Dodd-Frank Act

This large 2010 bill covered a wide range of financial reform issues, over more than 800 pages. The original bill included two sections that would have reduced the number of accredited angel investors and create regulations that would have made raising angel capital more complicated and costly for entrepreneurs.

ACA's Advocacy Work: To ensure a healthy base of angel investors could support innovative startups, ACA worked with Sen. Dodd's staff and a bi-partisan group of Senators to remove these sections and replace them an "angel amendment" that kept the accredited investor standard for net worth at $1 million, although the value of the individual's primary residence would not count toward the $1 million. The standard for income remained the same.

Important Changes for Angels and Entrepreneurs
The financial reform bill - now known as the Dodd-Frank Wall Street Reform and Consumer Protection Act - became law on July 21st 2010 when President Obama signed the act. There are two sections in the approved legislation of particular interest to angels:

  • Section 413, Adjusting the Accredited Investor Standard (pages 202-203)
  • Section 926, Disqualifying Felons and Other "Bad Actors" from Regulation D Offerings (page 476)

The final legislation removed the provisions that concerned ACA related to Regulation D - so there is no 120-day waiting periods for approval of offerings and no patchwork of different state regulations for entrepreneurs raising capital. Instead, Section 926 adds more abilities for regulators to stop Regulation D private offerings from "bad actors."

The final act also eliminated automatic inflationary increases to the definition of "accredited investor" that would have decreased the number of angels in angel groups by about 60 percent (based on source data from the "Returns of Angels in Groups" academic study). However, Section 413 does include compromise language for net worth requirements, which stay at $1 million but exclude primary residence from the calculation.