The Securities and Exchange Commission (SEC) released its proposed rules for crowdfunding the other week and, as a small business owner, I think it's definitely a step in the right direction. The opportunity for a little company like mine, or a startup, to get funding without having to go hat in hand to a bank or venture capital firm is enormous. Crowdfunding could be an enormous benefit for entrepreneurs across the country.
But the SEC proposal is drawing some well-deserved criticism. Some believe there are not enough protections for the investor. Others think the costs of compliance are too expensive for the investment community to make enough money. Startup advocates say the conditions for raising money are too onerous.
So OK, the proposal's not perfect. Changes are needed. And that's understandable. This is new territory for everyone. Which is why the smart people at the SEC are seeking feedback to their proposals over the next 90 days. And I think I've got some darn good ideas to make crowdfunding a home run. So below I've listed my proposals. I understand that not all of these ideas will be adopted but I am confident that the good people at the SEC will choose the ones that are most brilliant.
1. For starters, any company looking to raise money via crowdfunding must have a management team that consists of at least two members who are old enough to drive and at least one member who didn't graduate from Stanford.
2. All prospective companies must be first vetted by Mark Cuban and two other members of the Shark Tank crew before being allowed to solicit funds. If Cuban invests then I'm in, baby.
3. A prospective company is to be prohibited from using any of these terms when soliciting crowdfunded dollars: "disrupt", "crunching", "big data", "cloud", "mobile", "social", "local" and "Apple" (unless the company is looking for financing to start a produce-related business) and any word that begins with a lower case "i" followed by an upper-case letter, or any word that has a combination of lower case and capital letters. Terms like "3D Printing" and the "Internet of Things" will be allowed...for now. But our patience is waning.
4. Any company who was involved with the Federal healthcare insurance website would, of course, be permanently excluded from soliciting any kind of funds from the general public. Anything otherwise would set a dangerous precedent.
5. To significantly reduce an individual investor's risk and inflict the greatest harm on deceitful or conniving management, heavy penalties would be imposed on any company that incurs a stock price drop of more than 30% within 60 days after the close of their crowdfunded offering. Penalties would include requiring the startup founders to watch an entire season of Downton Abbey for every 10% drop over that threshold. This obviously would be enough incentive for any entrepreneur, particularly if the founders are men, to make damn sure their investors will get a reasonable return on their money. Other penalties for significant losses: teaching a high school health and sex education class for an entire year, attending a Katy Perry concert or flying Delta to London. I know these punishments sound harsh, but how else to incentivize these people to really be careful with their investors' dollars?
6. Companies that make video games should be excluded from any crowdfunding opportunities. These are mostly sad and sick individuals and should not be encouraged.
7. Financial statement requirements need to be significantly revised, if not waived. Current rules require that companies looking to raise money over a certain amount must get certified financials from an outside Certified Public Accountant. Ever read these things? By the time you're through you'll realize that the only one taking less responsibility for the financial statements is the company's janitor. No one believes these numbers anyway. A better indicator would be a detailed listing of all of the founders' assets. A few BMWs and a condo on 66th and Third Avenue already owned by the CEO is better intelligence than a certified balance sheet.
8. Companies headquartered in either New York City or San Francisco are to be always excluded from any crowdfunding opportunity. First of all, the owners must have plenty of money already if they're living in New York or San Francisco. Ever seen the price of a two-bedroom apartment in the Mission District? Jesus! Also, these people live in a world completely unconnected to reality. They think that everyone is "social" and "connected" and on the cloud. But we're not. We're at Applebees. Or home watching Duck Dynasty. And Google Glass? Really? Let's keep it real.
8. In addition to New York and San Francisco, the SEC would be empowered to update their own "watch list" of other pretentious cities and have the authority to bar companies who are located in those cities from raising money. I recommend Austin, Denver, Miami and anywhere that's been home to a "Real Housewives" series or who has legalized marijuana for starters. I think the American investor should be able to invest only in real companies run by real people from real places. St. Louis, Sioux Falls and Albany are good examples.
10. Also, any company located in an area of the country that identifies itself as "Silicon-something" is prohibited from the crowdfunding market. It's lame. You're not in Silicon Valley. You're in Mississippi.
Requirements for Investors
11. Ashton Kutcher would of course be banned from any crowdfunding transaction, whether as an investor or entrepreneur. It's just simple fact that he's already too good looking and too rich and it's becoming annoying already. Also banned: Justin Timberlake, JayZ and Peyton Manning - all for the same reasons (except Peyton Manning who is not that good looking in my heterosexual opinion). In fact, no "A-List" celebrity should be allowed to participate in a crowdfunding opportunity. This is really for the little guy and these people are already too successful. I'll allow one exception for M. Night Shyamalan because his career has really gone terribly since the Sixth Sense and he could use a break.
-12. Prospective investors must pass an online test before being allowed to invest. This test should cover the basics of pop culture (ex. "Name 3 women George Clooney dated in the past 20 years"), American History (ex. "Name 3 women Bill Clinton dated in the past 20 years"), 5th grade math, and just plain common courtesy (anyone answering yes to "is it courteous to take off your shoes on a plane?" would be barred from participating in any crowdfunding opportunity and immediately deported to Canada). Let's bring some intelligence and decency back to our financial markets.
13. Every investor must join the same Facebook group so they can all get to know each other better. It's all about "community" and now that the kids are abandoning the social media site in droves grown-ups can finally put it to some serious use. They can "start conversations" with their fellow shareholders, let them know when they "like" things and give them links to funny videos too. Yay. This would also give management the opportunity to gang up and bully those negative investors into compliance.
14. Finally, and for God's sake, forget about all those brokers and portals and nonsense and let's just give Amazon.com the rights to run crowdfunding online. Has this company not already proved that it's competent? These guys can sell anything to anyone from anywhere. We'll get stock recommendations based on other stocks we bought. We'll be able to rate our stocks and recommend them to others. We can buy a company's stock and the company's products from the same place too. And if we buy more than $50 of stock they'll ship us the certificates for free. Not only that but we'll be able to read about the company's news in the Washington Post. The bonus? Amazon's never even made a profit which must mean that they're very altruistic so we don't have to worry about them pushing a certain stock on unsuspecting investors.
I'm sure you've got your suggestions too. Time's running out so get your comments back to the SEC soon!
A version of this column appeared on Inc.com.