Isn't P2P Venture Capital Just Going Public?

from the the-SEC-might-have-an-issue-with-that... dept

As there appears to be a growing market for p2p lending services, that has some wondering if there’s also a market for p2p venture capital as well. In p2p lending, a group of ordinary folks all team up to lend people money. The various players in the space have had somewhat mixed results so far, but there’s a lot of attention. However, for most companies, getting access to capital involves options between taking out a loan (which needs to be paid back plus interest) or selling equity (usually to venture capitalists). In that case, the money comes from someone who takes some percentage of ownership and hopes to cash in not on the interest, but on the growth of the value of his or her shares. So, it might make sense to wonder whether the p2p lending companies might eventually move into p2p venture capital as well… except that we already have p2p venture capital: it’s called the public equities markets. If you actually tried to do that with private companies, you’d quickly run into all sorts of trouble with the SEC, which is pretty strict in terms of regulating how a company goes about raising money in exchange for equity. In fact, there are many who believe that a startup may be toeing the SEC’s line simply by saying that it’s out raising venture money. So, for a variety of reasons, both regulatory and because public equities markets already are p2p venture capital offerings, it’s hard to see there being a huge market for companies to get into offering p2p venture capital.

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Comments on “Isn't P2P Venture Capital Just Going Public?”

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Mike (profile) says:

Re: Re: Re: Execpt for the fact that....

Not necessarily. If everyone one in the P2P was a Qualified Investor, then it would NOT be a public offering, just syndicated or mezzanine finance.

That’s true. That’s perhaps an exception to what I discuss above — though, even then you would still need to be careful how the offerings are presented. Plus, it would definitely limit the market pretty drastically. If the idea of P2P finance is “micro” investing among many, many people, limiting the market to accredited investors might not be particularly useful.

Anonymous Coward says:

I don’t see the parallel here at all. The SEC exists to protect the public on open exchanges. Venture capitalists bypass these protections in hopes of bigger returns. p2p venture capitalists, I presume, would be doing the same, and thus bypassing the open exchanges as well as the onerous SEC compliance requirements.

The only question is whether the SEC will allow informed consent agreements between two willing parties, or if it will use its bully pulpit (as it has before) to dictate the terms of trade.

Mike (profile) says:

Re: Re:

I don’t see the parallel here at all. The SEC exists to protect the public on open exchanges.

But what is a P2P VC if not an open exchange for the public?

p2p venture capitalists, I presume, would be doing the same, and thus bypassing the open exchanges as well as the onerous SEC compliance requirements.

You seem to skip over the key part. By opening up the VC process to the public, you are selling shares to the public, which falls under the SEC.

Martin Edic (profile) says:

SEC casts a wide net

You have to be extremely careful. We wanted to acquire investors for a portfolio of domains we own and were informed by our attorney that this could be viewed as a securities transaction even though domains are IP, not shares in a business.
The problem is the scam factor- stock and securities scams are the drivers behind these regs. The SEC is protecting unsophisticated investors from rip-offs. Also it is your responsibility, as a company seeking capital, to determine that the people you make an offering to are ‘Acredited Investors’ ($2mm in liquid assets or $250k annual income for at least 3 years). There’s no way you could do this in P2P exchange.
That being said, Sar-Box is an insane burden for smaller companies.

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