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Urgent – The Startup Economy Needs Your Voice

Angel Insights Blog

Tuesday, May 20, 2014 

Urgent – The Startup Economy Needs Your Voice

In case you haven’t heard, the SEC will revisit the definition of accredited investor soon and there is a possibility the financial thresholds could be raised so much that 60 percent of all accredited angel investors would no longer qualify to make angel investments. If this happened, this would have a huge impact on the high-growth startups that create the majority of jobs and innovations in this country.

We need angels, entrepreneurs, and all parts of the startup ecosystem to let the SEC know how important it is to keep the angel capital pool large and healthy. ACA has created a set of letter templates and other information so you can easily write the SEC and other policy makers. Check out our “Protect Angel Funding” web page for all details.

At issue is the potential for the SEC to raise the financial thresholds for individual accredited investors for inflation – so net worth requirements could increase from $1 million to $2.5 million and annual income thresholds could grow from $200,000 per to about $450,000. By the SEC’s own estimates, about 60 percent of households would no longer meet accredited investor requirements with the net worth increase alone. 

How did we get into this situation?

Many of you may remember this same issue came up in 2010 with the Dodd-Frank Act, which ACA helped fight accredited investor threshold increases (although the value of primary residence was removed from the net worth calculation). The same Dodd-Frank Act requires the SEC to revisit the definition every four years, beginning in late July of this year, to determine whether the definition “should be adjusted or modified for the protection of investors, in the public interest, and in light of the economy.”

The SEC has already heard from many powerful organizations working aggressively to see the thresholds increased in line with inflation as a form of investor protection and it is weighing these opposing views. These organizations are concerned about fraud in other types of private offerings that have the same SEC rules as angel investing – think about approaches to senior citizens in nursing homes or sales of “swamp land in Florida,” for instance. So far, it seems like the SEC has heard mostly from consumer advocate organizations about investor protection needs and less from those concerned about capital formation and economic health. ACA has filed a letter with the SEC on this issue, but we need many, many more to join us. We also have on our side very little fraud in the angel investment community.

We need angel investors, entrepreneurs, and startup support professionals to write the SEC now. The best time to share your voice is before the SEC writes any rule changes, so they can incorporate all important viewpoints into their work.

A dramatic drop in the number of accredited angel investors would badly hurt the startup economy that has been responsible for job growth in this country. Last year angels invested an estimated $24.8 billion in about 71,000 company rounds – any decrease in angel investment and mentoring to the early-stage companies would undoubtedly be bad for our economy.

I urge you to join ACA in asking the SEC to maintain the existing $1 million and $200,000 limits and to further expand the capital pool for early-stage companies by creating ways to qualify individuals who do not meet the thresholds with requisite sophistication to invest in private offerings. Please take the letter templates and adapt them to fit your personal thoughts and voice.

Tags: Economy  

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