Angels Under Fire

I don’t want to beat a dead horse on the Dodd Financial Reform Bill, but more and more disturbing details continue to emerge as people actually get through the 1,300 page piece of proposed legislation.  John Maudlin, writing in his Frontline Newsletter, points out three provisions that could spell the end of angel investing as we know it. 

The three provisions include:

1.   A requirement that any startup company raising capital must register with the Securities and Exchange Commission and then wait 120 days for the SEC to review their filing. 

2.   A revision to the definition of what constitutes an “Accredited Investor” that would require investors participating in unregistered offerings to have assets of more than $2.3mm (up from $1mm) or income of more than $450,000 (up from $250,000).

3.   Removal of the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states.

Maudlin does a good job of explaining how each of these provisions could affect the angel community, so I will not repeat his arguments.  I will only point out that Maudlin estimates that over 50,000 new businesses were funded by angels in 2009 alone.  At a time when Congress should be focused on job creation, throwing a wet blanket over the angel community seems somewhat counter-intuitive. 

Clearly, some degree of reform is necessary to stabilize the economy and prevent the type of events that shook the banking industry over the last 18 months.  This legislation, however, targets the wrong piece of the financial system.  By discouraging early stage investing, particularly at a time of such rapid technological advancement, Congress will not only stunt job growth, but will create an environment where some of the biggest and best ideas go unfunded.

2 Comments

  1. Lincoln says:

    Chris,
    the current regime is trying to flatten out the country. it was more subtle at first, and now that the public is used to it we are blinded by the obvious.

  2. cna training says:

    Keep posting stuff like this i really like it

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