Yet again, even prior to the full implementation of Title II (lifting the ban on general solicitation), there has been alarm and concern within the industry. Even the chairman of the Angel Capital Association has stated that angel investors will flee from startup investing due to the potentially ‘invasive’ tactics that will be required to verify the accredited status of investors. Here’s 3 reasons why Title II probably isn’t as bad as everyone makes it out to be:
(1) Traditional 506 offerings are NOT going away
While everyone seems to be so panicked about the verification process of investors that are being solicited for issues under the 506(c) exemption, we have to remember that traditional non-solicited private placements are not going away. A time-tested method of raising private capital, this will still be appropriate for countless private issuers and will only require the self-accreditation process. It’s a decision that involves measures whether an issuer wants to take on the additional liability in order to reach a broader universe of investors. Caveat Emptor.
(2) Technology tends to implement a lot of solutions
Whether it’s private capital, public capital, institutional capital, or whatever type of capital, verification processes of identity are critical for protections and record keeping. While it may seem intrusive at first glance, we share a lot of information about our everyday lives on social media without any hesitation. Additionally, it’s come to our attention lately that the government has been pretty much monitoring everything. If security is an issue, technology may become the solution, and while additional information may be required, I am confident that we will be able to come up with secure and non-intrusive methods of investor verification. Additionally, we are all very comfortable providing significant information when we open a brokerage account and/or maintain our retirement accounts. Startup issues will just become another staple asset that requires standard verification measures.
(3) Title III is not far behind
With the implementation of Title II, the SEC has stated that the regulations for Title III (Crowdfunding) will not be further behind. Another boost for the startup industry, everyone, not just wealthy angels, will be able to participate in the creation of innovators and startup companies. If tons of angels flee (which probably won’t happen) we have Title III that can help pick up the slack.
All in all, it’s not really time to panic about how and why things won’t work, but rather an opportunity to create new solutions to antiquated and novel roadblocks that stand in our way.
Like Tiny Fey says, “Whatever the problem, be part of the solution.”
By Sang Lee