Washington has been busy on several fronts important to entrepreneurs
these past few months. One we must not forget to reflect on is the
recent U.S. Senate approval of a bipartisan-sponsored amendment to the financial reform bill that
protects against creating new barriers for high-growth entrepreneurs
seeking to raise angel capital. This “Angel Amendment” addressed two of
the original provisions in the bill that had the potential of creating
regulatory obstacles for entrepreneurs raising angel financing and
weakening the pool of angel capital by reducing the number of accredited
angel investors.
More specifically, the amendment that passed
eliminated the language in the bill requiring a 120 day
Securities and Exchange Commission (SEC) review period for investors
that prove an annual income in excess of $200 thousand and net worth
totaling more than $1 million. The incentive embodied in this language
could have proven harmful for the availability of seed investment, which
is already difficult to attract. Angel capital is essential to
entrepreneurial start-up activity in the United States. Angel investors are high net worth individuals who
make high-risk equity investments directly into growing companies,
usually as the ventures are starting up. A 2007 Kauffman study revealed that the majority of angel
investments between 1990 and 2007 were mostly made on seed or start-up
firms, with nearly 45 percent of the investments in companies that had
no revenues at the time of the first investment. This contrasts the
trend among venture capitalists, who are estimated to invest less than 2
percent in seed and start-up companies. Angels thus fill an important
void. Not surprisingly, the bipartisan “Angel Amendment” was strongly
supported not only by early-stage actors such as the Angel Capital Association and the Association of
University Research Parks, but also by those who usually enter the
entrepreneurial scene at later stages of the growth of young businesses,
such as the National Venture Capital Association, the North American
Securities Administrators Association, and the Private Equity Council.
To read the full, original article click on this link: Policy Dialogue on Entrepreneurship | A U.S Capitol Thumbs up for…Early-Stage Capital
Author: Jonathan Ortmans is president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues. In this capacity, he leads the Policy Dialogue on Entrepreneurship, focused on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as a senior fellow at the Kauffman Foundation.
