Recently, I committed an act of civil disobedience. I misrepresented myself to BnkToTheFuture in order to buy $1,000' worth of Factom Inc.'s non-voting Series 'B' preferred shares. As I write this, the now-closed offering
has been successfully funded. Going by the number of investors Factom attracted, I was not alone.
It was a hard decision, as the sophisticated/accredited investor regulations are both unjust and make sense. It is true that there are lots of rich folks who are dumb with their money. It's true that a lot of less-than-affluent folks are smart and prudent with their modest funds. But, it's also true that there are many wives that are stronger than their husbands. Examples abound, but they're not representative of the whole.
Realizing this, I left the "Pay" tab up for a whole day while I mulled whether or not to follow through. I actually choked, closing the tab, and felt dirty afterwards. What now goes by the name of "civil disobedience" is protesters benefiting from a tradition established by far more serious folks. Real civil disobedience - particularly at the earlier stages - is nothing like the Berniebro merriment you may have seen on Youtube. In the early stage of the civil-rights movement, none of them wore a "Gee, Mom, I've Been Arrested!" grin on their faces when they were taken away.
The Tug-Of-War
As noted earlier, I found the accredited-investor laws tough to break. That's because they make sense in two ways. First of all, despite those exceptions, most folks that are astute enough to earn six-figure salaries and/or garner seven-figure net worths are astute enough to not throw their money at a bewitching rathole. Secondly, they're the types who miss any money they lose more easily. If I were a millionaire, I could get by if I had lost (say) $10,000 in a venture investment. Percentage-wise, relative to my whole portfolio, that $10,000 loss would have been far less than the big losses I'd have taken with liquid investments. But the real me would find a $10,000 loss punishing.
That's why I followed through reluctantly and with a heavy heart. What if the floodgate opened only to show that the original regulations made a lot more sense than a free-for-all? What if I'm merely setting a bad example?
The Case Against The Accredited-Investor Laws, In A Nutshell
In nutshell, the accredited-investor regulations are patronizing. They prevent us less-than-affluent folks from learning how to become venture investors, even if only the hard way. In a very real way, they resemble helicopter parenting. Helicopter mothers or fathers always has good reasons for why they shelter their children. "What if Johnny gets hurt? Won't we have to take him to the hospital?" "What if Susie gets her self-esteem crushed? How will that hold her back?"
Sensible reasons...but as we've seen from all that Millennial-bashing, the long-term effects of this sheltering have been less than healthy.
It's true: I might well lose my entire $1,000. (I don't think so, but the risk is there.) It's also true that my money is stuck in the shares for quite a few years; even if I see a paper win, I won't be able to collect for a decade or so. After wrestling with the decision to go ahead, I'm reconciled to both.
Unless we shoulder these twin burdens, there's no point in any of us civilly-disobeying those regulations. It's better if we just leave them be.
Psychologically Prepared: "If You Want To Be A Trader, Take Up Fishing; If You Want To Be A Venture Investor, Become A Collector."
Back in the old days, an aspiring stock trader was advised to take up fishing. Fishing doesn't teach how how to trade successfully, but it does make you ready to trade. There are lots of ways to improve your skill, but in the end your success is up to what the fish do. If they don't bite, there's not much you can do. In addition, you can't make them bite your bait. So when you take up the hobby, you not only learn patience but you also pick up stoicism. These habits, transferred into the trading world, make you stick to your limit orders and not do something dumb like chase an uptrend.
With respect to ventcap investing, I suggest that the best pre-conditioning is collecting. Have a look at this eBay listing for Avengers #4 Golden Record Reprint CGC 9.6 NM+ WHITE Pages "Second highest CGC graded copy."
There's a good chance that the owner of it bought it many years ago, at a lower price, and spent years looking at it or showing it around. More likely than not, it's never been read. Other than it being brought out for show, it's stayed in storage for many years.
There's also a good chance that the owner bought it for emotional as well as investment reasons. Buying a collectible because you want it means you'll be glad to hold onto it for years, years and years. If it's hard to sell, you won't care. You might not even know it's illiquid because your thoughts of selling it were only fancies.
My own weakness is numismatics. Years ago, I bought a $1 bill whose serial number is all 1s. Yes, it was expensive. Yes, it's stayed in storage except for the times I've retrieved it to gawp at it. It might be more valuable now; it might be less valuable. I don't know. But because of that long-ago purchase, I do know what it's like to hold onto an investable asset for years while subconsciously treating the purchase as a spend.
That's the psychological secret for preparing yourself to civilly disobey the accredited-investor regulations. You have to see the "investing" as spending. Let's face it: we've all read "don't invest more than you can afford to lose" many, many times - and we all ignore it. But recasting a ventcap investment as spending puts you into a whole different mindset. Instead of comparing it to a cryptocurrency or listed stock, you compare to a $1,000 gadget or $1,000' worth of camping equipment. Instead of beaming over your imaginary profits, you worry if your budget can handle it. As with buying that above-linked comic book, you tell yourself "the money's gone." Even if you have designs on selling it for much more than you paid many years later.
If you're tempted to do something like I've done, I suggest taking this rule to heart: "I won't spend what I can't afford to do without."
"You're Buying A Responsibility"
Of course, there's a lot more to ventcap investing than treating your shares as a collectible - just like there's a lot more to trading than becoming a sure hand with a fishing rod. (Neither teach you how to seek out a profit, for one.) If you've read about professional ventcap funds, you know that they're very hands-on. They offer advice and guidance to their investees continually. That's enough to know for this second rule: "If I buy shares in a venture-capital offering, I'm buying a responsibility" Even a low-level minnow has the responsibility of keeping an eye on the company.
There's only one reason to buy a responsibility: you want the responsibility. If you don't, there's really no point in buying the shares.
Restraint Straps For Heavy Loads
What if folks like me end up pushing the regulators to loosen up those legal restraints? In a very definite way, it'll be a better world. We'll be have fewer straps placed around us for our own good. We'll be less gatekeeper-ridden. We'll be more free. But on the other hand, we'll have more loads to shoulder. More responsibilities to assume. More burdens that we never had to carry - or even knew about - when we were sheltered.
As we've discovered with cryptocuurrency, winning financial freedom means taking a lot more responsibility and care. How we do will depend on the content of our character. Fortunately, we can do so on pains of being slapped down by regulators and nothing more. The 1950s-era civil-rights protesters risked jail.