I don’t usually get involved in politics. But this week, Christopher Dodd and Congress have targeted technology start-ups for annihilation by regulation so I’m asking you to join me in taking action to stop legislation that will be devastating for early stage tech companies like mine. Hidden in the big banking regulation & bail out bill that Congress is currently debating, Christopher Dodd has included major changes to regulations for private investors in early stage companies.
Major changes to angel investing hidden in the bill include:
1) the requirements threshold for being an “accredited investor” will be raised from a net worth of $1 million or income of $200,000 to a net worth of $2.3 million or income of $449,000. BusinessWeek estimates that this will make approximately 77% of potential angel investors ineligible.
2) once an investment deal is agreed upon, it forces companies to wait 120 days before they can receive the funds – four months is an eternity for an early stage company.
3) it eliminates Federal regulation preemption for companies who have only accredited investors – this means that small, cash-strapped companies will have to navigate the legal and accounting requirements of both Federal and state regulations – and for multiple states if the investment is syndicated across state borders. Very difficult and very costly.
4) all startups who plan to seek funding will have to register with the SEC, thus incurring significant legal and accounting fees before they even have a chance to attract investment.
Given that banks have virtually nothing to do with the funding of startup companies, it seems very odd that Christopher Dodd would insert such a regulation into a banking reform bill.
I’m asking everyone I know to please help stop this portion of the bill before Christopher Dodd and Congress kill angel investing and an entire generation of baby startups. Starting a company is hard enough – startups REALLY don’t need our own version of SOX!