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AlexeySokolinSecondPaper 4 - 11 Dec 2011 - Main.AlexeySokolin
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Ready for review | | | Companies raise money for many reasons: to finance operations, build products, or experiment with business models. Raising money implies that someone is investing in the company, whether in the form of debt or equity, and corresponds to a certain level of risk. To appropriately communicate that risk to investors, firms are regulated under the Securities Act of 1933 and must disclose relevant information in offering documents. For billion dollar market capitalization companies, the cost of compliance is onerous but manageable. On the other hand, younger, smaller companies can be dissuaded from public capital raising altogether by the associated costs. | |
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< | Regulation D provides an exemption that allows capital to be raised privately when certain threshold are met. For example, the number of offerees and purchasers is limited, general promotion is prohibited, the purchase is made without a view to resale, and investors contract directly with the issuer. The investors must be accredited or sophisticated, having either over $1 million in investable assets or sophisticated business knowledge. In principle, the rule strips regulatory protection (in the form of risk evaluation) from people that can protect themselves, with wealth being a proxy for ability to understand risk. Crude, but this exemption has opened an entire industry of angel investing, leading to productive economic activity. | >
> | Regulation D provides an exemption that allows capital to be raised privately when certain threshold are met. For example, the number of offerees and purchasers is limited, general promotion is prohibited, the purchase is made without a view to resale, and investors contract directly with the issuer. The investors must be accredited, with an income greater than $200,000 or over $1 million in investable assets. In principle, the rule strips regulatory protection (in the form of risk evaluation) from people that can protect themselves, with wealth being a proxy for ability to understand risk. Crude, but this exemption has opened an entire industry of angel investing, leading to productive economic activity. | | | Private Securities and Technology Innovation |
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