By Arnold Kling
what are the economic arguments in favor of the two class system of accredited investors and non-accredited investors? And are these economic arguments stronger than the counter-arguments that can be made on this same topic? I’d also be very interested in any input as the estimated economic penalty that non-accredited investors face due to the current SEC policy.
He is referring to the fact that if you are a start-up company, there are regulatory barriers to taking investments from investors with low incomes and net worth. Is this unfair to people with low incomes and net worth?
I have a prejudice against outside funding for start-ups. In Under the Radar, I wrote that “Fundraising is not for businesses. Fundraising is for charities.” I was so proud of that line that I used it twice.
To me, an entrepreneur who looks for investors is like somebody who can’t swim who finds himself in the middle of a lake. It’s dangerous to go near the drowning man unless you know what you are doing. If you are not a trained lifeguard, chances are he will drown you as well as himself.
So as much as I’d like to abolish regulations, just about the last one that I’d abolish would be the one keeping low-net-worth individuals away from start-ups. I think we need fewer fund-raising start-ups and more start-ups where the entrepreneur figures out something to sell that will bring money into the company early on.