I attended a panel discussion recently on the problems start-ups have in raising capital caused by securities regulation. Start-ups have to hire a lawyer before they raise the first dollar of capital. It’s a real catch-22.
Entrepreneurs are often surprised to find that raising capital means selling securities. They cannot legally sell securities to just anyone. They are restricted to Accredited Investors (basically people with high income or high net worth). Most young entrepreneurs don’t have a Rolodex full of such investors. There are other restrictions, for example, they can’t hire someone to help them raise capital unless he has a license to sell securities.
Welcome to compliance hell. It’s perfectly legal to fail, to lose your own money and even your house. It’s fine by the law if your dream dies, your marriage fails, and all of the other negative consequences occur when a business does not succeed. But if you raise money, you better be fully compliant. Where’s the concern for people?
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