financial reform bill

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Senate approves financial reform bill amendment on angel investing

Tuesday, May 18th, 2010

WASHINGTON, DC – Angel investors seem to have what everyone on Capitol Hill craves these days: bipartisan support. The Senate passed an amendment to the financial reform bill Monday night that keeps requirements for angel investors much as they are now, eliminating changes opposed by venture and technology lobbying organizations.

The amendment, sponsored by Senators Chris Dodd and Kit Bond and co-sponsored by Dems Mark Warner, Maria Cantwell and Mark Begich and Republican Scott Brown, dumps a provision that would have required a 120-review of Angel investor deals.

A PE Hub commentator, in a before and after look at the amendment suggested that the whole fracas over the provision may have just been “political theater,” put in the bill just so legislators could give lobbyists something they wanted by taking it out.

Angel investors also will not have to change how or who they file to on their transactions.

The reform bill does include a “bad actors” provision that goes into effect in a year. It forbids anyone with a criminal record or who ran into trouble with state regulators from being involved in securities offerings for a decade.

“We are very pleased that this amendment was adopted,” said Liddy Karter, chairman of the Angel Capital Association public policy committee and a founder of the Angel Investor Forum of Connecticut. “It ensures that entrepreneurs will more easily be able to raise angel capital and more accredited investors can continue making the angel investments they love to make.”

We’ve covered this story in some depth previously.

Amendments to finanical reform bill friendlier to angel investors expected

Monday, May 10th, 2010

By Allan Maurer

WASHINGTON, DC – A bipartisan group of Senators will offer amendments to the finacial reform bill this week that are more friendly to angel investors than two current provisions that worry industry groups.

Marianne Hudson, executive director of the Angel Capital Association (ACA), one of at least ten industry groups supporting more angel friendly amendments to the bill, tells us, “We expect the amendments to be introduced this week.”

Hudson says that the ACA expects to make another announcement regarding the proposed amendments soon. “We’re just waiting for a few details,” she says.

“You never know what’s going to happen on Capitol Hill, but we’re cautiously optimistic.”

Clipping Angels’ wings

We reported last week that two sections of the proposed “Restoring American Financial Stability Act of 2010” (S. 3217) could limit the availability of angel investment to small business and start-ups.

One current provision would increase the income and asset thresholds for “accredited investors,” who often act as “angel investors” to early stage startup companies.

“Some have estimated that the increased thresholds would rule out about 70 percent of current angel investors; this would clearly be a big mistake,” says CompTIA, another industry association supporting proposed amendments.

Bring in the SEC?

The other provision would require entrepreneurs to seek U.S. Securities and Exchange Commission review of angel investment deals.

Currently, An accredited investor is permitted to make high-risk investments, such as a tech start-up, without filing for permission with the SEC for a Regulation D Offering. A “Regulation D” filing requires time and money, and would turn off most small investors, CompTIA points out.

While the intent of the provisions was to reduce the risk of fraud, the ACA’s Hudson tells us, “They didn’t give us an example of a single angel investment where they were concerned about fraud.”

Senators see the problem

Elizabeth Hyman, vice president of public advocacy for CompTIA, another industry group supporting amendments to the bill, tells us that these amendments were crafted by Chairman Christopher Dodd, of the Senate Committee on Banking, Housing, and Urban Affairs, so he is aware of the issue and has certainly worked to correct this problematic situation.”

“Absolutely, they’re listening,” says ACA’s Hudson.

Hyman believes the provisions unfriendly to angel investors and entrepreneurs were “inadvertent,” and also believes Senator’s are listening to the need for amendments.

Hyman adds, “At all times, and especially at this time as we slowly emerge from the recession, we need to support and encourage innovation, and we can’t do this by eliminating sources of capital for our brightest innovators.”

Nine national associations concerned about reform bill

Angel Capital Association Supports Amendments to Reform Bill

ACA Joins NVCA in concerns on reform bill

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Tags: Angel Capital Associations, CompTIA, DC, Elizabeth Hyman, financial reform bill, Marianne Hudson, SEC
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Financial reform legislation could hurt startup angel funding

Friday, May 7th, 2010

By Allan Maurer

WASHINGTON, DC – The financial reform bill now being debated in the U.S. Senate could throw a monkey-wrench into the early-stage startup funding process. Two provisions in the bill, which is supposed to be aimed at taming Wall Street, would adversely affect “angel” investors, the high net worth individuals who often seed early stage companies.

Those provisions in the proposed “Restoring American Financial Stability Act of 2010” (S. 3217) could limit the availability of angel investment to small business and start-ups, says CompTIA, the IT trade industry.

One of the provisions increases the amount of income and assets an angel investor would need to qualify as accredited investors. The other requires a company seeking an angel investment to seek U.S. Securities and Exchange Commission approval–a process that could take months.

Many early-stage startups simply do not have those extra months and might never get off the ground if the provision is included in the final bill, some angel investors say.

Startups are job creation engines

“We recognize that this proposed legislation seeks to address the myriad of complex issues that led to the financial crisis,” said Elizabeth Hyman, vice president, public advocacy, CompTIA, one of at least ten associations requesting amendments to the bill to change the provisions.

“We are concerned that certain provisions contained in this legislation would effectively cut off early-stage angel investors who provide a critical source of funding for start-ups, small businesses and other entrepreneurs,” she stated. “Access to capital continues to be a significant concern for all small businesses.”

In an opinion piece about the financial reform bill in on Philly.com , Steve Welch asks why Washington bureaucrats cannot seem to distinguish between Wall Street bankers and entrepreneurs and the angel investors who back them. He notes that the bill in its current form “Will hurt the process that helps turn entrepreneurs’ innovateive ideas into viable, job-creating businesses.

Getting SEC involved “Almost a joke”

We understand his pain. For some reason, legislators seem clueless about how important startup funding is to getting the country back on track in creating new jobs. We spend billions to bail out firms responsible for the financial meltdown while doing little to rein in their excesses or help the part of the economy that is at the root of real job creation.

Bill Warner, of Wake Forest, NC-based Paladin and Associates, tells us, “These provisions in the Dodd bill will substantially stifle investment in startup companies.”

He adds, “Getting the SEC involved is almost a joke. These folks are one of the many who never blew the whistle on the pending mortgage industry collapse and they knew it was coming. Getting them involved in deciding what the risk is in an angel investment adds no value to the process and will only slow down investment.”

Welch points to the Kauffman Foundation study that found that between 1980 and 2005, companies less than five years old created nearly all the net gain in new jobs. But, Welch notes, that rather than supporting the effective bottom-up economic development, Washington legislators continue to focus on “mis-guided top-down policy making.”

Amendments requested by CompTIA and others

In a letter sent to Chairman Christopher Dodd and Ranking Member Richard Shelby of the Senate Committee on Banking, Housing, and Urban Affairs, CompTIA has asked for two amendments to the bill:

* Section 412: As written, this section would increase the threshold for qualified investors by applying the inflation factor measured since these limits were first enacted. Applying this inflation factor would more than double the existing net asset requirement from $1 million to approximately $2.3 million.

CompTIA supports an amendment that would keep the existing $1 million cap, but would exclude the value of the investor’s primary residence.

* Section 926. The section would require a 120-day SEC review of all Regulation D 506 private offerings, which include angel investors. However, instead of adding an additional 120 days onto the funding process, CompTIA supports an amendment that would simply disqualify “bad actors” as determined by Federal and State authorities.

“These amendments will ensure that high growth small businesses and entrepreneurs have access to a strong pool of angel capital and that investors are better protected from fraud,” said CompTIA’s Hyman.

Supporters of these provisions say they are intended to protect angel investors from risky investments. Welch says it’s true that angel investing is risky, but “Calculated risk-taking has allowed the United States to become the most innovative society in the world.”