Debate began today in the U.S. Senate on a bill designed to overhaul the financial industry. It's a piece of legislation that could have far-reaching consequences for venture capital investment, and in turn some argue, for technological innovation and economic growth. A response to the recent financial meltdowns and scandals, the 1,400-page bill seeks to regulate Wall Street and the financial industry more closely.
Although there have been some changes and concessions since we initially reported on the legislation in March, there are still concerns about the ramifications for startups and investors in regards to two of the bill's provisions.
Accredited angel investors:
The bill proposes raising the minimum wealth requirements for accredited angel investors. Currently, accredited investors need to have either a net worth of $1 million or an annual income of $250,000. The new bill would have adjusted those figures for inflation, increasing the thresholds to $2.3 million and $450,000, respectively.
In a Huffington Post article, Rick Tumlinson calls this provision "an angel killer," and one trade group estimated that 77% of current accredited investors would be disqualified under these requirements.
Sen. Christoper Dodd, the Banking Committee chairman, has indicated he would support an amendment to the bill that would keep the asset and income levels at their current levels, although the value of an investor's home will no longer be included in the calculation of assets.
Registration with the SEC:
Another of the bill's provisions would require that entrepreneurs wanting to start a new company first file with the U.S. Securities and Exchange Commission. Before receiving money from investors (accredited or not), companies would have to undergo a 120-day review process.
Four months is an eternity for startups, opponents of this provision argue, as new companies typically need the money immediately. Furthermore, the registration process itself could drain seed money, with some estimates suggesting the registration process could cost up to $100,000. The bill could harm startups by hampering not only their access to funding, but their access to funding in a timely manner. Instead of using their limited resources to develop a product, entrepreneurs may find themselves spending tens of thousands of dollars in order to register with the government.
"We have no choice" but to pass the landmark bill aimed at curbing the excesses that brought the U.S. economy to the brink of collapse, Dodd said today as the Senate debate opened. However, the pressures to "curb the excesses" might in turn slow the tech startup community - not just in the U.S. but abroad, notably when the E.U. turns to consider similar restrictions on angel investing.
The floor debate is expected to last two weeks, and Senate Democrats hope to pass the legislation by the middle of May.