â€œsocialmedian is raising some more angel investment now. $25k-$100/investor, up to $500k. Interested parties can contact me directly.â€
Within minutes, the eagle-eyed Michael Arrington — a former securities lawyer specializing in IPOs, and therefore intimately familiar with the rules — had put up a post on TechCrunch about the message, saying Goldberg was effectively soliciting investment without filing a registration statement and issuing a prospectus, something that is prohibited by the Securities Act (specifically, Section 5). As Mike points out:
“Most venture financings are excluded from Securities Act registration via a private offering exemption. But the key to these exemptions are that they arenâ€™t disclosed publicly and the investors must all be high net-worth individuals. In other words, this is exactly the kind of offering the law is designed to stop in order to protect individuals.”
It’s interesting to read through some of the comments the Twitter message sparked on FriendFeed (there’s also a post about it on Mashable and Portfolio magazine has picked it up as well). Jason says that he was simply letting users know that a financing was coming, and that anyone taking part would still have to qualify (show that they were high net-worth and/or understood the risks, etc.) before investing. Others — including Goldberg — toss around the idea of using Twitter or a similar tool to raise micro-financings.
It was that last part that got me thinking. Why couldn’t someone “crowd-source” a financing for a startup? Why not amend the Securities Act to allow posts like Goldberg’s? The SEC has said that blogs can be used for Regulation FD disclosure — why not allow blogs and social networks to play a part in the raising of money? It’s not as though millions of people haven’t been just as impoverished by “qualified” investments and prospectuses as they could ever be by investing in a Twitter financing. Why do we need the government protecting us from ourselves?