Most businesses wait a while before they get into the lobbying game. But Cambridge-based WeFunder, a fundraising site that would allow anyone to invest small amounts in startup companies, needs Congress to change the law before its business can even be legal. The site is currently in beta and open only to accredited investors, but in the meantime the WeFunder team is mobilizing its supporters.
More than 900 would-be investors have signed a petition by WeFunder urging the U.S. Senate to pass the Democratizing Access to Capital Act and stating that they would invest annually in startups if it were to pass. While “crowdfunding” has been a success in charitable contexts with sites like Kiva and Kickstarter, as the law currently stands startups are able to take money only from accredited investors, and the Securities and Exchange Commission (SEC) limits the number of investors a company can have without having to go public.
The legislation sought by WeFunder, which would make crowdfunding of startups legal, passed the U.S. House by a wide margin in November – with a rare showing of bipartisan support – and is awaiting action in the Senate. The WeFunder website is counting down to Thursday, February 2, when the Senate Small Business and Entrepreneurship Committee next meets. WeFunder is also planning a trip to D.C. in February to build momentum for the legislation.
“The existing rules around who counts as an ‘accredited investor’ are antiquated and wrong,” said Dharmesh Shah, Founder and CTO of HubSpot. “I can understand the desire to protect blue-haired grandmothers from smooth-talking shysters that will milk them of their $300,000 in retirement savings. But, that’s not what we’re talking about here. We’re talking about a maximum investment of $1,000.”
Judging by some of the familiar faces on the petition, many signers are already members of the startup community, which might explain their interest.
“It’s stupid and hypocritical that I cannot invest in a startup I believe in, but I can go play the lottery,” said Jeremy Levine, Founder and CEO of StarStreet Sports. “Not only can the proposed bill help individuals who are looking to invest their money in high growth opportunities, but it can also help the startup economy, which I believe is a key to the entire American economy.”
A few questions that I still have about all of this:
1. Why are people signing the petition? Because they want to invest in their friends’ and families’ ventures? Because they just love startups? To replace other investments they otherwise would have made? If you signed the petition, please chime in in the comments!
2. What do the angels and VCs think about all of this? Would they welcome this sort of investment? Do they think the crowd can pick ’em as well as the pros?
3. Why is this illegal at present? Brown’s piece in Wired references the “regulations from eight decades ago” but are there good reasons not to allow all of us to invest?
4. Related to #3, would the crowd be any good at this? Individual investors actively trading stocks tend to badly under-perform the market, for instance.
We are planning a follow up to this piece, so let us know your thoughts in the comments. You can also read up on what my colleague Greg Gomer wrote about this in November.