Home Proposed Financial Regulations Could Cripple Angel Investing

Proposed Financial Regulations Could Cripple Angel Investing

In the wake of the financial meltdown, a new set of financial regulations proposed by Senator Christopher Dodd aimed at plugging the “too big to fail” loopholes could have some negative side effects for the angel investment community. According to a report from the Seattle-based site TechFlash, Dodd’s bill would require that angel investments be approved by the SEC, a process that could take as many as 120 days to complete.

But that’s just the tip of the iceberg. The enormous reform bill (some 1300+ pages) also gives the SEC the ability to delegate regulatory authority to state governments on investments it deems too small in size or scope. Angel investors themselves could be placed under the regulatory microscope as well; the bill wants to raise the income level it takes to become an accredited investor, perhaps even doubling the requirement.

Not only would this bill make the process of attaining seed-stage funding more difficult, more expensive, and more time consuming, it goes against the government’s goal to create jobs in America. If these regulations become law, fewer startups will get funding because they won’t want to deal with the lengthy SEC filing process.

Instead, more innovative ideas will go by the wayside, startups will not get funding, and jobs will not be created. Furthermore, by raising the requirements to provide angel funding, the pool of investors will shrink, which will only exacerbate the problems facing the nation’s already floundering venture capital industry that is only recently seeing signs of recovery. In a letter sent to Senator Dodd earlier this month, Mark Heesen, President of the National Venture Capital Association, and Marianne Hudson, Executive Director of the Angel Capital Association, together outlined their grievances with the bill and its danger towards the VC industry.

“Venture capitalists often invest in companies that were supported by angels, so ensuring that regulations for accredited investors do not harm this capital source is important,” said Heesen and Hudson. “In addition, as more and more venture capital firms co-invest with angel investors and angel organizations, the state preemption of securities regulations could extend to a large number of businesses, from start-ups to others that need capital for growth.”

What do you think of this bill? It seems to me the sections mentioned above will be in direct conflict with the Startup Visa movement which most of the startup community seems to be on board with. The distinction seems obviously clear: encouraging foreign entrepreneurs to start their companies in America will create jobs, and this new bill from Senator Dodd will prevent the creation of jobs by thinning out angel investments. Let us know your thoughts below in the comments.

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