As excited as I was about the passage of the JOBS act in the Senate, I am now worried about the constraints the SEC has managed to shove into the Crowdfunding component of the bill. So, there’s some more work to do.
Fraud feeds on opacity and on small groups, because those factors increase the probably of not being “found out”. Ironically, that would well describe the environment of the traditional investment paradigm. But in the social networking sphere, the more viral any story gets, the more the chances that fraud will be exposed by the people who would know. Take for example, the recent viral story of the guy who claimed to achieve flight with a bird-like flapping contraption. It was actually a hoax, 8 months in the making, from a Dutch artist. Time for the world to find out it was a hoax and have the artist “fess up” — measured in hours.
But the worst part of the onerous changes is something that few seem to have contemplated. Every extra bit of regulatory complexity is not only costly to American small businesses. It will also create an unfortunate “brain drain”. It’s very simple. If we make it hard for Americans to invest in crowdfunding, then entrepreneurs will tend to get funded with larger percentages of foreign money. Even worse, limitations on the amounts or percentages that Americans can invest in national crowdfunding, will force Americans to crowdfund invest overseas. Well, duh!
Many countries are watching the crowdfunding legislation intently and will “fast follow” with their own regulatory changes, the first being to allow US investors to participate in Foreign National deals. Thus, we absolutely need to keep regulation clean, lightweight and harmonizable. It may seem counter-intuitive at first, but every extra regulatory hurdle will produce further economic and entrepreneurial brain drain. Why on Earth, would we want to limit the amount that Americans can invest in their own country? Let’s please not make this the “Suck America Dry Act”. Please contact your Representative and request that they “keep the SEC out of crowdfunding”. Send them this blog post if you like.