Need to verify your investor's accredited status? There's an app for that.By http://profile.typepad.com/1237764140s22740 // November 11, 2012 in General Solicitation
This weekend, Jason Calacanis wrote a post and sent out an email about developing a mobile app that would let audiences invest, real-time, during a startup pitch event.
Jason's opening copy describes the concept like this:
"We're making an iPhone app that will let the audience invest in the startups @ LAUNCH live. Like a mashup of a Sotheby's auction and Kickstarter with a splash of AngelList."
It's clear he's talking about equity crowdfunding, not rewards- or donation-based crowdfunding:
"Here's how it will work:
"1. Open your phone and see the schedule of founders presenting.
"2. Click on the startup you want to invest in.
"3. Select how much you want to invest and at what valuation."
Jason makes it very, very clear that there is rulemaking in play that will impact when and how this app might be rolled out. "We will monitor these things closely and make sure we don't break any laws or insult the hard work the SEC is doing right now," he writes.
If Jason's hopes here are reflective of what many in the startup community expect will be possible within the bounds of equity crowdfunding rules, then I'm afraid Congress has really, really set up the SEC to disappoint everyone.
Constrained by the enabling legislation, Title III of the JOBS Act, not even the most liberal, progressive minded regulators could write rules that would permit live crowdfunding to non-accredited investors at a pitch event.
For one thing, the non-accredited equity crowdfunding legislation does not permit companies to promote their offerings, other than through a broker dealer or on the site of a registered funding portal.
Now, if we're talking about *accredited* investor crowdfunding, that's a different (lower) degree of difficulty. There are already ways to do effective accredited investor crowdfunding, today.
To do the kind of live, public crowdfunding that Jason is talking about - assuming that you restrict purchasers to bona fide accredited investors - you'd probably need to comply with rules on accredited investor verification. Those rules, like the Title III Equity crowdfunding rules for nonaccredited investors, are still in process. (For the sake of my analysis, I am assuming that participation in the LAUNCH event is "general solicitation and general advertising.")
An app for accredited investor equity crowdfunding is going to need to verify that investors are accredited, before they are permitted to purchase.
I can imagine Jason's app iterating toward that. (If the offering involves general solicitation or general advertising, it won't be enough for the investor to check a box.)