Monday, August 05, 2013
Why is the ACA making a big deal about the SEC’s recent rules?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. I am being asked, why is the SEC proposed ruling such a big issue? Unless you read the entire ruling, it won’t be clear why it poses such a threat. Simply put, the proposed SEC ruling is (a) trying to fix a problem that doesn’t exist; (b) will increase risk in our early-stage deals by adding a dimension of regulatory risk that isn’t there now; (c) will increase the cost and time for getting deals done; and (d) violates the Congressional intent of the JOBS Act, which recognized that using angel investment to create more jobs in startup companies was good for the U.S. Their proposed ruling is setting new policy by bureaucrats in an area where the policy should be set by legislators. There are several issues here:
1. What constitutes a general solicitation? One reason I welcomed the JOBS Act provision on general solicitation was that angel groups living in the 21st Century, would conduct business that might be construed as General Solicitation – a boundary that is subjective. My angel group, the Alliance of Angels (AoA), was ultra-conservative. For example, we didn’t give our 2 page startup summary sheets to guests
who had not yet given us the accredited investor forms. When a company posts its plan to Gust (as the AoA requires), are we generally soliciting? We live in a connected world, with social media being the norm, so the new rules should take that into account. But the boundaries are murky and, if the proposed rules are adopted, the consequences of a mistake are draconian.
For a more thorough treatment of these issues, see: www.startuplawblog.com/ or www.angelcapitalassociation.org/blog/. |