What is Driving Senator Dodd in His Financial Reform Bill?

I was catching up on reading through blogs when I came across this post on Venture Capitalist’s Fred Wilson blog AVC http://tinyurl.com/y8nm5vy. If you are an entrepreneur who is currently or will be looking for early stage financing or a person who provides early stage capital, then you need to understand what is being proposed and aggressively oppose it.

Senator Dodd of Connecticut has a Finance Reform Bill moving through the Senate that has a couple of provisions in it that will adversely effect early stage company investing. One is a proposal to raise the criteria of an Accredited Investor from a net worth of $1M to $2.3M. Now I have no idea why this is relevant to bank finance reform? The only connection that I can come up with around the last financial crisis and Angel investing is that Angels now have significantly less money to invest in companies! So, if the passage of this bill shrinks the pool of investors, then even fewer companies will get the funding they need and one of America’s economic development engines will be seriously effected. Has Senator Dodd forgotten how many private sector jobs are created through startups? Is Senator Dodd proposing that people with $2,3M of net worth are that much more able to understand the risks in early stage investing? All the Angel investors that I know are quite aware of the risks.

The other provision, if I understand it, requires businesses to make an SEC filing before seeking capital or they will have to register with each state where they intend to fund raise. There is a post at TechFlash, http://bit.ly/96uuEx, that covers this in much greater detail.

Angel investors and entrepreneurs need to read through these and then think about how this bill will adversely effect them in the future, and, if you come to the same conclusion that I did, contact your Senators and Representatives to oppose the passage of these two provisions.

I also think that someone needs to educate Senator Dodd on the differences between funding early stage companies and bank finance reform. Maybe someone should have him look at the Fortune 500 today and what it looked like ten years ago. How many companies on the list were started in the last 10 years? How many jobs and how much economic impact would be missing if these new companies had not received early stage funding they needed and weren’t able to get started?

This is just so bad in so many ways.