Public Policy

By Daniel DeWolf, Chair, Technology Practice Group and Co-Chair, Venture Capital and Emerging Companies Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.  He is also a member of the ACA Public Policy Advisory Council. 

This article originally appeared in VC Experts.

The SEC has finally provided clarity as to how an issuer of securities can conduct a private placement in a password protected web page under Rule 506(b), without it being deemed a “general solicitation” and thereby being subject to the additional requirements imposed by the new Rule 506(c). The guidance has been provided by the issuance of the Citizen VC No Action Letter (the “CVC Letter”), which request was authored by Mintz Levin.

By: William Carleton, Counselor @ Law, and volunteer chair of ACA Public Policy Advisory Council

The following is adapted from remarks prepared for the Angel Capital Association's 2015 Angel Insights Exchange, held in New Orleans the week of November 9. Bill is the volunteer chair of an advisory council to the ACA, but the views he expresses below are personal to him, and not a reflection of ACA views or policy.  This post originally appeared on Counselor @ Law.

As we all know, Dodd-Frank (2010) and the JOBS Act (2012) brought big changes to the rules that govern what’s okay and what’s not okay in the world of federal exemptions from securities registration requirements.

By: Marianne Hudson, ACA Executive Director

Two years after proposing rules for equity crowdfunding, the Securities and Exchange Commission approved rules for entrepreneurs to raise up to $1 million per year from all investors.  The new U.S. crowdfunding market will officially start in late April or early May of 2016.  The SEC also proposed new rules to modernize crowdfunding within states for public comment during its October 30 meeting. 

Here’s the early “skinny” on the approved rules, noting that they are 686 pages (not a typo):

By Krista Tuomi, Associate Professor, American University

Entrepreneurs often explore a range of funding sources to expand and/or finance working capital, including ‘alternative’ ones such as peer-to-peer (P2P) lending and invoice financing.  These have recently been enjoying media exposure, sometimes erroneously grouped in the same category as angels.  As with my previous blog post on bank loans, this table is supposed to give a rough idea of the advantages and disadvantages of each source.  Such information is useful when advising a firm, or considering investing in one which has already tapped this pool of money (and probably is paying dearly for it).

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]

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