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.