April 25, 2011
The SEC should amend or clarify its rules to assist with capital formation and small business growth by providing a safe harbor for "Finders." That is permitting individuals or small companies that have the ability to introduce funding sources to small companies to recieve a percentage of the money raised for these businesses. The intial exemption would be for raises of somewhere between $2,500,000 and $5,000,000 (a level for which institutional investors are not available)in aggregate for any Issuer. Any individual investors providing funding would have to meet all of the accredited investor requirements. The Finder would be exempt from Broker Dealer and Investment Advisor registration requirements, but would have to report their activity(ies) through an informational registration process. The transactions would be subject to all of the fraud and other rules of the SEC.
The rationale for the change is a recognition that the creation of supersized Private Equity Funds, Hedge Funds and banks has depleted the available capital for small businesses. Large institutions can not manage a multitude of small investments, so they do not make them. As a result, we have funds investing in funds and very few institutions investing in growth businesses.