Why Does Financial Reform Punish Startup Companies And Angel Investors?
from the not-good-at-all dept
It's amazing how badly politicians who know a little bit can screw things up. Apparently, Chris Dodd's financial reform bill contains a somewhat horrifying clause that would seriously harm the ability of startups to raise angel financing. Startups raising angel money are about as far from what caused the financial crisis as anything I can think of, and yet, the financial reform bill contains some ridiculous provisions:Under existing law, startup companies can raise money easily and quickly from "accredited investors" -- individuals with substantial wealth or income. There is no need for the companies or the investors to gain approval from any state or regulatory official.As someone who has raised a fair bit of money from accredited angels in the past, this proposal would be quite troubling. The idea that a company would need to wait four months before it can get the money it needs would kill a lot of startups. There is no evidence that the angel funding process has been problematic in any way. In fact, some might argue that it's one part of the financial system that works incredibly well. So why are politicians mucking with it?
All of this would change if Section 926 of the Dodd bill is included in any final reform legislation. That section would require, for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding.
The negative impact of the SEC filing requirement would be aggravated by the proposed doubling of the net worth or income thresholds required for investors to be "accredited."
Filed Under: angel investors, chris dodd, financial reform, investing, sec
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*sigh* Ultama Ratio Regum...
What we see here is simply the end-game of capitalism at work. The answer? Push the reset button, time to start a new game.
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Re: *sigh* Ultama Ratio Regum...
also helps if you're willing to make use of protectionist measures to shape the resource flow within, into, and out of your country, rather than purely to make sure the individuals currently making money make more.
but the key to th whole thing is:the government's purpose in a functional capitalist system is to provide the outside limits to what is viable within it, Not to be a tool for those playing the game.
if capitalism is a game, government should be the Rules, not a card.
'course, that's more of a cultural thing than anything...
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Which had nothing whatsoever to do with angel investors. But, why let details get in the way?
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Politicians Jealous?
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1. As a defensive move to help protect themselves from others in the same space that also have patents.
2. To add value to the company. At aquisition time patents are one more thing to negociate over.
As a startup with VC investors we DO plenty, we are DOING stuff but we still have patents.
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1) In the current Intellectual Property environment, startups will seek patents to bolster their valuation, and to protect against attack. (Both of which you mention)
and
2) Startups like patents.
As a company that is hoping to DO stuff, and wow the world, it would be better to just do so unencumbered by the threat of lawsuit from others, without having to try to work around other people's patents, and without having to spend your own resources getting patents instead of building product.
This isn't absolute. For some startups, steeped in true R&D over years, there is a stronger argument in favor or patents.
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Huh? First we're talking about angel investments, not VCs, and of course I support startups. But I think you're very wrong. Most early stage investors are very much worried about patents.
http://www.techdirt.com/articles/20100111/2233347712.shtml
There are some rather bad investors who focus too much on patents, because they don't know much about how business actually works -- but as we've highlighted most of the best early stage investors are quite worried about patents.
But, either way, that has nothing, whatsoever, to do with this particular discussion. We're just talking about the logistics of funding startups.
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Fair enough, I suppose I meant investors not VCs. You are right, having the government make it harder to get started is a bad idea. This particular rule will do more harm than good.
My experience with startups and patents seems to differ from what you think. I agree that focusing too much on patents is not good. Patents or no patents, to be successful you have to execute. If you happen to get a couple of patents along the way while you execute it sure does not hurt.
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it's very simple: government is massively broken. this is a big problem. all solutions start with the truth. ergo.... http://www.patriotsquestion911.com
don't want to respect the truth? want to ostracize those who do? fine. have fun paying the price. when the "angels" are mature enough to take responsibility for their government, maybe they'll get their free market back. until then, they get what they deserve.
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A friend of mine asked her brother 'You didn't do any business with Madoff, did you?' because they know quite a few people who lost fortunes through that scheming bastard. He told her 'Do I look like I'm stupid?' It didn't matter that he was one of Bernie Madoff's ideal targets because he never took the bait. He wasn't impressed with the sales pitch he heard from friends, colleagues, religious associates and family members who had drunk the Bernie and Ruthie Kool-Aid.
So I really think we should leave these people alone and don't start tampering with the minimum net worth required to be classified as an accredited investor (last time I checked, it was $200k in income per year or a million dollars net worth.)
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because politicians do what they do best, take something good and destroy it. Whenever a politician sees something good it must destroy it.
If it moves, tax it. If it keeps moving, regulate it. If it doesn't move, subsidize it.
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and I don't think any of it is far off base. It's all based on reason and logic.
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"Does anyone really know what the true impact of this is going to be? A lot of the speculation seems to be pretty far off base."
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Financial "Reform" a farce for Angels
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Such bills always put a spoke in the wheels of small businesses or startups. You're right, waiting 4 months can kill a lot of undertakings. I recently read an article https://enterph.com/blog/get-special-investors-resident-visa-sirv-step-step-guide/ and I understand that now many of the investment program is beneficial to start abroad, where there are no such problems and difficulties with the law. And the design itself is very fast
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