[PolymathGuru]

New law makes investing in startups available for the masses

Some excerpts from the article.

Quote:

The Securities and Exchange Commission voted to implement Title III of the Jumpstart Our Business Startups (JOBS) Act on Friday. Translation: It’s now legal for ordinary Americans to invest in startups and small businesses.

Unlike Kickstarter or GoFundMe, which allow you to invest in a product or idea like Spike Lee’s latest movie, the Keyboard Waffle Iron or potato salad and would in return get a token gift (or some potato salad), equity crowdfunding actually allows you to own a stake of the business. This could mean huge potential profits if the business succeeds or goes public; however, it could also result in steep losses.

Until now, you had to be an “accredited investor” to have equity in a private company. There are two ways to qualify -- and either way you have to be wealthy. Your income has to be at least $200,000 (or a combined $300,000 for married couples) in each of the prior two years. Second, eligible investors must have a net worth of over $1 million, either alone or together with a spouse (excluding the value of his or her primary residence).

Quote:

Title III has been the most problematic point for the SEC -- primarily because it opens up average Americans to the private investing world -- and is one reason that part of the law has languished for the past three-and-a-half years. Of the four SEC commissioners, only one, Michael Piwowar, dissented in Friday’s ruling: “I fear that many traps for the unwary are hidden in the regulations, creating potential nightmares for small businesses and their owners who fail to place regulatory compliance at the top of their business plans. Such burdens will spook many small businesses from pursuing crowdfunding as a viable path to raising capital.”

Quote:

The SEC has implemented caps for investors depending on income. If your income is $100,000 or less, you’re allowed to invest up to 5% of your income. Those earning more than $100,000 can invest up to $10,000.

“You can never make investing risk-free, but the SEC maximized transparency requirements. [Title III] is absolutely necessary for small businesses to expand and actually find responsible avenues to access capital,” said John Arensmeyer, CEO of advocacy organization Small Business Majority.

Quote:

Sapir told Yahoo Finance that this is the first time that customers can truly “get in on the action.” Whereas entrepreneurs have to perfect their pitches to venture capitalists, this new avenue of funding allows consumers to invest in a company that they already know and love. Perhaps this will allow startups to be less dependent on VC funding in the future.

He also noted that individuals do have a lot more at stake, compared to institutional investors like VC firms. “New technology is bound to fail. But VCs have the capacity to take a loss. Entrepreneurs have scammed investors before. A small investor without as many resources has no ability to protect himself.”

I know there are some ballers rolling in dough on this forums. What are your thoughts on this? I don't think the barrier should be based on wealth. It should be based on years of practice in the stock market. If someone can actually sustain a portfolio for five years, that may be a good enough amount of time to determine if this kind of investment is suitable for them.

[Harvey Specter]

(11-06-2015 02:34 PM)PolymathGuru Wrote:  

New law makes investing in startups available for the masses

Some excerpts from the article.

Quote:

The Securities and Exchange Commission voted to implement Title III of the Jumpstart Our Business Startups (JOBS) Act on Friday. Translation: It’s now legal for ordinary Americans to invest in startups and small businesses.

Unlike Kickstarter or GoFundMe, which allow you to invest in a product or idea like Spike Lee’s latest movie, the Keyboard Waffle Iron or potato salad and would in return get a token gift (or some potato salad), equity crowdfunding actually allows you to own a stake of the business. This could mean huge potential profits if the business succeeds or goes public; however, it could also result in steep losses.

Until now, you had to be an “accredited investor” to have equity in a private company. There are two ways to qualify -- and either way you have to be wealthy. Your income has to be at least $200,000 (or a combined $300,000 for married couples) in each of the prior two years. Second, eligible investors must have a net worth of over $1 million, either alone or together with a spouse (excluding the value of his or her primary residence).

Quote:

Title III has been the most problematic point for the SEC -- primarily because it opens up average Americans to the private investing world -- and is one reason that part of the law has languished for the past three-and-a-half years. Of the four SEC commissioners, only one, Michael Piwowar, dissented in Friday’s ruling: “I fear that many traps for the unwary are hidden in the regulations, creating potential nightmares for small businesses and their owners who fail to place regulatory compliance at the top of their business plans. Such burdens will spook many small businesses from pursuing crowdfunding as a viable path to raising capital.”

Quote:

The SEC has implemented caps for investors depending on income. If your income is $100,000 or less, you’re allowed to invest up to 5% of your income. Those earning more than $100,000 can invest up to $10,000.

“You can never make investing risk-free, but the SEC maximized transparency requirements. [Title III] is absolutely necessary for small businesses to expand and actually find responsible avenues to access capital,” said John Arensmeyer, CEO of advocacy organization Small Business Majority.

Quote:

Sapir told Yahoo Finance that this is the first time that customers can truly “get in on the action.” Whereas entrepreneurs have to perfect their pitches to venture capitalists, this new avenue of funding allows consumers to invest in a company that they already know and love. Perhaps this will allow startups to be less dependent on VC funding in the future.

He also noted that individuals do have a lot more at stake, compared to institutional investors like VC firms. “New technology is bound to fail. But VCs have the capacity to take a loss. Entrepreneurs have scammed investors before. A small investor without as many resources has no ability to protect himself.”

I know there are some ballers rolling in dough on this forums. What are your thoughts on this? I don't think the barrier should be based on wealth. It should be based on years of practice in the stock market. If someone can actually sustain a portfolio for five years, that may be a good enough amount of time to determine if this kind of investment is suitable for them.

A fool and his money are soon parted.

[RawGod]

Startups have been the bubble of the last few years thanks to all the QE fake money sloshing around. Every man and his grandmother is talking startups. Won't last much longer.

[Seth_Rose]

Relevant: Average Americans Can Now Invest In Startups – Don’t Do It! via Financial Samurai

http://www.financialsamurai.com/average-...ont-do-it/

[Designate]

Quote:

The Securities and Exchange Commission voted to implement Title III of the Jumpstart Our Business Startups (JOBS) Act on Friday. Translation: It’s now legal for ordinary Americans to invest in startups and small businesses.

Unlike Kickstarter or GoFundMe, which allow you to invest in a product or idea like Spike Lee’s latest movie, the Keyboard Waffle Iron or potato salad and would in return get a token gift (or some potato salad), equity crowdfunding actually allows you to own a stake of the business. This could mean huge potential profits if the business succeeds or goes public; however, it could also result in steep losses.

For quality, outstanding and in-depth investment insight, one should always turn to Yahoo Finance.



I think there is a time and place for these crowdfunded type investments, but if you want to the best yields you should always stick to doing your own deals.

The Startup Bubble is a near replica of the Dot Com Bubble. The gravy train will be ending very soon.

[jamaicabound]

I forget the site but I always get emails from microventures or some site like that. They actually have an interesting startup you can invet in similar to a fanduel or something like that. In the past I would probably have been in in a minute, however I think these guys are all going to be regulated soon so not sure I like the business anymore. I think Nevada already banned it.

[Easy_C]

Not QE directly. A huge part of it is that a "contagion" effect is playing out and looks to be about done.

[jamaicabound]

Here is the microventures site which has some kind of upcomming investment for a "Fan Duel" like fantasy site...

https://microventures.com/proposed/fantasyhub

[travolta]

I think lots of people are going to be getting scammed very hard soon. There definitely is a startup bubble happening, especially in Silicon Valley. So many shitty companies getting more funding than they know what to do with. It's all hilarious actually, and the bubble will burst sometime sooner than later.

[TheFinalEpic]

There's no such thing as a "startup bubble", if there was, new companies wouldn't be created. If you are willing to take a risk on a new company, you should be able to do this; the returns on home runs aren't percentages but rather multiples of your initial investment. There is a "tech bubble" in which these apps are getting valued at many times their actual worth, and when people realize that they will never return, then that will burst. We seem to associate "startups" with apps or shitty technology, but if you are actually founding a solid business (and I emphasize BUSINESS and not PRODUCT) this is a great thing for new companies. Its what was happening already anyways; I would go to family and friends first for investment, how many of those are traditionally "accredited investors"? A small percentage.

[travolta]

(11-09-2015 09:10 PM)TheFinalEpic Wrote:  

There's no such thing as a "startup bubble", if there was, new companies wouldn't be created. If you are willing to take a risk on a new company, you should be able to do this; the returns on home runs aren't percentages but rather multiples of your initial investment. There is a "tech bubble" in which these apps are getting valued at many times their actual worth, and when people realize that they will never return, then that will burst.

Yea you're right. I meant to say tech bubble, not start up bubble. "Start up" is kind of a loose term anyway. The tech bubble will definitely not last forever. Too many shitty tech startups are out there and they're good at tricking VC's into believing they're offering value when they're not.

[TheFinalEpic]

(11-09-2015 09:54 PM)travolta Wrote:  

(11-09-2015 09:10 PM)TheFinalEpic Wrote:  

There's no such thing as a "startup bubble", if there was, new companies wouldn't be created. If you are willing to take a risk on a new company, you should be able to do this; the returns on home runs aren't percentages but rather multiples of your initial investment. There is a "tech bubble" in which these apps are getting valued at many times their actual worth, and when people realize that they will never return, then that will burst.

Yea you're right. I meant to say tech bubble, not start up bubble. "Start up" is kind of a loose term anyway. The tech bubble will definitely not last forever. Too many shitty tech startups are out there and they're good at tricking VC's into believing they're offering value when they're not.

Its a pretty meaningless term. People come up to me and say "you've got a startup?" No, I have a company, and I treat it as such, not as some budding infancy.

Go on angelist or any of these crowd funding sites, you will laugh at the kind of projects that are getting funded that are totally pointless or downright idiotic ideas. That's the issue. Regardless, this money isn't being "thrown away", it just circulates in the economy and helps other more meaningful companies find their funding. Money isn't a scarce resource, but you also cannot be building liabilities as companies; it's just bad business yet so many people are and have been getting away with it for too long.