Creating a Nation of Venture Capitalists

Sen. Scott Brown Wired November 30, 2011

The Wall Street bull. Photo: herval/Creative Commons license.

Have you ever wished that you had somehow invested in Facebook, Twitter, or Google before those companies became billion-dollar brands, back when they were first getting started?

The sad truth is that under our current laws, you never even had the chance.

Because of Securities and Exchange Commission (SEC) regulations from eight decades ago, unless you're the family member of Mark Zuckerberg or a very wealthy individual, the federal government essentially prohibits you from investing your money in the innovative businesses of the future.

In addition to being unfair to individuals or families who aren't in the highest income brackets, it means that only "qualified" wealthy investors get to use their dollars to decide what could be the "next big thing." It can cost up to $30,000 in legal fees to clear all the regulatory hurdles associated with completing a small share offering to wealthy "angel" investors. An initial public offering (IPO) is out of the question for all but the biggest companies.

Raising funds to file for a patent or buy a second delivery truck should be a simpler process, but laws that predate the first computer are stifling the ambition of today's entrepreneurs to start or expand a business.

To bring the SEC up to internet speed and give Americans a better shot at competing in the global marketplace, I recently filed "crowdfunding" legislation "“ The Democratizing Access to Capital Act — which would allow small companies to offer shares of stock directly to ordinary investors through established and vetted peer-to-peer platforms. "Crowdfunding" is just a new term for an old idea: offering small-dollar investors the chance to invest in new ideas.

Continue reading ‘Creating A Nation of Venture Capitalists Through Crowdfunding‘ …

To be clear, this concept is far different from web sites like Peerbackers or Kickstarter. There, people can support a project with a donation, sometimes in exchange for a good or service. However, they won't be investors with an ownership stake in an idea or business.

For this new market to flourish, it's important that every participant has confidence in the integrity of the system. My legislation puts parameters on risk by limiting investments to $1,000 per person and $1 million in total capital. It also provides strong protections to make certain that investors are not deceived about the possible risks associated with a new venture.

Despite these protections, some have voiced concerns that crowdfunding is an avenue for fraud and abuse. But, consider this: Americans are allowed to gamble unlimited amounts at casinos, and can send donations to charities halfway around the world with one tap of a trackpad. Yet, we are legally prevented from making even modest investments in job-creating small businesses.

This simple change in law has the potential to unleash a wave of capital investment in companies still on the initial stages of the growth curve. For the first time, entrepreneurs would simply put their ideas up for investors' consideration using Twitter, Facebook, and other social media. In today's wired world, where an MIT student can start a profitable business right in his or her dorm room, crowdfunding might just be one of the ideas that pushes us out of this economic downturn.

While Washington is hopelessly deadlocked on so many other issues today, much progress has been made this year on crowdfunding legislation and it is actually close to becoming law. In addition to my bill currently before the Senate, President Obama, the SEC, and an overwhelming majority of the House are now in support of legalizing crowdfunding. In fact, a crowdfunding bill passed the House on November 3, 2011, by a vote of 407-17"”a rare showing of bipartisanship for Congress.

Now it's up to Senate leadership to listen to America's communities of investors and entrepreneurs. With the will power to push forward and a few votes, Congress can equip the best and brightest in America with a powerful tool and transform the age of apps and startups into something even more revolutionary.

In other words, while many wonder who will be the next Steve Jobs, crowdfunding legislation wouldn't leave us waiting for one person, but thousands.

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Creating a Nation of Venture Capitalists

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