Economy

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.

In case you haven’t heard, the SEC will revisit the definition of accredited investor soon and there is a possibility the financial thresholds could be raised so much that 60 percent of all accredited angel investors would no longer qualify to make angel investments. If this happened, this would have a huge impact on the high-growth startups that create the majority of jobs and innovations in this country.

We need angels, entrepreneurs, and all parts of the startup ecosystem to let the SEC know how important it is to keep the angel capital pool large and healthy. ACA has created a set of letter templates and other information so you can easily write the SEC and other policy makers. Check out our “Protect Angel Funding” web page for all details.

At issue is the potential for the SEC to raise the financial thresholds for individual accredited investors for inflation – so net worth requirements could increase from $1 million to $2.5 million and annual income thresholds could grow from $200,000 per to about $450,000. By the SEC’s own estimates, about 60 percent of households would no longer meet accredited investor requirements with the net worth increase alone. 

Want to find the best deals? The best exits?  Curious about syndicating on accredited platforms? How about getting answers to your questions about the new SEC rules on general solicitation and what you really need to do (from the SEC and from leading attorneys)?  Want to rub shoulders with some of the best and most successful angels in the world?

The world of angel investing is changing dramatically. To stay current with today's proposed rules and trends - and to hear from the best in the business, plan to be in Washington, DC March 26-28 for the 2014 ACA Summit - Angel Impacts:  Entrepreneurial and Economic Success.  (You can register here.)

We're inviting the media with lots of great stories about how angels support startup companies with passion, experience and funding. In 2012 angels invested nearly $23 billion in about 67,000 ventures. Read more about what reporters will be writing about here.

We hope to see you at the Summit, where hundreds of angels will gather to help determine the future of angel investing!  You will definitely bring home ideas you can implement immediately.

Dan Rosen is a Board member of the Angel Capital Association, the world’s largest organization of accredited investors, and is also chairman of the Alliance of Angels, a Seattle-based angel investment group.  To read the original post on VentureBeat, click here.

On July 10th, the Securities and Exchange Commission released rules allowing entrepreneurs to publicly advertise their investment opportunities, finalizing a portion of the JOBS Act of 2012. These included a final rule lifting the ban on general solicitation and provided guidance on how issuing entrepreneurs could “reasonably” verify their investors are accredited; a final rule disqualifying “bad actors” from investing in private offerings; and a proposed rule requiring entrepreneurs to submit multiple reports and information for solicited offerings. The Angel Capital Association (ACA) has taken a strong stance on these rules, stating that these rules could greatly reduce entrepreneur access to angel investment, as they require investors to provide their private wealth or income information to issuers or third parties, and also may require entrepreneurs to submit considerable information to the SEC with harsh penalties for missing filing dates.

David Verrill is Chairman of the Angel Capital Association and also leads the Hub Angels Investment Group in Boston.  He wrote an Op-Ed in the Wall Street Journal today on the SEC General Solicitation Rules.

Last week's SEC ruling on General Solicitation sounds an alarm to angel investors in the US on several grounds. But first, a quick summary of the ruling. Rule 506b keeps regulations as they are for those companies who only privately solicit funds from self-certified qualified investors. No harm there, and thanks to the SEC for maintaining the status quo for what has been historically the best way for startups to raise money from accredited angel investors.

The problem is with the new 506c rule, which puts the issuer (CEO of a startup, hedge fund manager, venture capitalist) on the hook to take “reasonable steps” above and beyond the self-certification questionnaire to verify accreditation of an investor if the issuer generally solicits that investor. The definition of what constitutes being generally solicited is extremely broad, including anything public, such as an event or appearing on a Web site. Herein lies rub #1. Much of the deal flow for my angel group comes from events and activities that could well be considered a "public" forum. Think about the accelerators (TechStars Demo Day), business plan contests (MIT $100k, MassChallenge events), or even the portals (Gust) that all have mechanisms of communicating with their various audiences that makes them likely subject to the 506c requirements. These critical members of the startup ecosystem are very important sources of quality deal flow for angels (and VCs). In order to avoid any question of whether or not 506 b or c would apply, an issuer might play it safe and file under 506c because the penalties are severe (like offering your investors their money back, or being banned from raising more capital for a year) if you file for 506b but are shown to have generally solicited. What would you do as a startup CEO?

Last week the Securities and Exchange Commission approved two rules and one proposed rule that will change how entrepreneurs raise angel capital and may make investment more difficult for angels and startups alike. We think fewer angels will invest as a result, unfortunately hurting the startups that create jobs throughout the U.S. 

The issues are complex, but here is a quick summary:

1. The SEC is lifting the ban on general solicitation for startups raising capital under Regulation D Rule 506(c) – as required in last year’s JOBS Act – and providing rules on how issuers take “reasonable steps to verify” that all investors are accredited.

Here’s the important thing for you to understand: for solicited deals, angels will no longer be able to self-certify their accredited status. Instead issuers will need to verify accredited status with “safe harbor” categories such as providing the issuer a copy of your W-2, tax filing, or brokerage statement or a third-party (attorney, accountant, or registered investment advisor) certifies that you are accredited. Investors who have previously invested in an issuer will be grandfathered in additional investments in that particular company. The published rule is here.

The Angel Capital Association is making a difference in Washington. For the past 24 months, the ACA has made a concerted effort to make sure we take the voice of angel investors to Capitol Hill. A special fund was initiated to help cover the expenses of that effort, our Public Policy Committee put together an all-star volunteer cast of some of the best legal minds on the planet (like Joe Bartlett of Sullivan & Worcester in NY), and we engaged a lobbying firm called APCO Worldwide to help us maneuver our way through the halls of Congress. And it has paid off already.

The initial call to arms came in 2010 when Congress, influenced by North American Security Administrators Association, proposed changing the rules on private company filings (so-called Reg D Filing) that would have made it difficult,

Welcome to Angel Insights, the new blog of the Angel Capital Association. We want to use this blog for more dialogue with our member investors, but also to engage with the startup funding and support community, policy makers, and others interested in active angel investment and the innovative startups angels support with money and expertise.

This week and over the coming months, Angel Insights will include postings from me as ACA's Executive Director, but also from ACA Chairman David Verrill and members of ACA's Board of Directors. We also plan to include some of the great blog posts from our members and partners.

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