Improving the landscape for organic startups
6th May 2011
The background (which I didn’t know until fairly recently), is that any investment where the return does not depend on the investor’s active, day-to-day involvement is considered a security. And securities, no matter how small, are either regulated by the SEC or state securities departments. There are no de minimis exceptions; shares in a lemonade stand would require registration, which I’m told costs $50,000-$100,000 or more (federal) or $20,000-$50,000 (state), mostly legal fees. For VC-free startups based on people doing things that they care about, these costs are prohibitive.
As usual, under the guise of protecting us against nefarious consequences, government involvement in daily life increases the hassle of doing anything productive to the point where only those willing and able to commit large amounts of resources to an enterprise are in a position to do so. (Or you could get a government grant….)