FRIDAY HAPPY HOLLOWEEN – INVESTOR TRICK & TREAT
Today I just spent a speaker phone few hours – inside the Security and Exchange Commission final comments, and FINAL VOTE, 3.5 years after Congress passed the Jobs Act of 2012, which CEO SPACE lobbied so diligently with Mark Jones our advocate in Washington DC, to secure for Entrepreneurs in America. I was on speaker phone during the HISTORY in Washington DC as the final comments from the five commissioners, and the FINAL VOTE was adopted LIVE by the commissions. Very satisfying following so many years of labor.
www.sec.gov will define the new rules…go look.
The call JUST ENDED. I’m writing this minutes after SEC Director Mary Jo secured the final passing VOTE and thank you MARY JO for your comments and staff work on this major shift in regulatory direction for Entrepreneurs and job creation.
- Crowd Funding itself – at 1,000,000 cap – in any year – is virtually DEAD UPON ARRIVAL. Why? Contrary to CONGRESSIONAL MANDATE such raises would be EXEMPT from unwarranted cost and regulatory burden the commission now defined FINRA as the regulatory contractor for Crowd Funding. What this MEANS – is cost and delays and burdens. These burdens included all CROWD FUNDING raises must be through FINRA approved and regulated PORTALS adding fee’s too great for early stage issuers to sustain. Further the portals must now assume responsibility for due diligence initially and on going – for all Crowd Funding security offerings. To offset such costs approved Portals will require FEE’s and may charge STOCK up to 30% to process Crowd Funding deals. These burdens and cost effectively KILL Crowd Funding start up rounds as congressionally intended. In effect the regulatory community REWROTE THE LAW and assumed the burden of Congress by thwarting the intent of the law – as the single dissenting ( new commissioner ) defined in his comments when voting against these new rules. He suggested litigate ventures would now be included to shy away from Crowd Funding, while the more fringe of the market would gravitate for the new format. CEO SPACE agree’s with each and every comment. FINRA in regulating Crowd Funding see’s every 1,000,000 crowd funding projects as ONE BILLION removed from THEIR TRADING ACCOUNTS in mutual funds and related and this CONFLICT of interest will in our opinion persist in placing barriers to entry, Congress never intended , so that the farmer investor in Kansas remains REQUIRED to invest in regulatory, legal, and related start up round funding, which slows versus speeds JOB creation for start up venture development. Yet the first frame work is in space and the dissenting Commission did call for CONGRESSIONAL CLARIFICATION AND ACT MODIFICATION to REBALANCE THE CURRENT NEW RULE SET. CEO SPACE the largest national Entrepreneur institution with 30 years of service in all fifty states, AGREE’s with this dissenting call for further legislation. In our opinion the cost of CROWD FUNDING effectively as FINRA desired, KILLS crowd funding in favor of the new 504 relaxed rule set…due to cost and value issues against regulatory burden and time.
- The SEC modified rule 504 permitting intra state up to $ 5,000,000 dollar offerings, which provide a frame work for investing, that make 504 the NEW CROWD FUNDING vehicle of choice , free of unwanted regulatory cost and burden’s while protecting the investors within existing state and Federal Law. CEO SPACE believes rule 504 is now a safe harbor for CROWD FUNDING although the Congressional hope of removing cost and burdens at a regulatory level, remain substantially UNCHANGED. We applaud this rule relaxation for American investors and entrepreneurs. CROWD FUNDING is now 504 as modified, which we encourage our legal membership to embrace leading the new industry unfolding. The $ 5,000,000 CAP on 504 changes the field for entrepreneur first capital and by default becomes the least time and costly path to first capital – again in our opinion.
- The rule sets for 506 and Reg A remain as posted and also offer substantial safe harbor and capital access for rounds of 5 million or higher, within cost frames and burdens eased to make both attractive under the new RULES. Thank you staff. Keep it going.
- As Mary Jo pointed out this EXPERIMENT will unfold with further rule sets to accommodate experience, balancing the mandate to advance job acceleration and venture creation, against investor protections. We will monitor these unfolding frame works as they evolve for our community.
- CROWD FUNDING now requires, cost and burdens, wherein portal fee’s stock to portal providers, and burdens of disclosure not foreseen in the congressional legal frame work, and monitoring costs by the Portal not envisioned in the legislation providing exemption from both, such that in our opinion CROWD FUNDING of under 1,000,000 dollars is largely in our cost to benefit review – largely KILLED by FINRA the association of Broker Dealers who monopolize security trading and by NGO agreement regulate this area at the collaboration with the Security and Exchange Commission. The dissenting commission noted the staff and FINRA had OVERSHOT congress on this regulatory new rule set at the crowd funding $ 1,000,000 down level.
What we feel is lacking, is the job creation power of small business. The restaurant owner, the shop owner, the internet business, and untold numbers of dreamers to create a small venture, that makes a living and over time may develop a resale value to return money to investors and venture owners. These are by massive percentage the job backbone. They are not emerging industries, or future M&A larger cap firms or IPO’s which constitute only a small fraction of such capital. This uncorking of capital for this backbone in our nation, has now retained a firewall of regulatory burden and cost that is preclusive to their start up in the first place, as such fund raisers lack the entrance fee to perform even the 504 regulatory burden as a first threshold. The HOPE and the PROMISE of uncorking these dreamers to a simple, cost free, regulatory burden free, method to access capital, has been largely defeated by regulatory rewriting of congressional law, which may exceed their powers in fact. We can not predict what challenge in this area may arise but we suspect Congress will following the election of 2016 undertake to re-examine this premise and design.
With all the best intentions, it is our opinion regulatory planners well understand ventures of fifty or more employees as small cap venture space, but lack virtually any capacity to appreciate the issue and valuation impact of ventures with five or less employee’s and their special needs, consisting the majority of the VENTURE JOB CREATION SPACE by massive % and future JOB CREATION for our nation. This lack of demographic and special consideration for those base line job creators remains the tension between desire to protect public interest and the SELF RELIANT “free market” of removing BURDEN AND COST to enter the Entrepreneur age – the age within which we live. We hope the awareness for this massive huge % of capital needs requirement becomes more well understood. We will continue our labors to educate in that regard.
Early capital is not to develop the business – as foundation rounds are required to create PROOF OF CONCEPT VALIDITY when moving from concept to market – as such pre launch development rounds work to typically require more than $ 1,000,000 dollars to advance proof of concept and brand acceptance in any market. The First burden free capital formation must ideally be a rule set to establish a business concept to market as a pure PROOF of CONCEPT to a point the venture owner can afford the next step of 504, 506, or Regulation A regulatory burden to expand the now proven models – and access to larger expansion funds to develop BRANDS into the markets more fully, itself a huge capital consumption in a digital market space. The lack of DEVELOPMENT ROUND FUNDING – that first million – for millions of our smallest ventures represent the DREAMERS NOW LEFT BEHIND by todays staff vote. They must have resources to complete 504 rounds to begin concept to market proofs in any reasonable time line. Those that lack such entry are dreamers PRECLUDED by regulatory over sight to time and money costly to under take. In our opinion and experience.
As experience and education arrive to the regulatory community a coming together of these perspectives, moderating unwanted natural conflicts of interest say with FINRA and their internal auspices and the market at large, may yet occur. This first step is gigantic and we applaud the Commission in executing before the Holiday’s the new RULE SET. It is far from “nothing” but it remains oceans away from CONGRESSIONAL INTENTION under the Jobs Act.
Proud Chairman CEO SPACE INTERNATIONAL
PS: CEO SPACE will teach the new rules in our advanced three day capital class ( free ) to our members On Dec 11th – with security law firms participating in this first ever training on the newly passed rule sets – the master skill for entrepreneur CEO’s today.— October 30, 2015