The pending SEC rulemaking on equity crowdfunding took its turn in the spotlight, as the subject of this Sunday New York Times editorial. Generally speaking, the piece exhibits the same paternalism regarding the concept of private company investing by non-accredited investors that is widespread. I want to focus here on the portion of the editorial that notes that crowdfunding participants will generally not be expected to receive special rights associated with institutional investment:
And under the proposed rules, investors could end up with next to nothing even if they invested in the next big thing. Sophisticated investors often negotiate complex terms to ensure that they are amply rewarded for early-stage investments, even if later investors put up more money. The S.E.C. has acknowledged that everyday investors “might not” be able to negotiate the same terms — which include “anti-dilution provisions,” “superior liquidation preferences” and other arcana. But its proposal only requires companies to disclose how early investments may be “limited, diluted or qualified.” It should instead require that shares issued through crowdfunding incorporate the terms that sophisticated investors routinely demand.
Crowdfunding Paternalism ReduxRead More »