While it's not _necessarily_ true, it is possibly true, and that's the bit that folks are latching on to. They're assuming that there's a "market" of investors who are both interested in and willing to diversify their investment portfolio by, in part, making smaller high risk investments. My experience with, admittedly smaller investment firms, is that this may be true. Organizations like IllinoisVENTURES (I know several of the folks there) aren't interested in big C-round investments. The bulk of their information comes from their proximity (physically and virtually) to Enterprise Works (a UIUC run incubator). I've heard partners declare, on several occasions, "I wish we knew about these guys while they were still looking for seed money." I guess in, at least one, anecdotal case, it does bear out to be true.
As for my bar, let me re-phrase, just for accuracy: We couldn't come close on our own without liquidating existing investments. It didn't make mathematical sense to do so (returns were higher on existing than expected returns on the bar). From our perspective, it was an expensive hobby, not a money making investment (for us).
On the other hand, if we could raise, let's say $50K from investment, $50K converted from other investments (our own money), and $25K from family, then cover the remaining $75K through bank loan collateralized by the building (the building is valued at $125k)... Yup, that would have been easier.
I wish somebody had alerted me when a few guys in a Harvard dorm needed capital to pay the hosting bills for their new social network!
My missed opportunity to take a huge equity stake in Facebook for $20,000 aside, what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a particular company.
That's not what we're talking about though. Your prior comment suggested that the lifting of the ban on general solicitation will make it easier for small businesses that cannot realistically raise capital today to do so.
There's a huge difference between a startup that is already working the angel and VC networks and a group of guys who want to buy a bar as a hobby and, perhaps not surprisingly, have no contacts eager to pony up even $50,000 so that the founders can keep most of their money in investments that are producing better returns than the bar would.
In other words, you're confirming one of my original observations: a lot of folks seem to believe that general solicitation will enable startups and small businesses that are less-than-compelling investments to raise money from stupid rich people.
Although I wouldn't be surprised if somebody somewhere has a list of accredited investors over the age of 80 who are likely to have Alzheimer's, that is not going to happen in significantly larger numbers as a result of this change.
Although I wouldn't be surprised if somebody somewhere has a list of accredited investors over the age of 80 who are likely to have Alzheimer's, that is not going to happen in significantly larger numbers as a result of this change.
There is an entire industry dedicated to this based out of New York. It gets hungry guys in early 20s to wake at 8am and begin cold calling high net-worth individuals offering them "investment opportunities". This industry flourished before the Internet and is depicted in movies like Boiler Room. The internet ate up a lot of their business because people no longer needed to be on walstreet to get data from walstreet. However, I can see these guys jump on this opportunity and begin shilling startups to the relatively high net-worth but naive retirees wanting to invest in the next facebook.
>what you're referring to is the quality of deal flow of an existing investment firm. There is no shortage of investors already actively involved in funding startups who wish they could have invested in a particular company.
Had they know about it. Yes, that's exactly what we're talking about. Sure there's a difference between a startup that is already working the angel and VC networks and a group of guys who want to buy a bar as a hobby, but there isn't much difference between the bar and a bakery who want to expand, or an established bar who wants to open a new location, or the two guys who want to turn recycled junk into interesting furniture. None of these are looking for large investments, and none have access to VC and angel networks. Though the risk is high, there may be investor who are willing to take the gamble.
Lifting the ban provides a channel, where one doesn't currently exist, for these organizations to reach potential investors. Likewise, it provides a channel for interested investors to find out about opportunities they would otherwise not know about.
I didn't imply that lifting the ban would make funding automatic. Nor, do I expect, does anyone actually believe that it would (though you seem to think that's what people are saying). What it does do is allow the two ends to connect when there's mutual interest.
What this does is open a channel of communication. It's a way for small businesses to reach investors. That doesn't imply that the small business is going to get funding (or even a conversation with an investor) any more that getting on Shark Tank implies that Mark Cuban is going to invest in your fancy new shoelace company. On the other hand, there may be an investor out there, somewhere, who just happens to have an aglet company in his portfolio that would make your shoelaces a billion dollar company.
You do realize that the lifting of the ban on general solicitation does not mean that startups and small businesses will simply be able to advertise at their leisure, right? These are still Reg D offerings, which require paperwork, and under the new rules, companies that are going to be advertising publicly will need to file their Form D with the SEC 15 days before the offering. Interested investors will also need to be vetted to ensure that they're qualified to participate.
You don't put together a Reg D offering without competent legal counsel, and competent legal counsel costs money. So before you and your buddies can even test the fundraising waters through general solicitation, you'll have to make an investment of your own and that could easily run into the five figures.
As for my bar, let me re-phrase, just for accuracy: We couldn't come close on our own without liquidating existing investments. It didn't make mathematical sense to do so (returns were higher on existing than expected returns on the bar). From our perspective, it was an expensive hobby, not a money making investment (for us).
On the other hand, if we could raise, let's say $50K from investment, $50K converted from other investments (our own money), and $25K from family, then cover the remaining $75K through bank loan collateralized by the building (the building is valued at $125k)... Yup, that would have been easier.