Wednesday, June 4, 2014

SEC Considering Raising Accredited Investor Requirements

Potential to Eliminate 60% of Angels

The SEC is evaluating changes to the definition of an Accredited Investor. If their suggested changes go thru, it could eliminate 60% of those who currently qualify, potentially halving the size of our group and the U.S. angel community.

According to both SEC and General Accounting Office estimates, adjusting the net worth test for inflation, as advocated by some organizations as a form of “investor protection,” would eliminate about 60 percent of current accredited investors. The two agencies estimate that inflation-based adjustments would increase the net worth standard to about $2.5 million and annual income to $450,000.

More info:

Take Action:

From the ACA (Angel Capital Association)
Please help us protect angel startup funding by executing the following steps (takes less than 3 min)

(1) Go to following website:

(2) Scroll to Third Quarter, September 27, 2013

(3) Click on “Submit comments on S7-06-13”

(4) Fill out the form (Name, Address etc.)

Suggested Text for comments:(modify as you will)

(5) In the Comments box, please cut & paste the following text (feel free to edit if you wish):

As a member of the Angel Capital Association (ACA) and the Alliance of Angels (Seattle Angel Conference)  I urge the Commission to protect angel funding to ensure the health of the startup economy we support, by retaining the existing financial thresholds in the current accredited investor definition.  These thresholds -- $1 million in net worth or $200,000 in income -- have worked well for decades, creating a vital accredited angel investor sector that is the primary source of funds for early-stage companies that drive the innovation economy and job-creation nationwide, and with very little fraud.

If financial limits were sharply increased, angel investment in early-stage companies would suffer.  An increase in the net worth threshold to $2.5 million, advocated by some, could cut upwards of 60 percent of current accredited investors out of the market.  The startup ecosystem would be devastated by such a dramatic shrinkage of this vital investor pool, especially in regions where venture capital is not prevalent. A contraction in angel investing could stall local economic development, university technology initiatives, and stem innovation and job growth.  At the same time, millions of Americans would instantly lose the opportunity to participate in the innovation economy that is largely the purview of companies raising funds privately from accredited investors.

It is important to consider investor protection, the public interest and our current economy.  However, the SEC should note that, as more accredited individuals have engaged in angel investing, direct investment in startups has remained largely free of fraud.  This is a result of concerted due diligence, negotiated terms, and ongoing entrepreneur support and mentoring that are the hallmark of angel investing. 

Given the importance of the innovation economy to the nation, the need for capital formation in the early-stage sector, and the need to balance access to investment opportunity with investor protection, I urge the Commission to adopt the following approach to the accredited investor definition:

i Maintain the current financial thresholds of $200,000 income per individual; $300,000 for joint filers, or $1 million net worth not including primary residence for individuals to qualify as accredited investors.

ii Incorporate the concept of “sophistication” for individuals who do not meet the above thresholds to prudently expand the accredited investor pool, using a detailed questionnaire to identify qualitative information about knowledge and experience with this type of investment.

Such an approach will continue to provide investor protection while also recognizing the growing role and importance of accredited investor investment in innovation and growth that are essential to serve the public interest and sustain our nation’s economy.

Thank you for your consideration.

(6) Click the “Continue” button, and on the next page, click the “Submit” button

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