Christopher Mims writes that letting ordinary Americans invest in the early stages of high-growth firms “has long been the dream” of equity crowdfunding advocates (“Startup Crowdfunding Is a Gamble,” Business & Tech., Dec. 7). Often overlooked is that this “dream” was very much the reality for small investors before the costly mandates of the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 forced small firms to delay going public until they got much larger.
Home Depot, for instance, went public in 1981 when it was still a small chain with four stores in the Atlanta area. Similarly, when Starbucks went public in 1992, it had barely expanded outside of Washington state. Sarbanes-Oxley and Dodd-Frank made going public at this early stage cost-prohibitive for most firms. Studies show that these laws’ mandates quadrupled auditing costs for many firms. Liberalizing equity crowdfunding isn’t so much a revolution as a restoration of small-investors’ ability to take a chance on promising entrepreneurs.
Competitive Enterprise Institute
Letter originally posted at Wall Street Journal.