NVCA Argues Against Parts of the “Restoring American Financial Sustainability Act”

Today, I received notice that the NVCA has formally rejected two parts of this lengthy-titled bill.  (You just have to love the names they put on these bills). 

Don’t let your eyes glaze over – this bill, if enacted with currently wording could really hurt innovation in this country.

As I previously wrote, Senator Dodd brought wants to repeal the existing federal preemption of state regulation over “accredited investor” securities offerings. This would end the uniform, national set of rules for financing start-ups. By eliminating regulation that is working well, the draft bill would expose technology startups to a potentially complicated system of patchwork, state-by-state regulation, resulting in higher costs, more legal risks, and the potential of not being able to raise capital because of different rules in different states.

Nothing would be gained from this change: no additional protections would be provided to the accredited angel investors and there would be no benefits to the national financial system or to the economy.  It would just make raising money much harder for entrepreneurs and line the pockets of corporate lawyers who would comply with these new rules.

Secondly, the draft of the bill recommends adjusting the accredited investor standard for inflation. As we understand it, this section would change the current requirement for an individual of $1 million in net worth or $200,000 in annual income to about $2.3 million in net worth or $450,000 plus in annual income. At a time when many accredited investors have lost more than 20 percent of their net worth in 2008 and innovative start-ups are having an increasingly difficult raising equity capital, decreasing the potential pool of angel investors is counter-productive to supporting the very companies that will create new high-paying jobs.

the Angel Capital Association has joined forces with the NVCA.  Hopefully Washington will listen to reason here.  Otherwise, this could have a tremendously bad effect on our ecosystem. 

  • Jason, great news! What form did the NVCA's notice take? Did they issue a press release on this, or is that forthcoming? I'd also be interested in knowing where/how the Angel Capital Association has expressed its stand. Much obliged, Bill

    • They sent a letter to congress co-authored by the Angel Capital Association.  I don’t think they made the letter public, but I’m sure they’ll issue something in the near future.  Specifically, they send to Dodd’s office, as well.

  • The Angel Capital Association now has this letter included in two places on our Web site, including on our federal policy platform page – http://www.angelcapitalassociation.org/resources/public-... I'd be happy to connect with Bill and others as we get more and more of our members involved in communicating our concerns to Washington.

    • Marianne, terrific! Thank you for the link. Fyi, I am part of the group in Washington State that you refer to you in the letter. Would love to take you up on connecting. Would be great to share intelligence on where the bill is, the support for those provisions, etc. Maybe we could coordinate some efforts. –Bill

  • Josh

    Very frustrating and moves in the wrong direction. A sensible rule change would allow more not less accredited investors. I think investors with less than 1M in net worth should be able to invest but the amount they can invest should be limited to a percentage (10%?) of their net worth. It is morally wrong to only allow the wealthy to participate in investments that have the potential for the highest return.

  • Tracy De Cicco

    I'm amazed that legislation like this gets proposed… to lead in a global economy, we need to and must innovate, legislation like this doesn't appear to move us forward…

  • Jason, thanks for the points. Both points are particularly troubling. My post is at:

  • Good post James and I guess that Senator Dodd just must pay attention at such voices as yours. Jason also thanks for the news.

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