endrant>with the 100-500 k provision: what does this mean for angel investing at large?  I mean, couldn’t you ignore angel investors the way this is structured?

    1. LE

      I’m sort of saddened by the fact that you thanked our elected officials.  For goodness sake- this is their job, and we have to thank them for finally doing it?! It’s a social grace. It doesn’t cost anything and it shows appreciation.  After all you tip in a restaurant and to the person who carries your bag to the hotel room, right? Aren’t they just doing their job?

      1. ShanaC

        I’m not appreciative right now – I’m pissed off that this was passed in the election cycle, and not earlier when it would have made more impact on the economy.My congress hasn’t been doing its job for the most part in a while.  I’m not sure if anyone I could vote in really would.

    2. Cam MacRae

      It’s a bit like training a dog – a little positive reinforcement goes a very long way.

    3. fredwilson

      my kids have taught me a lot about motivation. a thank you for doing the dishes or walking the dog, even when it is their job to do that, goes a long way to making them feel better about having had to do the job

      1. ShanaC

        Usually yes, but the timing is bad – it makes them seem like they don’t care – they spent the pre-election cycle blocking legislation like this, and now it gets passed when we’re all distracted.This was not an overly partisan issue.  Everyone likes growing businesses.  Why wasn’t this passed earlier, when seeing a less divided congress was a bigger deal, when the economy was more in shambles?

    4. Roger Toennis

      Leadership is all about role-modeling for people how they should behave with a calculated indifference toward the current behavior of said people.

  33. Joe Wallin

    My two cents–I think the most important part of the bill is the provision which says that within 90 days of passage the SEC must repeal the ban on general solicitation for all accredited offerings. Quoted here: http://www.compliancebuildi…Most private company offerings will continue to be done as they have been done in the past–all accredited rounds via Rule 506. The nice thing about this new rule is that now companies will be able to say publicly that they are raising money.It might even create a “crowdfunding” type environment for all accredited rounds.

    1. William Carleton

      Joe, well said. Combine the section you point out with the McHenry broker-dealer safe harbor for angel networking and online platforms (for angels only), and it really may turn out that the most significant part of the JOBS Act for startups will be in letting angels do better what they already do and making it easier for entrepreneurs to reach angels.

  34. Florence Lowe

    Nice post. This is exactly how I felt about the bill. The amendments made it less scary and there will still be some unintended consequences, but will be interesting nonetheless to see how it plays out. As an entrepreneur though at the end of the day fundamentals are still what matter – product, customer, team. Everything else is just a big storm in a teacup. 

  35. DonRyan

    I was glad to see the Senate amendments pass as well. Opening up private company financing to a much larger swath of people is a great thing. Having them do it blindly is not so great. Hopefully the House will move on this quickly and it will be signed by the end of the week. 

  36. johnmccarthy

    “Requiring an audit for a $500k seed round seems a bit nuts to me.”Yes it does. Expect to see audit firms that cater to this segment spring up, sort of like the 409a crowd.   With the Big 4’s new found interest in startups, they might start offering quicky-audits.  $5,000 to spend a few hours reviewing incorporation docs and 3 months of expenses.  

    1. John Revay

      My sense is the Big 4 firms can do much for $5K ( maybe a tax return?)  – I worry their min fees for audit are in $50K range – although I have have first hand knowledge of this.

    2. LE

      With the Big 4’s new found interest in startups, they might start offering quicky-audits.  $5,000 to spend a few hours reviewing incorporation docs and 3 months of expensesWon’t happen. Opens them up to to much liability if they cut corners.   No such thing as a quicky audit. Take a look:

  37. CEO

    With these new rules for crowdfunding, what makes it any different then the current rules for direct public offerings (DPO)?

  38. Ciaran

    It’s interesting that when a politician supports the same issues we do, then they’re showing leadership.A quick scan of the Wikipedia profiles of these two ‘leaders’ mentioned doesn’t suggest leadershipto me, but rather the ultimate cliched pork-barrel politician: selling morals to the highest bidder (often the finance industry), doing favours for friends and backers, and generally making the most of a position of power. One of them was even a sponsor of the Protect IP Act – was he being a leader then?…… 

  39. Antone Johnson

    Well said, Fred.  I had such serious reservations about the crowdfunding provisions that I wrote a lengthy critique for Gust last week.  It’s the most read of anything I’ve written there yet.…Thankfully, the Senate was circumspect to approve the Merkley-Brown amendment that added some of the guardrails you described.  (Or, to get partisan for just a second, the Democrats made it clear the JOBS Act wouldn’t make it out of the Senate unless the amendment were included.  The GOP was more than willing to throw investors under the bus in the name of radical deregulation.  But I digress.)The fundamental challenge with crowdfunding is that it really is a zero-sum game with respect to ease of raising capital from the general public vs. prevention of rampant fraud, both of which are laudable goals.  As I wrote in my blog post, there are market failures and incentives at play that all but guarantee bad outcomes unless the regime is well policed.  How to do that in a way that isn’t overly burdensome for small, early stage startups seems like a thorny challenge to say the least.

  40. Druce

    Apparently the bill would also let VC firms sponsor art shows, without falling afoul of no-advertising regs for unregistered investments.[markdown test](…(Mostly posting to try out the new Disqus system)