Agreed. Its too bad kickstarters just can't sell super-minority shares with a nominal face value. So if they are trying to raise 50K, just sell a 1% share of the company for $50K (so each share is a $1 say, and there are 5M shares).
It would make the process much more enticing from the funding side, since you could feel you were perhaps getting in on the ground floor of something significant.
There are other complexities that prevent this however, for instance SEC regs would certainly get in the way (only qualified investors, proper risk disclosure, etc etc).
The JOBS Act will let companies set up Kickstartr-style funding portals for small investors.[1] It was signed in April, but the SEC is still in the process of defining how it will be implemented.
However, still seems like a bit of a hassle: "One of the conditions of this exemption is a yearly aggregate limit on the amount each person may invest in offerings of this type, tiered by the person′s net worth or yearly income. The limit ranges from 2% of people earning (or worth) up to $40,000, up to a cap of $10,000 for people earning (or worth) $100,000 or more."
Presumably, the onus will be on the funding channel (i.e. kickstarter) to validate these accreditation rules of their investors. If there is a big hesitation for new users to simply register an email/password for a site, imagine when you are asking them to also submit tax returns and copies of ID.
Don't get me wrong though, I guess its better than nothing.
>There are other complexities that prevent this however, for instance SEC regs would certainly get in the way (only qualified investors, proper risk disclosure, etc etc).
Not to mention, as I understand it, there are some pretty strict rules about how you a company is allowed to solicit investments, and the Kickstarter format would be in violation of approximately all of them.
Yep, its a minefield (of course like most things, these regs exist to protect special interest).
I'm sure there is some bright attorney who could figure a way around it (ie. its an unsecured loan, that contains a very permissible default clause, which is potentially convertible to an equity share upon event a, b, c happening). Or more simply, just host the site in Hong Kong or somewhere and escape US jurisdiction.
I know that none of this will never happen, just talking out loud....honestly, the first time I heard about Kickstarter, I thought this was the idea and I was excited. Then I discovered it was "act like a angel investor, fund my idea, and if 1000 things go right you will get a free tshirt". Meh.
It would make the process much more enticing from the funding side, since you could feel you were perhaps getting in on the ground floor of something significant.
There are other complexities that prevent this however, for instance SEC regs would certainly get in the way (only qualified investors, proper risk disclosure, etc etc).