Sorry Zeta - Washington Knows Best
It is hard to find a politician that does not talk about entrepreneurs and their importance to job creation. However these are empty words when actions do not match.
Today is a reminder that few in Washington have any idea of how businesses get started in this county. Buried in the Dodd Financial Reform bill are two provisions that would harm Entrepreneurs by resulting in less funding going into early stage high growth companies, at a time when this is exactly what we need.
If left in the Financial Reform Bill section 926 would;
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1) Require companies taking Angel Investments or certain types of Venture Investments to fill with the SEC. Anyone who has had to work with the SEC will tell you this will be a time consuming and frustrating process. Simply put this will be nothing but a burden on early stage companies.
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2) The provision will double the net worth required to be an accredited investor from one million to two million. This will significantly reduce the amount of people that are legally allowed to be Angel Investors.
Now more than ever we need funding for early stage companies. There is not a single person that has tied the financial collapse to Angel Investing. Why then does the financial reform bill include these provisions?
Just yesterday myself and three other active Angel investors meet with a company (we will call Zeta for demonstration purposes) that is in the process of raising $200k. We are likely moving forward with the deal. How would this legislation affect Zeta?
First, Zeta is out of money. Now they will have to spend money they do not have on legal fillings for the SEC. At least the lawyers will get rich.
Second, they have done an outstanding job of bootstrapping the business, but just as it is starting to take off they need funding. We are hoping to close within a month. Under this legislation that would not happen. Zeta would be required to receive approval from the SEC which they claim could take up to 120 days, but several individual I know that have gone through an IPO think it will actually be longer. Sorry Zeta you will have to shut down.
Second, at least two of the Angel in this deal would not qualify as Angel and therefore would not be allowed to invest under the new legislation. Sorry Zeta even about to cover the cost of filing with the SEC and if you are able to survive for the next 120 days you will only get half the capital you need to grow your business.
This policy is bad for entrepreneurs, investors, and anyone looking for a job!
Write you Senators and tell them section 926 does nothing but harm entrepreneurs.
To learn more about this policy checkout Kauffman Foundation.
http://www.huffingtonpost.com/robert-e-litan/proposed-protections-for_b_511284.html
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