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Comment by dclaysmith | Hacker News Reader

I think the need to stop SOPA and the need to legalize this funding model are apples and oranges. I would love to see some changes to funding laws but many of these laws exist to prevent the defrauding of smaller, less "sophisticated" investors. Simply making the investment legal wouldn't do much without modifying the disclosure requirements the start-up faces. These disclosures will remain very important to prevent scams.

So, great idea but not simple. And not a "cause" like fighting SOPA was...

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Agree that it's largely apples and oranges. I think the poster was more calling attention to the fact that SOPA showed a lot of people that their voices do matter, and can affect change in government. So in that way, at least, they're related.

Fraud is certainly a concern, and the reason that the laws were introduced in the 1930s in the first place. But the S.1791 bill has provisions for dealing with this through (relatively) strict individual investing limits and reputation via crowdfunding intermediaries. A balance needs to be struck between protecting "less sophisticated" investors and giving those of us who want the opportunity the chance to get involved, help support entrepreneurs, and create jobs (on main street and in silicon valley). There's still a lot to be hashed out of course, but this would be a step in the right direction.

Disclaimer: I'm one of the people who worked to put the petition together.

One of the things The Securities Act of '33 was established to do was to protect the general public from themselves and from predatory brokers who were loaning a generally ignorant public caught up in speculative bubbles. Brokers were lending people up to 2/3rds of the face value of stock they were purchasing. When the market started to get cold feet and rumors ran rampant, people were selling every stock they owned just to cover the amount they were leveraged.

I haven't read the bill before Congress, but I would think if there are provisions that prohibit borrowing as a mechanism for financing stock purchases, this would benefit the start up ecosystem. The system in it's current state only benefits the very, very wealthy, and forces young start ups into term negotiations with people who do it for a living.

Methinks there is / will be heavy lobbying on behalf of the major investment banks who would naturally oppose any new members in their club.

http://en.wikipedia.org/wiki/Wall_Street_Crash_1929

Fraud is _the_ concern. It isn't hard to imagine a crowdfunding bucket shop flacking shell companies to clueless investors who think they're buying a piece of the future. You can't fit much due diligence expense into a $2mm funding round.

I'd also worry about crappy documentation / followthrough. What's to stop management teams from using such ventures to roadtest ideas and architecture and fit, "fail", then launch for real without the crowdfunders?

Nor need we go even that far. What about cronyisms in investment recommendation, management hiring, consultant hiring?

You or I might be able to assess the network reputation of various players and intermediaries. But there are a ton of investors who can't spell 'DNS' and lack the self-knowledge to know they can't.

I'm as anti-regulatory as anyone I've seen on this forum, but this to me looks like trouble. I'm sure you mean well, it _sounds_ like a good idea. But if you imagine the broader universe of potential funders and funded, you may begin to see the problems.

How is it that Kickstarter has managed to stay mostly free of fraud? What's to stop someone from raising $50k with a slick video and then disappearing?

Crowd funding is a good idea, but Kickstarter has the generally right approach: small amounts, framed as donations rather than investments, and reward(s) rather than an ownership stake.

I don't know anything about Kickstarter. But:

has ks been around long enough to attract / surface fraud?

incentives for fraud go up at stakes of 1 - 2mm

public investment models anticipate social disconnection bw funder and funder -- if ks depends on verification through social network linkage, that's an element potentially missing from the proposal. again, not for _you_, for the sort of people targetted by predators

I'm worried about the same things that you are worried about. They are legitimate concerns, and they need to be addressed. No one is saying they are unimportant. This legislation is a vehicle for addressing them. This is also why I personally believe that the extra protections found in the Senate version of the bill actually make it more relevant than the loosely-worded HR2930.

No one is saying that regulation isn't important. And I didn't blindly throw my support into this without doing my research. I don't want to see individuals get into things they don't understand, but I do want people (who are properly educated and who understand the risks) to be able to make up their own minds, support their neighbors, and help bring new ideas to life.

Okay, maybe you don't mean to, but this sounds a little talky-pointy to me. Who's against allowing people to make up their own minds and bring new ideas to life? Most of the people I know who talk that way live on K Street.

If you want to avoid sounding like a lobbyist, address the heart of what someone is saying. Who denied you think regs are important?

The point was that effective regulation is very likely _impossible_ at a cost consistent with the scale available at these funding levels. How do we regulate a bunch of these things, from a variety of sources, inside the budgets available to them? I don't see it.

To me it's about getting congress to legislate in favor of startups and young tech companies rather than big business interests. With the SOPA protests, we showed what is possible with a grassroots effort. I think a similar effort could work with startup funding.

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