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Comment by jplewicke | Hacker News Reader

I'd love to see the cap changed to allow smaller investments by currently non-accredited investment. If we replaced the hard asset/income cut-off with an amount indexed by either income or assets, it would make crowdfunding of small businesses a viable option.

Since regulators don't want to see "Middle class family's life savings wiped out in investment fraud," allowing people to invest up to 3-5% of annual income or 2% of total assets in a given business would create additional sources of funding, prevent any one startup failure from being personally damaging, and give individuals the chance to invest locally in growing businesses.

This wouldn't have made sense twenty years ago, but the administrative requirements can be a lot more easily amortized by a central crowdfunding platform these days.

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You raise a good point, although there might be some difficulty with legislation requiring people to declare their income to investment vehicles.

The basic problem is that while something like Diaspora can attract goodwill funding by being in the right place at the right time - I kicked them $25 in exchange for a t-shirt and the vague hope that they can advance the state of distributed network services. But most people who want to invest in something are looking for an ownership stake, and as soon as you offer them that you've initiated a much more complex contractual relationship and are subject to a very different legal regime.

Rather than an income percentage cap, there might be some mileage in a small monetary amount. For example, commercial transactions of goods above and below $500 are treated differently. There are already provisions in Regulation D for companies that don't need to raise more than $1m or $5m in a single year, which might be great for startups, but those companies appear to have less of a legal 'safe harbor' than those which can raise an unlimited amount.

The 'safe harbor' provision is in SEC regulation D, rule 506: http://www.law.uc.edu/CCL/33ActRls/rule506.html in subclause (a), it's the exemption from rule 4(2) of the Securities Act of 1933 which gives firms the legal security blanket. Although rules 504 and 505 limit issuers to smaller amounts (but still quite sufficient for many new businesses), they don't have that specific exemption, and so the founders are implicitly subject to the prohibitions on selling or offering shares across state lines.

On the last point, some regions have "coordinated review" setups where you can simultaneously offer a <$1m, rule-504 security across some state lines, within the region (you can also submit simultaneously to multiple regions): http://www.coordinatedreview.org/crscor.html

37 of the 50 states participate in one of the five regions, but California and New York are two glaring omissions.

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