Monthly Archives: April 2013

SEC Greenlights Funders Club and AngelList – Why Is This Significant?

by Antonio Arias, CGA

us sec

crowdfund the worldLast week the SEC served  “no action” letters to Funders Club  http://www.sec.gov/divisions/marketreg/mr-noaction/2013/funders-club-032613-15a1.pdf  and AngelList http://www.sec.gov/divisions/marketreg/mr-noaction/2013/angellist-15a1.pdf  which meant they can conduct their business without having to be registered as a broker dealer, provided they conduct themselves exactly as they have described to the SEC.

This is a significant event for several reasons.

  1. It is a good test balloon for the Securities Exchange Commission, the entrepreneurs, the equity based crowdfund portal operators, and accredited investors to operate in, while the non sophisticated audience  watch. There will be successes and failures but it will be with players who can afford to take the risks. If there will be a fallout, it will be in a contained environment.
  2. It will be an educational arena, where players can participate when they feel ready to jump in. For non-accredited investors they will see the process of what is really involved in buying and operating a business. Buying shares or equity of private or public companies is like being a silent partner to the business itself. It is a long term relationship as most businesses take about three to five years before breaking even.
  3. It demonstrates the goodwill intentions of the SEC to move forward, albeit slowly but it is better than no action at all. For now their position describes the acceptable boundaries of business conduct for all actors.
  4. For entrepreneurs who wish to grow their business, it expands the possibilities to raise funding beyond pre-sales/ rewards or donations based crowdfunding. While collecting “expressions of interest” in a platform, entrepreneurs will know right away if they could potentially win customers and/or investors.
  5. For me as a public company officer/director who has had to deal with sophisticated and non-sophisticated investors, a person’s wealth or education is not an indication of their investment maturity. There are speculators or high net worth gamblers in the marketplace. I strongly advocate investor education focused on specific industries for all investors, regardless of being  accredited or not. We are not specialists in everything. This is why with Healthy Crowdfunder, we will recruit management with specific domain expertise to guide the management of our client/ investees. In similar vein, a board would not hire a mining CEO to run a consumer product company or vice versa. A board will not hire a sales and marketing CEO type for a start-up that should be led by a science strong CEO. A company needs a strong sales and marketing type CEO only when it is ready to commercialize its products. Each business, sector, or industry has its unique characteristics that require different management skill sets  It would be presumptuous to think that each investor would be equally knowledgeable  or have the aptitude to tolerate the risks inherent in different sectors.

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Filed under For Entrepreneurs, For Investors, Securities law change campaign