from the editor of aseidman.com

Our Outdated Securities Law are Stifling Small Business Innovation

Posted by Ariel Seidman | August 20, 2008

Michael Arrington recently caught an entrepreneur trying to raise money for his startup via his Twitter feed —a clear infraction of various secruity laws from publicly raising capital to raising capital from non-accredited investors ($200K+ annual income or greater then $1M net worth), and various others that a corporate securities lawyer would quickly find.

Beyond the rather humorous back and forth between Arrington and the entrepreneur is the larger question… Are these securities laws created in the early 1930’s in response to the market crash and Depression still relevant in 2008?

To the best of my knowledge the only person to challenge these laws in any type of serious manner was the founder of a small microbrewery. Wit Brewery as chronicled by Andrew Klein (founder) in his book Wallstreet.com successfully raised a few million dollars allowing them to expand marketing and distribution outside their initial core market in NYC. After multiple unsuccessful VC pitches Andrew turned to the web in the early 90’s where he published a prospectus that users could download, review, and if interested send them a check. Reaching out to his passionate customers Wit Brewery quickly attracted thousands of investors each investing a few hundred to a few thousand dollars. This phenomenon attracted the likes of the Wall Street Journal which in turn attracted the SEC lawyers. Given Andrew’s background (he was a corporate lawyer prior to founding Wit Brewery) he was able to keep the SEC at bay and with the insight he gained from the public capital raising process he ultimately transitioned Wit Brewery into Wit Capital — an investment bank.

Yet, the core of what Andrew was trying to accomplish — allowing small investors with an interest or passion for a specific product to invest in small businesses looking to raise capital is still mostly a dream more then a decade later and one of the core reasons for this are the prohibitive securities laws mentioned above. Consider the following:

If I am software engineer making $130K/yr I can loan a deadbeat $10K to repay their $40K in credit card debt via Prosper yet I can’t efficiently (i.e. with a few clicks on a site) invest $10K in a former colleagues new technology venture (something I know a whole lot about) or a local frozen yogurt store looking to expand their stores in the region (again something I know a whole lot about because I see the lines out the door on a nightly basis from my apartment). Furthermore, small investors in these small businesses (unlike loan officers or American Express who are the usual sources of capital for small businesses) are willing and able to become product evangelists for these young companies.

I think its about time we revisit these securities laws.

Is the End Near for Quicken and Microsoft Money?

Posted by Ariel Seidman | January 10, 2008

In the fall, the personal finance software space — led primarily by Mint.com (which did a superb execution job for a V1 product) and Wesabe was all the rage. Its clear that this space was due for a refresh and had grown stale as both Intuit and Microsoft starved their products for too long creating an opening for the likes of Mint and Wesabe, but its too early to write the eulogy for Quicken and Microsoft Money as Omar and others suggest.

It will be a few years before we can declare any winners in this space — but there are three questions that the likes of Mint and Wesabe need to answer in order to be considered long-term viable competitors?

First, do Mint.com and Wesabe investors have the patience that is needed to fight this out over the long-term? Building a loyal user base in this space will take time as even the early adopters will only dip their toe before committing significant financial data to these services as they want to be certain that these services are committed to privacy and security but perhaps as importantly that their built for the long haul. Nobody wants to wake up two years from now reading an email that they are shutting down and moving all of your data to ACME Financial Service Inc.

Secondly, can they expand the set of users in the personal finance market beyond the Quicken and Microsoft Money base? The personal finance software market is relatively small as the effort to reward curve is steep — your forced to spend lots of time and energy setting up Quicken or Money before you start to see its benefits which only works for a small and dedicated set of the market.

Finally, can they broaden the value proposition beyond simply providing a 360 degree view of your spending and wrapping it in a slick user interface? Sexy pie-charts are interesting for all of 3 minutes, but what will keep people engaged?� The savings trick employed by Mint is a good start, but from my short experience with it not super helpful (i.e. it’s an execution problem).

“Oracle of Omaha” — A Must Read

Posted by Ariel Seidman | June 30, 2007

In a world of information overload there are few must reads, but if you appreciate what Warren Buffett has done then here is some really good stuff by Jeff Matthews…

Jeff has a series of posts entitled “Pilgrimage to Omaha.” I only read two posts in a series of 10 (plus 2 extras for intro and conclusion) and I am super excited to read the rest (that rarely happens)— here is but one of the many laconic and insightful points Jeff makes:

“Thus it is that whether he’s talking about food companies or airlines or newspapers or oil companies, Buffet has clearly made it his business to identify the single most important variable for each business—and knowing those crucial variables, he can determine whether the values offered in the stock market at any given time are attractive, or not. Without using a spreadsheet.”

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