For those who don’t know, and apparently Senator Dodd has no idea, angel investors play a crucial role in the high-impact start-up ec0-system in the US (and thus play a crucial role in job creation).
Angel investors provide financing at the levels (usually $500,000 to $3,00o,000) that are not feasible for other financiers (from banks & friends and families to VC and corporate venture firms.)
Well, it appears that buried inside Dodd’s 1300 page financial regulation reform bill is language that will limit the size of the angel investing world and will add more complexity to the completion of angel deals. Sounds great huh? Make it harder for small firms to grow!
Under Dodd’s bill, the definition of “accredited investor” would be revised to require individuals to have a net worth of at least $2.3 million or annual income of $449,000 (or $674,000 of joint income with his/her spouse). According to Business Week, this revision would lower the number of individual accredited investors by 77 percent.
It gets worse. Even if all the investors are “accredited investors” under the new definition and the startup is thus relying on Rule 506, a filing (presumably a Form D) must be made with the SEC, and the SEC will have 120 days to review it.
That’s right – 120 days. And if the SEC does not review the filing within such 120-day period, then the applicable States securities commission(s) would have the right to review the merits of the financing.
So, not only will the new rules limit who can invest in promising new ventures, but will also let the SEC and/or state regulators decide if the agreement between private investors and entrepreneurs is okay?
How this will prevent another crash based on mortgages and massive debt is beyond me, though I do know how it will prevent a recovery based on entrepreneurship and investment.