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Pennies from Many 139
UK regulators say that as long as an intermediary they have
recognized, such as Seedrs, takes responsibility for a fi nancial
offering and vouches that the promotional material is fair, clear,
and not misleading, it can be marketed relatively broadly. Under
U.S. law, the burden is on the company raising the money.
Exempt companies can communicate whatever they like about
the offering, but only to people they know (aka friends and family).
There can be no general solicitation or advertising in most
cases. That, says, Lynn, is bound to be tested. “I can imagine there
will be litigation someday over what general solicitation and advertising
means in a connected world,” he says, noting that the last
time the SEC comprehensively addressed the issue was in 1989.
In those days, the social networks that regulators were concerned
about revolved around the golf club, not the Web, and Facebook
founder Mark Zuckerberg was just fi ve years old.
Lynn, a former lawyer for Sullivan & Cromwell, says he and
Silva looked very closely at SEC regulations. “The fundamental
problem, and somebody may prove us wrong, is that the only way
you can come close to doing this in the U.S. would require you to
limit the number of nonaccredited investors to 35.” That posed
a problem for two reasons, he explained. “The accredited investors
have plenty of deal fl ow and are not as likely to use a platform
like this. And to limit each project to 35 nonaccredited investors
we think is very tough. You can’t crowdfund a project with that
few investors.” 10
So Seedrs will launch in the United Kingdom in the fi rst
half of 2011. It will have company. Another British crowdfunding
startup, Crowdcube, is aiming at the same space. In Germany,
Seedmatch raises equity for startups in that country. And Grow
VC, a site based in Hong Kong that bills itself as a virtual Silicon
Valley, already had more than 7,000 registered members from 100
countries and $20 million in active funding rounds by early 2011.
Once Seedrs is established, Lynn hopes to expand into
Europe—a fairly simple process once the site is approved in the
United Kingdom. And he’s excited about the prospects. “It used
to be you came up with a good idea over here and the fi rst thing
you did was hop on a plane to the U.S. to get it funded. We think