Thought Leader in Financial Technology: DealMaker CEO Rebecca Kacaba (Part 4)

Rebecca Kacaba: Equity crowdfunding limits the amount you can invest. It’s in proportion to what your income is. I don’t fundamentally believe that, because you don’t meet an income threshold, you should not have a right to make an investment. The amount that they can invest caps how much they can lose. I think what you’re saying is because doctors make a lot of money, they know how to invest. That’s not necessarily true.

Sramana Mitra: I’m not saying that. That doctor is a customer of the product that Modernizing Medicine is selling. They have a visceral understanding of what that business is because they are the customers.

There are three particular points. One is, these doctors are the customers. They understand why people are buying that product. They can evangelize that product. I like equity crowdfunding especially if the customers are investing.

Rebecca Kacaba: If Miso Robotics builds technology for fast food restaurants, everybody loves that deal because most everybody eats fast food. They can understand the application of that technology easily.

Sramana Mitra: Everybody is not a customer. Miso Robotics’ customers are the fast food chains.

Rebecca Kacaba: I, as an individual, can realize that they can sell that technology to many fast food chains. It’s not our business model to opine on whether investors should be allowed to participate in equity crowdfunding or not.

Sramana Mitra: I’m just asking you what’s happening trend-wise. For instance, my gardener has invested in a startup. He has no education beyond 7th grade. He didn’t understand what business he was investing in. He was investing in a friend. This is somebody who lost all his savings by investing in this startup. I think there should be guardrails against this.

Rebecca Kacaba: It does. I’m confused how that happened.

Sramana Mitra: Friends and family investing don’t require accredited investors. If you have a friend who wants to invest in your business, that friend doesn’t have to be an accredited investor. What you’re pointing out is, in equity crowdfunding, those guardrails do exist through a platform. That’s a good thing. Everybody who’s going to a fast food restaurant is not an accredited investor and they should not be investing in random startups.

Rebecca Kacaba: Under Reg CF or Reg A, you have a cap depending on your income. You can’t lose your house on it. That’s what the SEC decided in order to bring this to market. They decided everyone should have the right because it shouldn’t just be open to people who make a lot of money.

Sramana Mitra: To be an accredited investor, you have to be above an income threshold.

Rebecca Kacaba: Correct.

Sramana Mitra: By definition, you have to have some amount of money to become an accredited investor and have the right to invest in a startup.

Rebecca Kacaba: To be an accredited investor, you have to have a level of financial sophistication or net income. Under certain exemptions, Reg A and Reg CF equity crowdfunding, you don’t need to have that financial accreditation or that net income, or net worth, which makes you non-accredited. If you’re non-accredited, there’s a cap on how much you invest.

This segment is part 4 in the series : Thought Leader in Financial Technology: DealMaker CEO Rebecca Kacaba
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