April 21, 2010

What Does Senator Dodd’s Proposed New Bill Mean for Angel Investing?


We all know how important angel investing is to startups and to the economy in general.  According to the University of New Hampshire’s Center for Venture Research, just last year some 256,480 angels invested $17.6 billion in 57,225 different entrepreneurial ventures – and that was during a down economy.  Without their help, it would be extremely difficult for new ventures to get off the ground, considering funding from banks and other sources is harder to come by than ever before.

There has been a lot of talk lately of a new bill being proposed by Democratic Senator Chris Dodd of Connecticut.  The bill, introduced in March, has provisions that could diminish angel investors’ power and make it more difficult for entrepreneurs to find funding for their big ideas.  With our present economy, this is a big step in the wrong direction.  We need angels more than ever to create jobs and help us move forward.

An article published on VentureBeat.com highlights some of the biggest changes affecting angel investing:

“First, Dodd’s bill would require startups raising funding to register with the Securities and Exchange Commission, and then wait 120 days for the SEC to review their filing. A second provision raises the wealth requirements for an ‘accredited investor’ who can invest in startups — if the bill passes, investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $250,000). The third restriction removes the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states.”

The article also has a quote from Chris Sacca, an angel investor and former Google employee.  He said that “while 10 years ago it may have taken years to build a company, companies are now built in a matter of weeks. So this 120-day waiting period is frankly ridiculous. I have companies with tens of thousands and hundreds of thousands of users that are built in a matter of weeks. They’re generating actual dollars of revenue, creating jobs, investing in real estate office space, capital equipment, etc. If they had to wait 120 days to actually apply for the ability to obtain financing it would absolutely just crush that market.”

You can read more about it here or sign a petition against it here