The SEC May Want To Have A Word With The Latest Venture Capitalist On The Block
from the not-quite-legal dept
A few weeks ago, we discussed why the idea of a P2P venture capital firm didn't make much sense. Having lots of people invest is the same thing as going public -- and doing that requires complying with all sorts of SEC regulations. Simply opening up shop and asking lots of people to invest is bound to cause problems. Apparently, that's not stopping some folks. Wired has an article about how the founder of Powerset (the massively hyped up search engine startup that hasn't even launched yet) has moved on to try to start a new venture capital firm that would take small investments from many people and use those funds to invest in "greentech" investments. This is a little different than the P2P VC firm that we talked about, and actually seems to resemble something from the dot com bubble: a company called meVC, that allowed the public to invest money, which was then invested in startups. Of course, the folks at meVC at least realized that soliciting funds from the public meant going public itself first, so as not to run afoul of SEC regulations. Even then, things didn't work out so well. From the sound of things, it's not clear that the guy behind this new effort even realizes that, as described, the fund itself is probably very much in violation of SEC rules, but I'm sure the SEC will be kind enough to inform him pretty quickly if he moves forward with those plans.
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Filed Under: greentech, public trades, publicly financed, sec, venture capital
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Technically...
The problem is that VC firms make risky investments. For every Amazon there are dozens of of money-losing failures. That's why VC investors typically are very wealthy individuals who have a lot of disposable income AND a lot of investment experience and knowledge of the marketplace. When you try to dumb it down and create a consumer-friendly VC-like investment product you're going to get a lot of investors who are not particularly savvy. They'll be seeing the big potential upside of VC, but not understanding the very real risks, which tend to be much higher than in normal investments. It has the potential for a lot of people to get burned on this.
It actually reminds me quite a bit of what happened with the mortgage market. Mortgage lenders were making all sorts of ridiculously risky loans, then packaging them up as "investment grade" products and selling them to other people who had no idea how risky the investment that they were buying was.
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