Thursday, March 19, 2015

The Walls Came Tumbling Down: Capital Raising on Wall Street, in Silicon Valley and on Main Street in the Digital Age

By: Jim Verdonik

Jim Verdonik
Founder of Innovate Capital Law
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(This article is based on a speech about Crowdfunding at NC State University Club March 17, 2015 and will be the introduction to a soon to be released book)

Effective capital-raising in the digital era requires you to recognize that most of what you thought you knew about how to raise capital is either obsolete or soon will be obsolete, because:

  • Walls protected the old ways of raising capital.
  • These walls are falling down because of a combination of new technology and changes in securities laws.
  • Powerful social and economic forces are driving these changes.
With every change, there are winners and losers.

Which will you be?

The biggest potential losers are Wall Street and Silicon Valley venture capital fund managers.  Wall Street and Silicon Valley are the biggest potential losers, because they currently control all the money.  So, when technology and securities law changes knock down the walls that protected their money monopoly, they are at the greatest risk.

But being potential losers doesn't mean they will be the actual losers. 

The guy in the room with the most money is always the biggest potential loser. 

Somehow, however, the guy with the most money usually manages to win.  A lot of very smart people work on Wall Street and in Silicon.  So, Wall Street and Silicon Valley may very well adapt to changes and find ways compete without their old walls.  They may even erect new walls.

Our concern here isn't to advocate for or against Wall Street making money.  Our goal is to discover the pathway to reasonable securities regulations and efficient capital-raising and to point the way to take advantage of these changes.  Achieving these goals requires:

·         Understanding the walls that have constricted capital-raising for the past four score years.

·         Understanding which walls have broken down and why.

·         Understanding which walls are still standing.

·         Understanding who wants to keep the remaining walls standing and why.

Here's a list of the ten walls we'll be talking about:

·         Social Class is Playing a Smaller Role in Determining Who Can Climb over the "Who You Know" Wall

·         Main Street Can Raise Money without Hitting the Wall Street and Silicon Valley Walls

·         Public Private Placements: Combining General Solicitation with a Private Placement Destroys the SEC's Wall Between Public Offerings and Private Placements

·         Transparent Communications Knock Down the Wall that Connected Anti-Fraud Rules Fraud and Limitations on Exemptions from Registration

·         Social Media is Destroying All Privacy Walls: Capital Raising is No Exception

·         How Disintegration of the Wall Between Communications Tools and Mass Media Complicates Securities Regulation Issues

·         How Erosion of the Wall between Business and Entertainment Affects Capital Raising

·         Going Viral within Affinity Groups is the New Door through the Investing ROI Wall - Hobbies and Social Interests Influence Investing Patterns

·         Who is a Securities Professional after the Wall between Professionals and Amateurs Disintegrate?

·         Deal Lawyers Have to Know More than the 1933 Act as Technology Enhanced Offerings Erode the Walls Between Different Securities Laws