Our Response to the Bloomberg News Editorial

The following was sent to Susan Antilla as well as her editor at Bloomberg News following her March 28th piece, Making Whoopi as Small Investors Absorb Risk: Susan Antilla.

Hi Susan,

How depressing.  I don’t understand how all our communication led to your summary that we are choosing ‘business interest over investor protection.’  When time and again I spoke of working in “the spirit of the law.”

In one of my emails today I even said, “We are not trying to circumvent the law but to come up with a commonsense solution that will let Americans invest a little, essentially risk-less money into entrepreneurs who cannot access capital the traditional way.  I think it is important to reiterate that while we do think the maximum anyone can invest should be limited to $10,000, we highly doubt, based on the principals of crowd funding, that people will be investing that singular, large amount.”

You focused solely on the $10,000 figure when I stressed, “What makes crowd funding such a powerful way to raise money is that thousands of people can invest $100.  People that have large amounts of money and are looking to invest will most likely not use this model and continue to use the traditional means.”  The article made it sound as if everyone was going to risk $10,000?  I thought I had made it clear that my intention was to help startups crowd fund small amounts of money from many different people?

Crowd fund investing is not a solution “to the aggravation of regulation” but rather a commonsense framework to help entrepreneurs while at the same time following the spirit of the securities law: protecting the investor and enabling companies to raise money.

I never said, “let the small investor absorb the risk of deficient disclosure so that entrepreneurs can get easy capital.’  What I did say was, “The beauty about crowd funding is that the crowd determines what they think is a worthwhile investment.  With the information they have been provided by the entrepreneur, the crowd can ask questions prior to committing to fund.  It is up to the entrepreneur to answer all the questions to the satisfaction of the crowd.  Again, there is no guarantee that he will or that the crowd will be satisfied with his answer. What is guaranteed however, is that if the crowd is not satisfied with the entrepreneur, the entrepreneur will not be able to raise the capital.”

It is unfair to group us in with the bill that went in front of the House committee.  We set the bar at $1M because we were talking about getting critical seed capital to startups, not tens of millions of dollars of growth capital.  If you are at that stage, we are all in agreement, follow the rules as they are set forth.  Even in an email to you today I said, “By the way, we believe if you are a capital intensive biotech startup you will probably stick to a normal registration.”  Nowhere was I trying to come up with a way around the spirit of the law but again differentiate between a startup idea that needs a few thousand dollars to get going (where this money doesn’t exit today) and a more sophisticated idea that should follow the traditional means.

As for the this quote by  Mr. Abshure,“It’s exactly that sort of private securities offering that makes up most of the fraud that keeps his investigators busy.”  Are you saying that crowd fund investing, where groups of people are investing tens of dollars into startups is already defrauding Americans? If people are crowd fund investing illegally now, I’d love to know who they are (to take a line from you, “can you give me an example”), and what fraud they are perpetrating so that we do not make the same mistakes.

While, “Small investors bore the brunt of the financial crisis” it wasn’t the entrepreneurs/startups who were responsible.  It was big business and Wall Street.  Billions of dollars were lost in the financial meltdown.  Crowdfunding small amounts of money could never lead to the fraud that Wall Street perpetrated on the American people.

Most importantly, the article neglected to mention how I talked about the “Rounds of financing” and “meeting milestones” before investors put any money at risk.  These are the SAME parameters that exist with any company that receives private financing, yet the article reads that we didn’t take this into consideration.  Nor was it mentioned how we felt the initial rounds should be debt where the entrepreneur is personally responsible for the loan, clearly NOT choosing business interest over investor protection.

And I thought it was interesting how you neglected to discuss how GrowVC, a foreign corporation, was crowdfunding in the US.  They are essentially circumventing the securities laws.  I highly doubt this was the intent of the law.

The main point is you refused to acknowledge that what is working with crowd funding in general can work for crowd fund investing if we do so within the spirit of the law.

Again … how disheartening for someone who clearly thinks so positive about the future prospects of our nation’s entrepreneurs.




If you disagree with Susan and agree with the principals of crowd fund investing as well as the framework we presented, please sign our petition: www.startupexemption.com!


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