SEC loosens crowdfunding regulations for small businesses financing in pandemic | Hacker News Reader

SEC loosens crowdfunding regulations for small businesses financing in pandemic

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67 pointsMLEnthusiast35 comments

I work in private equity so I've been keeping an eye on the crowdfunding space and the quality of the equity on offer is -- to put it lightly -- unbelievably low. I saw one company offering a SAFE note that only paid out if they went public... for a single location brewpub (not even a chain concept!). I'm not sure if that's legally the same as theft, but I'm quite certain it is statistically the same as theft.

I'd advise everyone to steer clear of the space until we have a government interested in minimizing the level of fraud and abuse. This current development is likely to make things worse, not better.

It's a logical conclusion that many people pointed out. Why would you sell equity to random people instead of VCs? Because you're doing something that VCs won't touch. We should expect all Reg Crowdfunding/A+ deals to be either scams, low quality, or small opportunities.

The question is why won't they touch it. Unrealistic expectations of high returns kill deals too.

I'd be more than happy to start funding deals with high probabilities of low-to-medium returns. And I know for a fact that those deals exist at the small scale.

People say this a lot but it's worth questioning, because the "unrealistic expectations" also make the portfolio math work, and if the math doesn't work, not liking the expectations doesn't turn a broken investment into a viable one. You can do a really superficial analysis in 5 minutes of Google Sheets to work this out for yourself, and at least crystallize your implicit expectations about the number of companies in your portfolio you expect to be profitable in N years as opposed to dead and gone.

I vaguely remember in the Startup podcast that Gimlet Media went to non-VCs before VCs would get in on their thing. And they did eventually do a $200k crowdfunding campaign. So clearly the argument "No VC = Scam" doesn't work. I do buy that the scam rate may be higher. But I think allowing yourself to be scammed some amount is probably okay.

Didn't they have a poor outcome? I feel like the only reason VCs got involved eventually was FOMO, not a solid thesis.

SPOILERS! Just kidding, I haven't reached the end (stopped when they started doing other startups) so I don't know how they ended up. Looking it up, looks like they sold to Spotify. I wonder if the deal was good.

Gimlet was not a good outcome. They sold because they had to - they had nowhere else to go.

It does not appear to have been a bad outcome for the crowdfunding investors.

It's not obviously true that a 'micro cap' stock exchange couldn't exist that traded, among other things, equity for your favorite local brewpub. The issue is that there is a surprisingly large amount of compliance, accounting and especially audit expense that would go into such a thing. Without all that overhead, you just have a system ripe for abuse... and with all that overhead, you don't have a profitable investment opportunity.

It's not worth VCs time to write small checks. That's the whole reason for angel investors exist. I want to invest in small companies too, and I can't as a non-accredited investor. Crowdfunding definitely works here as long as I know the business first hand. True there are scams, but WeWork.

if this is supposed to help small businesses in the pandemic, then this should be limited to businesses that are already established and had been making revenue, or even profit.

that should weed out all the pure scams and limit the potential for abuse.

there is still a risk. but it's much easier to judge the potential of an existing business going through a rough time, vs understanding the difference between a genuine new business or a scam.

Now that Facebook CPMs are dropping (because major brand advertisers are pausing spend), the snake oil salesman are back.

There's a hilarious Facebook ad where you can invest in a COVID-19 telemedicine startup. The doctor in her office is tending to a sick patient. Through a laptop. And they both are wearing heavy masks for the laptop session.

Haven't you ever heard of computer viruses?

Achoo, tag you're it

Gives new meaning to "telephony"

I've noticed multiple advertisements to invest in golf or food production robotics on Instagram, of all places, in the past week. I always wonder what kind of sucker invests into an Instagram advertisement.

I've seen robotics ads on FB too, since they're owned by the same company if some company is trying to bootstrap themselves using public funds until they can sell to one of the bigger name brands.

The ads I've seen are specifically for mowing equipment, with percentages on labor costs saved and everything.

I've been seeing a bunch of these, too, but mine are almond farms and real estate ventures. Yuck.

Often fraudulent offers include a large number of typos or red flags specifically to drive away high information buyers; sealing the deal usually requires some labor, and they want to exclude anyone who might figure it and not buy in the end. Better to exclude a few marks in order to guarantee that everyone who clicks is credulous enough to sell to without significant effort.

I wonder if this is merely because they don't have the resources to properly investigate small-scale fraud.

Would investors be purchasing equity?

Crowdfunding should be loosened. Sure some people will get scammed but it is the same people who the government allows to sink their weekly paycheck into scratchers. These regulations are only in place to give PE a monopoly on certain investments.

The critical difference being that government makes a lot of money off gambling taxes; it may be a negative-sum game, but it's their negative-sum game.

Fair point

Deep down, I want to believe that someone, somewhere in the government apparatus is working feverishly to help the other apparatchiks to understand the Golden Goose's carotid arteries have been severed, and if something isn't done immediately the entire income stream of all governments is going to fade away into nothing.

Hopefully they win their debates against lobbyists for entities circling to cheaply acquire/privatize municipal and other gov assets that can no longer be sustained due to budget shortfalls.

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