65 posts categorized "Legislation & Public Policy"

A Simple Act of Congress to Make Things Better for Startups

My friend Joe Wallin had an idea earlier today, which was, “how can Congress pass a single, simple law, to tell federal agencies to back off the rulemaking?”

His idea is borne of the frustration we all feel when Congress passes a reform intended to make life easier for startups, entrepreneurs, and the angel investors and VCs who support them, only to see that new law languish – or, worse yet, backfire – through rulemaking to implement the Congressional reform.

Here’s a simple bill we’ve come up with. With respect, we believe this bill, by itself, might help curtail the problem we’ve seen with rulemaking under the JOBS Act.

“In implementing any Act of Congress through rulemaking, or in construing the meaning of any Act of Congress through ruling or interpretation, the various administrative bureaus and agencies of the United States shall not make it harder or more difficult for entrepreneurs or emerging companies to raise money privately from accredited investors, and may expand, but shall not diminish, the pool of persons who qualify as accredited investors.”

What do you think? If it were to pass, and you were a clever person in a federal agency bent on drafting rules to frustrate this Act of Congress, how would you undermine it? 

A thought about the government's Obamacare website

I've been busy lately so am not keeping up with the news, but in passing here and there I have been hearing headlines about the Obamacare site crashing, not working.

519913050_4d009775e2_oThis morning I overheard a comment on a Sunday talk show to the effect of, "why in the world wasn't this site built right."

It's as if some people expect the government to have as much experience as Amazon or Google in building complex, consumer-facing e-commerce sites that scale!

They should slap "BETA" all over all versions of the site for the next 2-5 years and otherwise try to tamp down expectations. 

Image: Darla Mack / Flickr.

Three longer reads for where we are after General Solicitation Day

We are now living in the second day after General Solicitation Day. All trying to take stock of what has happened, and how the landscape is different.

And there is no shortage of media coverage! (Here, from a news angle, is a good overview from the Wall Street Journal: General Solicitation Brings Startups Capital, Risks. I was interviewed for this article and love the quote they got from me: "The government is doubling down on the idea that accredited investors can fend for themselves.")

PhotoBut today I wanted to call out three different, longer-form pieces of writing, each published within the last week. Each, in a different way, lends a deeper perspective on where we in the startup financing ecosystem are now.

Each will be a reference piece in the weeks and months to come.

1. Paul Spinrad's take on where we are, how we got here, and how all the different pieces fit together.

Here is an article that Paul Spinrad published on a PBS website: Online Platforms Give the First Public Look at Private Equity. As I said on Twitter yesterday, Paul's is the best written, broadest article yet on general solicitation and the changes to private financing rules.

Among the delights of Paul's well written survey are: an explanation of how public offerings came to be squeezed into a private exemption framework; the balance or contrast of considerations when approaching policy for accredited and non-accredited crowdfunding; and how private equity platforms are rolling out new features to facilitate the new rule set.

On Monday in GeekWire, I tried, not very effectively, to point out some of the new features on some of the leading online platforms. Paul's take on the same topic is far more accomplished. And that topic is only one facet of his survey.

2. Trent Dykes', Megan Muir's and Kiran Lingam's whitepaper on do's and do not's at demo days and pitch events.

This one, Demo Days, Pitch Events and the New Reg D, is controversial. I've had an earful from several people already on how this whitepaper may get one or another thing wrong.

But I greatly admire the ambition and timeliness of it. The question that the rest of us hem and haw about – am I automatically generally soliciting if I show up at a demo day or pitch event? - they tackle.

Whether or not you agree with the protocols and checklists they lay out, Dykes, Muir and Lingam are calling out the right factors to consider and giving laypeople the means to educate themselves about general solicitation.

3. The Gunderson law firm's comment letter to the SEC on the proposed Reg D rules.

This is a letter published on the SEC's received comments page, signed by a Gunderson partner, Sean Caplice.

There are a ton of comment letters on the proposed rules, none too few from big law firms.

What's remarkable about the Gunderson letter is that it provides answers to all 101 "requests for comment" posed by the SEC in its proposing release.

Most commentators either cherry pick which of the SEC's questions they want to answer, or skip the agency's questions altogether and comment from the perspective of the commentators' own agenda or frames of reference. For tackling all 101 requests for comment, and for that reason alone, I think the Gunderson comment letter is a touchstone. (Kudos to Joe Wallin for pointing the letter out to me.)

Random thoughts about the startuppolicy.org domain

I'm returning home from the ACA 2013 Summit with heightened awareness of how organized angel investing is an international phenomenon.

Random thoughts about the startuppolicy.org domain

So I'm thinking of broadening the scope of what is posted at the startuppolicy.org domain.

The buzz in the foyer after a session that included Jenny Tooth's report on policy in the UK was, how about that 105% tax benefit!

Random thoughts about the startuppolicy.org domain

That kind of social welfare will never happen in the United States (unless Joe Wallin gets behind it), but, it might not hurt to have a ready link.

So we might organize the list on the domain by country or region of the world.

In terms of US policy, we should make a distinction between state and federal laws or programs.

And speaking of state initiatives: I have heard from someone knowledgeable in the field that six or seven different states now have non--accredited crowdfunding bills in the works. But I only know of two – Washington and North Carolina – on top of the two states – Kansas and Georgia – that have regulatory exemptions in place.

Dave Gillespie is keeping an eye out for us for activity in Ohio.

Anyone have a link or links to bills in other states?

Mr. Wallin Goes to Washington (State)

Startup lawyer Joe Wallin testified yesterday before the House Technology & Economic Development Committee of the Washington State Legislature.

You can catch Joe's remarks from the hearing beginning at the 1:45:25 mark of the archived webcast.

Joe Wallin in Olympia

Joe laid out for the Washington State legislators his proposal for a state crowdfunding bill that would stand in, at least within the confines of Washington State borders, for the failure of federal legislators to get a viable non-accredited crowdfunding bill across the finish line.

Joe has written that state crowdfunding bill, and in fact has already published it on GeekWire. I think this is a very viable approach to investment crowdfunding for non-accredited investors. State securities regulators have been and will continue to be proprietary about small offering exemptions.

Steve Reaser has informed us in a comment of an effort to introduce a state crowdfunding bill in North Carolina. So perhaps, state legislators, a race is on!

Joe also challenged the lawmakers to make sure that Washington State’s laws are at least as hospitable for startups as are the laws in California and other states.

Apropos to that point, here's probably the money quote from Joe's testimony:

"I personally think that if you're trying to create a startup ecosystem in this State, then none of our laws should be worse than the laws in the State of California. We should always outperform California when it comes to our law. And there are some circumstances in which we just don't."

To widen the scope to address startup policy at a national level, check out a global list of Joe's suggested policy reforms at startuppolicy.org.


My friend and fellow lawyer Joe Wallin thinks a lot about how laws passed by Congress - often including laws that have good purposes in the appropriate arenas - end up having adverse effects on startups.

I know this about Joe for almost as long as I've known him. In fact, we often collaborate on projects to identify threats to startups and startup investing, such as the Save Reg D campaign.


Even so, I was blown away by an email he sent last week on which I was copied, in which he laid out, bullet by bullet, what amounts to a truly pro-startup federal policy agenda. With Joe's permission, I'm posting his email below and at startuppolicy.org.

Joe Wallin's Ideas:

• Make Section 1202 permanent. Right now, it expires at the end of this year.
• Repeal Section 409A as it applies to startups. Watch this video. See also this quora post.
• Make the 60 day window on 1045 longer. 60 days is too short in startup land to find a replacement investment.
• Shorten the 5 year holding period under 1202 to 2 years.
• Repeal the bad actor provisions in the Dodd-Frank Bill. These provisions are a form of extreme overkill. They are going to make it a lot harder for startups to startup and grow.
• Repeal the increase the accredited investor threshold in the Dodd-Frank bill. Why make it harder to invest in startups?
• Repeal the second sentence of section 201(a) of the JOBS Act:
(a) Modification of Rules-

(1) Not later than 90 days after the date of the enactment of this Act, the Securities and Exchange Commission shall revise its rules issued in section 230.506 of title 17, Code of Federal Regulations, to provide that the prohibition against general solicitation or general advertising contained in section 230.502(c) of such title shall not apply to offers and sales of securities made pursuant to section 230.506, provided that all purchasers of the securities are accredited investors. Such rules shall require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission. Section 230.506 of title 17, Code of Federal Regulations, as revised pursuant to this section, shall continue to be treated as a regulation issued under section 4(2) of the Securities Act of 1933 (15 U.S.C. 77d(2)).
This second sentence is what has hung up the SEC. Why require SEC regulations at all. Repeal the current regulatory barriers directly!

Also, the crowdfunding bill ought to be amended. Bill and I have sets of amendments that are places to start.

Also see this on quora.com.

It's possible startuppolicy.org will be a place where Joe might further iterate his list, or where others might add or develop policy ideas.

Photo: "Petition of Ohioans to the Senate and House of Representatives Regarding Land Sale Policy, 01/10/1810," The U.S. National Archives / Flickr.

Washington State to consider a social networking password protection law

Washington State legislators have introduced a bill (pdf) in the Washington State Senate that would make it unlawful for employers to ask employees or job applicants for passwords to social networking accounts.

PasswordsIf it passes, Washington will join at least six other states with similar laws.

Five Internet lawyers recently "graded" how those six other states did in defining what should be meant by "social media," "social networking site," or the like, for purposes of their respective statutes.

Comparing the Washington bill against the six state statutes we know of, the Washington bill is model most closely after the Illinois Act.

Here is a link to a redline (pdf) that takes the Illinois Act as the baseline and tracks changes in the Washington Senate bill against that. The comparison highlights how the sponsors of the Washington bill are dropping a couple of exceptions that would benefit employers; presumably the Washington legislators have seen the Illinois bill (or something very much like it) and have deliberately chosen to leave out some of the employer-friendly exceptions?

Among the express exceptions to be found in one or more of the other state statutes:

  • email;
  • passwords for employer devices;
  • actions taken to facilitate investigations of misconduct or illegal behavior.

I'm noticing different lawyers reacting differently to these laws, depending on whether they feel individual privacy protection should extend to online activities beyond or other than those on Facebook, Twitter, LinkedIn and their ilk.

For instance, Eric Goldman faults the California statute for imprecision; he thinks the California definition of "social media" fails because it can include everything. By contrast, the group of internet lawyers issuing “grades” on this blog generally preferred the statutes that try, like California’s, to protect a broader set of online activities.

I must admit to being skeptical as to whether laws like these are needed. But maybe, with Facebook use being so ubiquitous now, there is actually a problem out there with overreaching employers, something legislators are picking up on.

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Image: Paul O'Rear / Flickr.

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