Saturday, November 21, 2015

SEC to veterans, women and minorities: Fahgettaboudit!

I attended the Government-Business Forum on Small Business Capital Formation held at the US Securities and Exchange Commission on November 19th. 
According to the SEC, one of the Forum's goals "is to .. highlight perceived unnecessary impediments to small business capital formation and address whether they can be eliminated or reduced. Each forum seeks to develop recommendations for government and private action to improve the environment for small business capital formation, consistent with other public policy goals, including investor protection. Participants in the Forum typically have included small business executives, venture capitalists, government officials, trade association representatives, lawyers, accountants, academics and small business advocates..the format of the Forum typically has emphasized small interactive breakout groups developing recommendations for governmental action." 
Let me just say that the Forum was a confirmation of some of my earlier statements about the SEC.
Participants at the sessions I attended consisted mainly of lawyers, with the occasional right wing lobbying group (Heritage Foundation) thrown in to make sure the interests of low and middle income citizens went unrepresented.
I am not exaggerating. At one point in a breakout session to develop recommendations concerning crowdfunding under Title III and Title IV of theJobs Act, a collection of lawyers forwarded a proposal to let foreigners use crowdfunding in support of EB-5 visas. The EB-5 visa "provides a method of obtaining a green card for foreign nationals who invest money in the United States."
While I have nothing against foreigners who want to invest in the US, during the session I noted that Title VII of the JOBS Act seeks to provide opportunities for veterans, women and minorities, and that the SEC may want to consider this first, since it is, you know, the law.  Title VII says "The Securities and Exchange Commission shall provide online information and conduct outreach to inform small and medium sized businesses, women owned businesses, veteran owned businesses, and minority owned businesses of the changes made by this Act." 
The JOBS Act actually restricts foreign use of domestic crowdfunding, a good thing in that it lowers fraud and gives native US Citizens a chance to benefit from American crowdfunding first.
Unfortunately, the lawyers in the room were having none of it. Aided by a feckless SEC staff person and a moderator who was himself a lawyer (not a small business person) proposals to reinforce the SEC's commitment to veterans, women and minorities were voted down, in favor of a recommendation giving foreigners the right to use domestic JOBS Act crowdfunding in support of the EB-5 visa program. 
You just can't make this stuff up.

Friday, October 30, 2015

Securities and Exchange Commission says "Go ahead, make my day..."

As we forecast, today (10/30/15) the US Securities and Exchange Commission (SEC) voted 3 to 1 to allow small companies to raise up to $1 million online. Small firms and startups can now solicit anyone, regardless of their location, net worth or wealth, thereby giving small investors a chance to own what may be the next Facebook or Google (or not). 
More likely, it means the day care center or restaurant down the street can now offer ownership stakes, or shares of stock, to their most supportive customers and clients. This is great news for women and Black-owned firms, which tend to be small and capital starved. The SEC vote approving rules implementing Title III of the JOBS Act means greater opportunity for minority, women and veteran firms to obtain equity funding.
In addition to allowing firms to raise capital from anyone via a crowdfunding platform (a Financial Industry Regulatory Authority or FINRA registered internet website set up specifically for this purpose), the SEC also approved rules making it easier for companies to sell stock in small or startup companies to potential investors residing in the state in which the startup (or small firm) is located. This is another potentially beneficial capital raising option for Black owned firms, which tend to be hyper-local.
The new rules are not without drawbacks, however. Crowdfunding platforms will be allowed to accept stock in lieu of payment for capital raising services provided, so small firms will have to watch out for crowdfunding platforms that charge, say 50% of your stock to help you get funded. Given the lack of brokerage firm ethics we saw in the years leading up to the financial crisis, this is serious issue, but the potential for good far outweighs the downside.
Raising equity, or selling ownership shares, is a very difficult and complicated task, mainly because of the convoluted rules governing how you can do so. Today's SEC action makes it a little easier to get the capital needed to launch (or enlarge) your firm.

Tuesday, October 27, 2015

SEC to vote on Title III of the JOBS Act this Friday!

"Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Pub. L. 94-409, that the Securities and Exchange Commission will hold an Open Meeting on Friday, October 30, 2015 at 10:00 a.m., in the Auditorium, Room L-002. The subject matter of the Open Meeting will be:

The Commission will consider whether to adopt rules and forms related to the offer and sale of securities through crowdfunding under Section 4(a)(6) of the Securities Act of 1933, as mandated by Title III of the Jumpstart Our Business Startups Act. "

Having said, in March, 2015 that the SEC wasn't going to do Title III, we changed our minds last week and declared that the SEC was going to approve Title III after all.

We think they will also announce new policies that allow them to move quickly when equity crowdfunding misconduct is identified.