Open Investing in Start-Ups
Small entrepreneurial businesses are the heart of an innovative economy. They have been the backbone of the creative US dominance for our entire history. Brilliant, creative, hard-working minds dream and then build businesses. They start in the proverbial “garage,” grow into a small incubator space, then into a small building and ultimately into large companies. See Microsoft, Facebook and Express Scripts.
Other entrepreneurs design a game-changing technology that one of the giants acquires. Most fail, in one form or another. Some have great ideas, game-changing ideas, but can’t secure funding to move out of their garage.
One of the reasons for this is the current state of securities regulations. The JOBS Act helped and was a good start. Congress and the President should consider whether any federal regulations should apply to companies raising less than five million dollars. In particular, start-ups who are just trying to get their idea off the ground.
Eliminate all federal laws, regulations and rules relating to raises of capital under five million dollars. Allow anyone to find investors in exchange for a percentage of the amount they invest. This is currently illegal. Allow anyone, whether a “sophisticated” investor or grandma, to invest in an early-stage company. Allow start-up owners and small companies trying to raise under five million to talk to anyone, to announce their needs to crowds in person and on the internet, and to find money wherever it may be. Let them raise funds without requiring them to put together an extensive, detailed prospectus. Most have no idea what the future will hold for their unique and innovative idea and have little in the way of history to tell.
Let the states oversee these raises if they want to. Keep the anti-fraud provisions, but build in a strong “buyer beware,” and “I was pretty sure this was true” defense for these low money raises. Fraud should apply to true fraud, traditionally proven under the multi-pronged approach established under State common laws. True tragic fraud happens at much larger numbers than five million dollars these days. No one can lose their “fortune” in what must clearly be noted as a “high-risk” low dollar raise.
Small, entrepreneurial companies are the future, as they have been the past. The trend has been negative for years because it is so hard to get these businesses started. Open the flood-gates. Let anyone invest in anything they want. Let these geniuses find investors wherever they can. Get them started. Help them grow, create jobs and wealth. Drive the US economy forward.