Public Policy

By: Marianne Hudson, ACA Executive Director

The Securities and Exchange Commission has recently provided three written statements that provide clarification and/or insight into their thinking on different aspects of general solicitation in Regulation D offerings.  I encourage angel investors and entrepreneurs alike to read these SEC materials and discuss them with your legal counsel.

Two of the writings are “Compliance and Disclosure Interpretations” (kind of FAQs) published on August 6 and the other is a “no action letter” written on August 3.  Let’s take a look at each, with my quick interpretation and then the actual language from the SEC:

By: Marianne Hudson, ACA Executive Director

I want to let you know about ACA's participation in the first ever White House Demo Day, which is focused on inclusive entrepreneurship.  There will be success stories about entrepreneurs from different geographies, ages, races and genders in an event this afternoon.  The press release explains more details. 

A part of the program is for private sector organizations to commit to growing inclusive entrepreneurship and ACA made a commitment that is mentioned about a quarter of the way into the document.  Our commitment is to do our first ever study on the demographics of angel investors and why they make investments to have a baseline of women and minorities as angel investors and to share best practices of investing. This study will begin this Fall and is supported by the John Huston Fund for Angel Professionalism

ACA is pleased to join small business advocacy associations in supporting the new Small Business Tax Compliance Relief Act, sponsored by US Senator David Vitter, of Louisiana.  Sen. Vitter, who chairs the Small Business and Entrepreneurship Committee, aims to promote a fairer tax code for American small businesses and entrepreneurs and promoting US job growth.  The act includes 17 different tax and regulatory benefits for small businesses, covering health insurance, IRS regulations, and 409A deferred compensation packages, among other things.

By: Ken Kousky, BlueWater Angels and Krista Tuomi, American University

A number of public policy activities and initiatives that occur in American states are just as important to angel investors as federal-level issues.  The key state issues include tax credits for angel investments, matching co-investments by the state, grants and incentives to angel networks and even state-run venture and angel funds.  Knowing what works remains a critical challenge at both the state and national level requiring that we organize and support our interests in both arenas.

Our last blog post analyzed some international matching grants, highlighting in particular the well-designed New Zealand and Israeli programs. This blog examines four types of public offerings in the US. 

By: Ken Kousky, BlueWater Angels and Krista Tuomi, American University

The Angel Capital Association has played an important role in shaping the most vital public policy issues that affect angel investment practices ranging from the implementation of the JOBS Act to the definition and verification of accredited investors. While meetings with the SEC and Members of Congress have been vital for ACA members, political actions at the state level are just as important.

The key state issues include tax credits for angel investments, matching co-investments by the state, grants and incentives to angel networks and even state-run venture and angel funds.  Knowing what works remains a critical challenge at both the state and national level requiring that we organize and support our interests in both arenas.

By: Ken Kousky, BlueWater Angels and Krista Tuomi, American University

Angel tax credits are a common policy measure aimed at boosting startups. They are relatively simple and cost-effective for states, and can result in high quality job creation. Credits can also be more effective than a capital gains tax reduction in stimulating early stage companies, since investors get the credit up front whether the investment realizes a gain or not.[1]  Currently 27 states have some form of early stage capital tax credit, the mode being 25% of invested capital.[2] 

It appears that the credits do actually spur new investment as opposed to just rewarding existing investors.  In a report by the Minnesota Department of Revenue, 48% of surveyed angels would not have made their investment without a 25% credit and 34% would have invested less. The Minnesota figures are bolstered by a survey of angels, conducted by Tuomi and Boxer in 2014. In this survey, 69% of respondents claimed that the credit influenced them to invest in more firms or invest more money. Some of this private capital may be displaced from alternative investment in the state, but it is likely that much of this would have been otherwise placed in national capital markets.[3]

By: Marianne Hudson, ACA Executive Director

The SEC unanimously approved a new rule, dubbed “Reg A+,” on March 25th.  The rule allows companies to raise up to $50 million from the general public in unregistered public offerings, building on a part of the JOBS Act passed by Congress in 2012.  Issuers may begin using this rule in about 60 days.

Many ACA members have asked what Reg A+ means for angels and the early stage investing community, especially given some blogs and media stories with a wide variety of interpretations.  This post provides basics about the new rule, and ACA is following up with two activities:  a special breakfast briefing at the ACA Summit on the new rules, led by law firm Reed Smith and ACA’s policy advisory council of attorneys is preparing a deeper information piece for ACA members.

**This post originally appeared on "The Hill" on March 3, 2015.**

By: Chris McCannell, director of APCO Worldwide’s Washington DC financial service practice and government relations. He has over 15 years of Capitol Hill experience working for Members of Congress on the Financial Service Committee and the tax writing Ways and Means Committee. He and his colleagues have been ACA’s registered lobbyist for the past two and a half years. Chris is an active participant in ACA’s programming including national events like this week’s Leadership Workshop.

The conversation around implementation and rulemaking of the Dodd-Frank Financial Reform legislation, which became law in 2010, has been focused on issues such as margin requirements for derivatives, bans on proprietary trading (the Volcker Rule) and other bank centric capital standards. Lost in the debate is a little known part of the legislation which requires the United States Securities and Exchange Commission (SEC) to revisit the definition of an accredited investor. A change in this industry wide definition could have drastic impact on capital formation, start-up growth, and ultimately American jobs.

By: Ken Kousky, BlueWater Angels and Krista Tuomi, American University

Federal and state governments are beginning to recognize the important role that startups play in job creation. (A recent article by Neumark, Wall, and Zhang notes that they account for almost 20 percent of gross job creation.) For these startups, early stage financing is increasingly necessary given the shortened product life cycle - businesses can only succeed by moving rapidly from ideas to product distribution.  Banks do not provide this type of funding; family and friends rarely have enough; and the public stock market is only an option for established firms. The 2014 Joint Small Business Credit Survey Report emphasizes this. In particular, it finds that the majority of small firms (under $1 million in annual revenues) and startups (under 5 years in business) are unable to secure any credit. (The average approval rate from all sources was only 38%). Not surprisingly, lack of credit availability was the top listed challenge for startups in 2014.

By: Marianne Hudson, ACA Executive Director

This post originally appeared on Forbes.com. 

Two industry powerhouses - America Online Co-Founder Steve Case and former Hewlett-Packard CEO Carly Fiorina - made a splash recently when they led a report, “Can Startups Save the American Dream?

I very much like this report from the University of Virginia’s Miller Center and the ideas in it. However, they missed a significant piece of the answer. While the report focuses on how entrepreneurs can kick-start the economy, it overlooks what we need to do to support the angel investors who fuel the entrepreneurs creating our country’s jobs and innovations.

The contribution of angel investors is huge. Angels have backed some of the most important companies in America including Facebook, Google, Amazon, Twitter and Starbucks. Angels supply nearly 90 percent of outside equity to startup companies, after friends and family.  In 2013 angels invested nearly $25 billion in about 71,000 companies in every state. Without angel investors, many of these companies would not be around.

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