Below is the text from a recent online discussion in the Venture Capital Group on LinkedIn
Original post by Alexander:
In spite of what you may have heard, the Senate just effectively killed crowd crowdfunding.
John Ball • I think Fred Wilson of Union Square Ventures offers a much more measured and insightful analysis of the recent Senate revisions to the "JOBS Act." If you don't Fred and his daily observations about the venture capital and startup worlds, I suggest you investigate doing so.
Scott Maxwell • What a shame. Young companies would benefit by having more liquidity in this area of the market and small investors would benefit by being allowed to access great small companies. Congress is too focused on preventing bad things from happening and isn't focused enough on creating an environment for good things to happen. Hopefully the dial set point will change over time, as liquidity for small companies is the major ingredient to economic growth.
John Ball • Scott, I think you are understating the challenge. Those investors in search of returns that outpace the widely available and wholly contrived institutional devices are not all "John Galts." I am a huge supporter of crowd funding and the JOBS Act, and you and I know very well that when the opportunity arises for risk to be pushed to the ill-informed, bad behavior will prevail. If history provides any insight, pattern matching suggests we will see the spread of fraud.
Setting aside the cliched response promoting the importance of buyers performing due diligence, the sophistication of fraud on a small-scale and on a bigger scale (Madoff, Enron, moving risk from portfolio to investors = dotcom, MBS/CDO) cannot be ignored. Any connecting of the dots effort reveals the link between the repeal of Glass-Steagall and the recent financial crisis.
Legislation moves too slowly, but regulation is necessary to protect the interests of both investors and the companies with whom they invest. The Senate amendments are helpful, yet likely don't go far enough, and we will witness increased legislation as the incidence of bad behavior increases.
Scott Maxwell • John, there is no evidence that private investing is more risky than public company investing and, in fact, your examples are all with companies that were regulated and/or under the noses of the regulators. Unfortunately, regulators think that they can stop bad behavior with lots of regulation. It leads to lower liquidity for smaller companies, more work and costs for every company and investor and it doesn't stop the bad behavior from the small number of bad actors. Certainly we need some level of regulation, but the current regulations are choking the free markets from working properly and they aren't stopping criminal activity. For what it is worth, I actually believe that investors should be the ones that should be certified to be able to invest (via a test) rather than trying to somehow make the investments "safe" for investors.
John Ball • Scott, while some of your conclusions carry modest weight, too much of your assertion doesn’t hang together logically.
1. Experts with years of experience and the benefit of a single professional purpose; investigating, vetting, and betting on high-risk scenarios, un