Backround
Seedinvest was founded by Wharton alumnus Ryan
Feit and James Han in 2012, who were shocked by how hard it was for startups to
get funding. The basis of Seedinvest is
that now everyone can become venture capitalist, by investing in private
companies with their own money. They do this in a similar way to Kickstarter
the crowdfunding platform but instead of “donating” on Kickstarter, investors
on Seedinvest will get shares of the startup idea they are interested in.
How Does it Work?
Seedinvest was kickstarted when President
Obama signed the (Jumpstart Our Business Startups (JOBS) Act in 2012, which
increased the number of shareholders a company can have before being required
to registerd its common stock with the SEC and become a publicly reporting
company. The main regulation (Regulation A+) which went in effect last summer allowing private early-stage companies to raise
money from all Americans. Startups can now use a Mini-IPO under Reg A+ to turn
their customers into investors. Reg A+ is a type of offering which allows
private companies to raise up to $50 Million from the public. Companies looking
to raise capital via Reg A+ will first need to file with the SEC and get
approval before launching their offering. The costs associated with a Reg A+
offering are much lower than a traditional IPO and the ongoing disclosure
requirements are much less burdensome, effectively making a Reg A+ offering a
mini-IPO.
Downside?
There is consistent noise of a tech bubble getting
ready to pop, but this noise is often ignored by many venture capitalist,
because they believe even if there was a tech bubble it would not be as serious
as the Dot-Com in the late 90s because the insanely high valuations are that of
private companies, so any downside wouldn’t affect the general public, but just
the wealthy investors of these private companies. Seedinvest would definitely
open the door to the general public being affected if a tech bubble on the
insanely high valued unicorns popped.
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