Regulation And Financial Innovation

I hope that Obama’s financial advisors can carve out some time to think about the future — once they tackle the enormous slag heap that the financial markets are today — and invite forward looking brainiacs like Fred Wilson to sit at the table. He recently suggested that the regulations that block individual investors from investing in innovative startups are the same ones that led to the market disaster we are suffering right now. We need some new thinking.

[from Getting A Piece Of My Action by Fred Wilson]

I’ve written extensively that we need a secondary market for privately held shares of venture backed companies that want or need to stay private. This is already happening with Facebook shares and it’s going to happen with the shares of other privately held companies going forward. The public markets have failed to solve this problem so it’s going to get solved in some other way.

We also really ought to find a way for small investors who know what they are doing to place a small bet on a company they really like. And companies like Boxee and Twitter could really benefit from that too.

This is the year that the banking and brokerage industries have completely let us down. They have failed to invest our money wisely. And the regulators who set the rules, the very regulators who make sure that no reader of this blog can invest in one of our deals, have allowed that to happen.

I am pining for a new regulatory regime. One that values small over big, individual decision making over institutional decision making, and innovation and the future over protecting the past. [emphasis mine] And a test for that new regulatory regime is whether the people who are participating in the creation of a new technology and industry can actually profit from it without having to do what I do.

[via Betaworks]