Don’t Send in the Porn Surfers; Rules for Angel Investing Saved

Image: Reuters

Sure you’ve heard about the infamous Dodd bill – probably gazillion times already indeed.

But we found that some blogs and publications are still talking about the original bill. So we’re doing our small part to publicize the amendments.

On April 21, it was announced that 2 provisions in the Dodd bill that’ll bring down the startup investment community have been amended.

The US angel investment fraternity can chill the champagne!

TechFlash was one of the sites that first publicized these amendments. The article penned by Dan Rosen, Joe Wallin and William Carleton focuses in on 2 provisions of the bill that threatened to topple Regulation D, and in turn, many angel investors who would be crippled by the new rulings.

In an “it’s about time, but we’re still grateful” manner, Rosen, Wallin and Carleton detailed that, while the Dodd bill reforms were initially supposed to weed out the criminals, most angel investors would have been innocent victims if the recent amendments weren’t made.

Regulation D

A friend to most angels, the affectionately known “Reg D” sets out the rules providing exemptions from the registration requirements, which allows some companies to offer and sell their securities without having to register with the SEC.

It has long been known that the few “cons” among us used Regulation D to fuel their fraud schemes and rip off investors, but the Dodd bill’s initially-planned changes to the rules would have been ugly for startups and angels.

Hideous actually

Basically the Securities and Exchange Commission (SEC) was going to raise “accredited investor” thresholds – potentially more than doubling the amount of income or net worth an angel has to have in order to invest in startup seed financings.

And startups have to wait 4 months to receive funding.

Ouch.

Break it down for me James Brown

The proposed amendments currently en route to the Senate should surely save the day for angel investors if they’re passed in.

And we have Angel Capital Association (ACA) to thank for that, after Executive Director Marianne Hudson, supported by ACA members, made contact with Senators and their staff to table the concerns of the collective angel community.

So let’s make a simple comparison of the initial proposal and the new proposal for both of the Dodd bill provisions that had angels taking cover.

1.

• Original Proposal – The Dodd bill would have fiddled with the accredited investor financial thresholds for inflation. This would have eliminated 77% of angel investors currently active in one foul swoop!
• New Proposal – That the standard net worth for an accredited investor will stay at US$1 million and exclude the value of a person’s principle place of residence.

2.

• Original Proposal – The Dodd bill would have required the SEC to review all accredited investor offerings within 120 days and if the SEC (who have recently been in the news for setting porn site net surfing records among staff!) did not make the filing review in time each state would have been free to impose their own rules. No, no, no! BAD!
• New Proposal – That the SEC rules for the disqualification of offerings and sales of securities involving individuals who are fraudulent – which will still help them to weed out the baddies without killing off the goodies. The frauds will probably have a prior record of violations of certain federal or state laws.

While these amended provisions are not quite laws yet and we can’t quite pop the champagne in angel HQ, according to Rosen, Wallin and Carleton, it’s time to thank your representatives for listening and stay tuned!