SEC raised the limit on Regulation Crowdfunding from $1.07M to $5M | Hacker News Reader

SEC raised the limit on Regulation Crowdfunding from $1.07M to $5M

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71 pointsjeremylevy27 comments

Ppft. Why does this matter?

Instead, without any registration at all you can just raise a billion dollars from the uninformed general public on the basis of unsupportable speculative (and probably false) claims, then just pay the SEC a 24 million dollar penalty in a settlement where the SEC promises to go away and take no further action against you.

:-/

What are you referring to?

Block.one's EOS shitshow.

This will definitely make things more convenient. The $1mm limit was a big deterrent for the whole decade.

> The updated rules, outlined below, will go into effect 60 days after publication in the Federal Register.

https://www.crowdfundinsider.com/2020/11/168682-the-sec-upda...

I didn't know that such a regulation even exists. But I also don't understand why such a regulation needs to exist.

As I understand it, the intent of the law is to prevent non-financial people from losing thousands or more on random scams (e.g. ICOs, actual snake-oil, etc.)

The result of the law is... less clear.

There are many laws in regards to investment that are like that. Laws that "protect" inexperienced investors from getting had. I understand the intent but I feel the result is undesirable. They restrict investment opportunities to people that already have money. The message that they give is that just because you dont have dollars you dont have any financial sense.

In the vast majority of cases, the good investment opportunities are already restricted to people with substantial assets or income.

The vast majority of 'investment' opportunities available to people without substantial assets or income are scams, or very likely to underperform investments.

Even in SV, VCs are feverishly competing to get their investments accepted by the best companies.

The law may feel counterintuitive, but is a good investor protection that needs to be in place.

Anyone determined can get the required status to invest in accredited investor things... It just takes some determination - take the Series 65 exam and become an RIA - you only need to get ~70% of the multiple choice questions correct!

In fairness that just changed in August. Before that you had to be a millionaire or make $200K/year.

This limit is for less financially savvy people (those who are not an Accredited Investor per the SEC) to invest money into startups. The idea is to put an upper limit on funding from mom and pop to reduce the potential harm - think the ICO bubble of 2018. During the bubble, it was almost impossible to invest in a SEC compliant ICO as an unaccredited US investor and a lot of that was due to this limit existing and putting an upper limit ($1M) on money invested by the less financially savvy. Overseas, ICOs boomed due to the lack of international regulation and there were a lot of outright scams and pump and dumps happening which US investors were pretty much barred from investing in due to SEC regulations.

Let the idiots self-destruct. Navigating finance is fairly simple. The people who came out of the 2008 housing crash untouched were the ones who had the basic common sense to say "If I don't understand this paperwork, I'm not going to sign it."

All this regulation does is make the middleman necessary, and that is all a middleman's job is anyway.

The lack of empathy, reasonableness, common sense, or logic in this post is stunning.

And yet the government actively encourages people to lever themselves up to 33x to buy a house (a very non-liquid asset).

Or, you can start an LLC and leverage it with credit card debt.

Both are risky, and not regulated. Even worse, the latter example is effectively the same as crowdfunding but with a population of 1. Given that most business fail in the first few years, I’d argue that the government’s “protection of the investor” is basically irrelevant.

[1] - https://mymortgageinsider.com/three-percent-down-no-mortgage...

> Both are risky, and not regulated

Mortgages and credit cards are unregulated?

* sorry, typed on a phone...

The consumer side is fairly unregulated. Consider that a home mortgage at 3% down is 33x levered, but I as an investor cannot invest in something that is 33x levered unless I’m accredited - actually, more likely a qualified purchaser - according to the SEC.

So I’m arguing the protections are really there to protect the borrower (debt) but they limit the investor (equity). In effect this is an imbalance because of the disparity in upside/downside balance.

Many "business" credit cards are actually secured personally. If the business fails to pay the debt, it falls back to the person issued the card. I know folks who found this out and had to pay off their business debts with their own funds. Credit cards companies aren't dumb.

Mortgages are secured by the property itself. Lenders use property valuations to determine the fair value of a property. If you take out 500K mortgage with 15K down, and fail to pay after a few years, odds are the bank can recoup most of the cost (barring a massive event like the 2008 financial crisis.) The risk is well understood.

If you invest in an early-stage, private company, it is secured by essentially nothing, except hopes and dreams. Often early business forecasts are so out of whack, they may as well be fictional. Private investments are completely non-liquid. There is generally no market.

You’re actually arguing my case for me. In effect, the government is protecting the lender not the investor. So why are we limiting investors’ options then? After all, a business owner can max out personal credit cards and go bankrupt. And “secured” doesn’t mean anything unless there is property or equipment behind it.

Source: I’ve worked in finance for over a decade and I run a business as an owner.

I hate regulations which try to protect stupid people from their own incompetence while there are many very smart people waiting to have their first chance to prove their competence.

The pie is limited and the only way to reward smart people is by allowing stupid people to fail so that smart people can take their place. When this happens, everyone wins, even the idiots win as consumers... The pie can only get bigger when you have smart people in charge.

An idiot should never be anything more than a consumer, you can't put them in charge of investment or production. If an idiot has money, you want to take that money away from them as fast as possible.

The system should aim to accelerate the failure of incompetent people, not slow it down.

In theory the problem with this is that the majority of people have some kind of retirement savings, and want to get a return on investment, but many have no clue what they're doing.

Having them lose their retirement savings might cause the money to be invested more efficiently by someone else, but at scale it causes a different problem.

On the other hand, that is the very problem social security is meant to address. It's not really any different if idiots lose their money investing in pets.com than if idiots lose their money in buying a Ferrari that immediately depreciates and incurs outsized maintenance costs, is it? So given that social security exists, maybe you're right.

Have you gone back to see why those regulations were created in the first place? I mean, it's not like lawmakers just came up with them randomly.

How did all those Kickstarter campaigns that raised over $1M work in light of the old limit?

Kickstarter campaigns have never been subject to Regulation CF limits because they don't sell equity in a company.

You aren't technically buying anything when you make a Kickstarter pledge. [1] You may or may not get a "reward" for backing depending on whether the project is a success. If you do receive your reward, that's the end of your relationship with the company; you have no ongoing financial interest in it (read: no upside).

A Reg CF offering is an actual security; you're buying shares in a company, just like a VC does in early rounds. You're exposed to the same risks, but you do own a piece of the potential upside.

[1]: https://www.kickstarter.com/terms-of-use#section4

when raising money on Kickstarter, you're promising to sell the product, this is for equity in the company to non-professional investors. Think of it as a public offering of a friends and family round.

SEC should also place an individual limit of how much a "non accredited individual" can invest, like $10K.

They do, it's no more than 10% of your annual income. You have to qualify the investor eventhough they don't have to be an accredited one.

Finally! now lets build a flying car

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