Dodd's Financial Reform Bill Makes the Angels Cry

Angel investors, that is. Why, and some reactions, gathered at VentureBeat:

Dodd's bill would require startups raising funding to register with the Securities and Exchange Commission, and then wait 120 days for the SEC to review their filing. A second provision raises the wealth requirements for an "accredited investor" who can invest in startups — if the bill passes, investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $250,000). The third restriction removes the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states…..

Investors offered….criticism on Twitter, with Slide vice president  Keith Rabois  tweeting, "Anyone still need more evidence that Obama and the Democrats intend to destroy Silicon Valley and the dreams of entrepreneurs?"

Rabois, an early PayPal employee and angel investor, has a strong libertarian/anti-regulatory political stance, but liberals hate these restrictions, too.  Chris Sacca, an angel investor and former Googler who campaigned for Obama, also  tweeted that people who "care about startups and making sure they have access to capital" need to sign a petition against the investing regulations.

I asked Sacca for more details about his opposition. In a voicemail, he said:

Obviously, I'm deeply concerned about Senator Dodd's proposal to place these restrictions on angel investing…..

Specifically, one of the things we need to take into account is while 10 years ago it may have taken years to build a company, companies are now built in a matter of weeks. So this 120-day waiting period is frankly ridiculous. I have companies with tens of thousands and hundreds of thousands of users that are built in a matter of weeks. They're generating actual dollars of revenue, creating jobs, investing in real estate office space, capital equipment, etc. If they had to wait 120 days to actually apply for the ability to obtain financing it would absolutely just crush that market.

Anthony Randozzo wrote on Reason Online back in November on other things to hate about the Dodd bill. The 11-page version of what the bill will do.

Comments

[Ken Shultz]

I've opined here before, but during the last recession, the one we started the '90s off with? This wasn't a problem. ...and that's why the '90s were so sweet.

There's only one reasonable explanation as to why someone would cripple the engine of growth at this point in the economic cycle--they must have no idea what they're doing.

You're reading this comment by way of about 100 companies that might not have gotten the funding they needed to create the industries that were brought into existence specifically because there weren't regulations like this.

Despite what you may have heard, Al Gore did not invent the internet. Rabid capitalists did. They laid the carbon fiber, the wrote the software, they created the media, the developed the processors and the search engines and the advertising systems that make it all go...

And things aren't going to get that much better by old companies defending their niches. We need whole new industries.

But we're gonna make it harder for venture capitalists? At this point in the cycle? It's hard to believe anyone could be that dumb on purpose, but just in case the healthcare bill didn't make it obvious, the Obama Administration and the Democrats hate innovation.

They're all about trying to protect what "we" already have against all of its threats--and innovation is just another threat as far as they're concerned.

The big economic news these days, in case you haven't heard, is that manufacturing is making a big comeback. Doesn't anybody realize that's a step backwards?

I used to work in a sawmill in a furniture factory. What sort of hideous society wants to go back to that?

[DARPA]

DARPA DARPA DARPA DARPA DARPA DARPA

DERP

just to get it in before the inevitable trolling.

[Hazel Meade]

Porn built the internet.

[Big Labor]

The big economic news these days, in case you haven't heard, is that manufacturing is making a big comeback. Doesn't anybody realize that's a step backwards?

From YOUR point of view, you self-centered ingrate.

[Apologetic California]

Fuck Silicon Valley. Progressive scums. Yea, let's see the government regulate the tech industry as much as it does the auto industry. See if the smug Diggers like that.

[Episiarch]

Yeah, let's fuck the economy 10 times worse so that some people you don't like will complain. That's brilliant.

Hopefully this story is just Dodd playing an April Fool's joke, anyway.

[Apologetic California]

Short term pain. If the progressive money dries up for stupid leftwing causes, then it's a good thing. Silicon Valley is one of the pillars of both libtard financing and social connections. It needs to be destroyed.

[Episiarch]

You can't be this retarded, so I'll assume you're trolling.

[Jeffersonian]

It needs to be educated, not annihilated.

Then again, there is some entertainment value in seeing these Congressional half-wits use the technology these geniuses developed to tighten their grip on the tech industry. And here they thought their support would buy them some protection...

[Mike Laursen]

That would be a huge mistake. Silicon Valley may be full of liberals, but they are liberals with a mutant gene that makes them act like "rabid capitalists" when it comes to business. Get rid of them and they stop exerting a moderating influence on all of the rabid unionist liberals.

[Episiarch]

This is fucking insane. I'm in a startup and we got angel financing for our first round just a few months ago. These rules would have been disastrous for us.

Fuck Chris Dodd, that nepotistic mother fucker.

The one good thing about this is that it's so egregiously dumb and bad for entrepreneurship that it can't be allowed to pass. But, then again, I said something similar about HCR.

[Tulpa]

Are you kidding? It's almost guaranteed to pass. The Dems love it and the GOP won't dare filibuster a bill presented as "reigning in the Wall Street fat cats".

The only reason health care reform didn't sail through Congress was because of Palin & Co.'s blatant lies about "death panels" and such. Not that I disapprove of the effect of those lies, but we shouldn't get the impression that the health care bill was unpopular for the reasons we don't like it. Dodd's bill is an easy populist sell for the state-aligned media.

[Episiarch]

HCR was supported by hugely wealthy lobbies from the insurance and pharmaceutical industries. This bill will be opposed by hugely wealthy lobbies from the technology industry. It gains nothing for anyone, and severely handicaps entrepreneurship.

Incredibly stupid bills get passed when they benefit someone, not when they benefit no one.

[Tulpa]

Sarbox benefited no one (except accountants, who don't have a HugeLobby). It was passed so that politicians could look like they were DOING SOMETHING. Same thing with the Patriot Act.

Not to mention the fact that the big banks stand to benefit from this legislation's other hideous parts, namely the too-big-to-fail tax that writes into law a slush fund for them to be bailed out from. And currently-existing tech companies have no reason to fight for the rights of potential competitors to get startup cash.

[Art-P.O.G.]

I'm trying to figure out what Dodd's motivation even is for floating this. I really can't.

[alan]

Perhaps he believes in Galbraith's New Industrial State. Where Kenneth G speculates that without those evil entrepreneurs trying to shake things up by taking down established monopolies, economies would sail smoothly for the benefit of the most people.

Mainstream economist don't take him seriously, and even Krugman, at least in the last decent thing he wrote in the 90's, pretty much thought Galbraith was a laughable weaseldick, but than Dodd is just an idiot lawyer so it is in the realm of possibility his thinking is so guided.

Just my two cents. I can't think of any other rationale that could justify what the man is thinking.

[alan]

but than Dodd is just an idiot

then Dodd

[alan]

Than Dodd is close to the name of a friend of mine from Vietnam who was on my mind while I was writing.

[Episiarch]

I've been trying to figure out why politicians do crazy shit for years, and I really keep coming back to that there must be some information we don't have, because this just makes no sense otherwise.

[cynical]

That sort of thinking causes cults to form around schizophrenics.

[Alfred]

Some men can't be bought or reasoned with. Some men just want to watch the world burn.

[alan]

In the spy novels it is the sort of thing that an agent of foreign interest would do if he had orders to make sure that the American economy stayed permanently wrecked.

Of course, [sarcasm on] reality doesn't resemble a spy thriller in the least.

[Hazel Meade]

On the other hand, it increasingly resembles and Ayn Rand novel.

[alan]

Anyone got the FBI Hotline number to report suspicious activities? I've got a hot tip on a Senator who is acting very funny.

[alan]

Anyone got the FBI Hotline number to report suspicious activities? I've got a hot tip on a Senator who is acting very funny.

[Tomcat1066]

Of course these dipshits don't know what they're doing. Anyone with half a functioning brain cell understands that many small businesses need start up capital, and that those business are what stimulates the economy on a more permenant basis. They only create jobs, buy supplies which boosts employment for other businesses, and then create a product that people want.

These assholes think that somehow they're protecting people, but all they're really doing is causing this nation to stagnate. It wasn't government regulation that built this nation, it was private innovation. It was so-called greedy capitalists who were out looking for profit that built the railroads and buildings that touched the sky. It was private enterprise that made the automobile affordable for the rank and file citizen. It was the individual that turned this nation into the innovator that it is today.

Thanks a lot Dodd. I am now hoping you assholes destroy this nation a hell of a lot sooner, so we still have time in my lifetime to rebuild it you fucker.

[Ken Shultz]

I don't think it's just silicon valley either.

There are a lot of Moms and Pops and brick and mortar businesses that need start up equity and tap that friends and family pool.

When we put together a venture, our lawyers want us to qualify everybody as accredited investors...

I blame the bailouts on the politicians who voted for them, but whoever you want to blame, I don't think you can reasonably point the finger at small investors with a net worth of around a million!

It was the big guys, if anybody! Not the little venture capital investors.

I don't even understand the rationale behind it. Society has to be protected from investors with a net worth of between $1 million and $2.5 million?

Why?

[Alabaman]

tap that friends and family pool

Now you're talkin my language!

[Paul]

Same reason anything over 3, 2.5, 1.8, oz of liquid on a plane is bad.

[Rich]

Ends the possibility that taxpayers will be asked to write a check to bail out financial firms that threaten the economy by: creating a safe way to liquidate failed financial firms

A quick foray into definitions shows that a "financial firm" is "any entity engaging in business, that makes loans to clients". It would seem that the gov't is a "financial firm", so Dodd's bill might have some unintended consequences.

[Max]

It's good that small investors are protected from investing in risky schemes. They should put their IRA money in something safe, legal, and profitable* like a 3x inverse oil ETF.

( * for Wall Street )

[Seward]

Can we stop calling this stuff "reform?" Thanks.

[Tulpa]

"Deform", while accurate, isn't as catchy.

[MikeP]

This is rather brash legislation, given that it comes from the primary Senate architect of the financial crisis.

Does Dodd's arrogance have any limit whatsoever?

[Jeffersonian]

Only until the Bushmill's runs out.

[Paul]

Does Dodd's arrogance have any limit whatsoever?

No.

Now let's eat his farina and vote him in another term.

[Holy Cow]

"Chris Sacca, an angel investor and former Googler who campaigned for Obama"

Yay, Tyranny! I'm a Dumb-Ass... Tell me What to Do! Who's up for Warcraft?

[Bob Smith]

If anything, we need to loosen up both Reg D and the presumptive public company threshold (500 investors).

1) Raise the threshold for a reporting company to at least 1,500 investors
2) Raise the capital limits of Reg D 504 and 505 to at least double their current value.
3) Raise the permitted number of unaccredited investors to at least 75.
4) Lower the income limits for accredited investors to no more than $100k, and asset limits to $250k. Too few people qualify now, it's a "rich stay rich" scheme.
5) Permit full public advertising. The ban against it makes money raising unnecessarily hard, while offering no protection to investors. Who cares whether unaccredited investors might see an ad or be solicited? At worst this wastes the company's time, because the investor will be rejected as unqualified. If the company is going to accept unqualifed investors found through public solicitation, they'd likely do it through private solicitation too.

[Concerned Citizen]

If this bill is passed in anything like its present form, it will be a complete disaster for small businesses. Banks have stopped lending and angel venture capital from smaller, more forgiving investors will not be legal. The intention here is nothing less than telling everyone with a brain who wants to work hard to get ahead to "move to another country". I'm seriously thinking about it and I've been doing startups for the past 25 years.

With clowns like this running the country, your best investment will be taking all your cash, buying gold bars and burying them in the backyard. That's good for the economy!

[Tulpa]

Oh, I'm sure the government will be happy to step in and give small businesses a hand. As long as they follow a few simple rules written by radical environmentalists and labor organizations.

[Ebeneezer Scrooge]

And affirmative action committees.

[Ebeneezer Scrooge]

I was about to suggest that we need to go find a small country to take over. But then I remembered we're libertarians.

Libertarians can't bring themselves to seize control of a public phone booth, let along a single state. Taking over a country is way out of reach.

[Forrest]

Word to the wise: if something isn't worth waiting 120 days to do, it's probably not worth doing at all.

[cynical]

I hope the EMTs remember that little nugget of wisdom if they ever have to show up for you.

[Forrest]

I apologize, that word was meant for the wise. I must have confused this place with the Huffington Post for a moment.

[for the]

win:-)

[Enjoy Every Sandwich]

Well then, o great wise one, I imagine you can explain the value added by this particular 120 day wait.

[Jeffersonian]

Behold the new Obamacare slogan.

[Hazel Meade]

+1

[Ebeneezer Scrooge]

That's okay, but I still like mine better:

Democrats do it because they love us, and Mother Earth more (I mean too).

[Venture Capitalist]

Oh my God, I just realized, I have been doing this the wrong way for nearly a quarter of a century. Thank you, Forrest for that insight. Do you have some special source of knowledge where you got this from that you could possibly share with everyone? To think that I have been learning through doing, making a few mistakes here, getting it right there, all of these years, and it has been a complete waste of time.

A man of your knowing must be fabulously wealthy. If I had your wisdom, I obviously would be in much greater shape than muddling through in the high six figures (after taxes of course) making my skim. Where do you get this knowledge? Is it academia. Did you get it from a book? What school, what author, what title, give me a name!

[bmp1701]

He's got years of experience at his job of being a twit. You can't beat that.

[oncogenesis]

Like waiting to sign "important" legislation???

[bmp1701]

Serious Question: Are you professional moron, or just a gifted amateur?

[bmp1701]

Serious Question: Are you a professional moron, or just a gifted amateur?

I WILL USE PREVIEW BEFORE I POST.
I WILL USE PREVIEW BEFORE I POST.
I WILL USE PREVIEW BEFORE I POST.
I WILL USE PREVIEW BEFORE I POST.
I WILL USE PREVIEW BEFORE I POST.

[Rewrite]

By that logic, it would be even more worth doing if we waited 365 days...or 1,000, or maybe forever -- certainly we should wait that long to pass this bill. BTW, May we assume you feel the same way about the HC Bill that was finalized and then passed the same day?

[josey]

It's really quite silly for gov types to piss off software types any more than they have to; they have no idea what type of fire they're playing with.

Twenty years ago, you had just fired up your first Windows box. Twenty years ago, you hadn't heard of Yahoo because it didn't exist. Twenty years ago, you were not banking or paying your bills online. Twenty years ago, you were still reading a newspaper.

Now -- do you really think that you'll be transacting business in terms of an official sovereign currency twenty years from now?

I don't.

[Ebeneezer Scrooge]

And we're all going to start trading in virtual gnus instead?

I'd like to believe The Economy is about to outgrow its need for central governments. But I don't think it's going to happen in 20 years.

[josey]

I think it's hard to say. Fiscal responsibility on the part of governments in general has been on the decline for the last decade to a degree that many find to be nearly unfathomable. At the same time, the universality of direct communication between the people has been on the rise with a rapidity that could not have been imagined even twenty years ago. This inverse relationship points in only one direction, and I think the timeline it will involve can only be described as a quantum leap. Just for example, I grabbed this statement from wikipedia's Twitter page:

"By the end of 2007, about 500,000 tweets per quarter were posted. By the end of 2008, 100 million tweets per quarter were posted. By the end of 2009, 2 billion tweets per quarter were posted. In the first quarter of 2010, 4 billion tweets per quarter were posted."

So where it is impossible to state that in twenty years we will be using private digital currency, I do think that it is fairly accurate to predict that (a) in N years we will be, where N is basically a function of fiscal irresponsibility on the part of sovereign currency providers, and that (b) at N - (O) years, where O is in the lower single digits, no viable private digital currency market will yet have materialized.

[Mo]

Good lord Dodd is an idiot. This will really snarl up startups. The worst part is, that is the time in a company's formation when it can least afford additional costs and delays.

[Hazel Meade]

I'm with you all on the stupidity.

But... what on earth does Dodd think will be the benefit of this shit?

I can't see ANY rationale besides "Hey it's fun to fuck over entrepreneurs!"

[Paul]

Centralized Control.

536 douchebags in a swamp still insist they can dictate how each and everyone of us will live our lives.

God I wish someone in the front row would start seriously agitating this government so I can have my freedoms back.

[Ebeneezer Scrooge]

It gets a lot easier to understand if you remember that "progressive" = "socialist" + "environmentalist".

Democrats do it because they love us all, and the earth more (I mean too).

[Ebeneezer Scrooge]

I trust there's no need to spell out the logic of socialists. The Democrats suddenly make perfect sense if you interpret their actions in this context.

[Bob Smith]

State securities regulators want their powers back, hence Dodd's gutting of Reg D 506. This would destroy private placements. Florida, for example, has only approved one application in 17 years. Their regulator is very proud of that. Texas is another state that's very hostile to private placements.

If you can't go private, you must go public. Who benefits? Investment banks and brokerage houses.

Many private placements are so because they're "too small" for the banks and brokers to bother with. Note that "too small" could still mean an easy million dollars in fees to the underwriters, just so you know where they're coming from. It should be obvious new ventures do private placements because these costs are enormous and create no value for the company.

[tarran]

It is a well known trick used by politicians: extort campaign funds or other favors from a target industry by threatening to annihilate them legislatively.

Of course, the Stragneglovian logic that requires one to be prepared to do these destructive things in order to keep the threat credible means that Dodd is probably prepared to declare war on entrepeneurs no matter what the cost to his countrymen.

[Ebeneezer Scrooge]

I doubt there's any "probably" to it. He's the same guy who, like Obama, will kill the rest of the nation before he lets GM die.

Small business is not good for unions. GM is.

[Tulpa]

Dodd isn't running for reelection.

[FreeView Documentaries]

Great SITE for Documentaries check it out

[Paul]

Does anyone else get the feeling that this congress and the Obama administration is pushing is ever further in a decidedly Fabian direction?

[Ebeneezer Scrooge]

They just want to enact the whole Democratic party platform in this two year window we've given them. You know, it could be a really long time before they get a chance like this again.

[Ebeneezer Scrooge]

Welcome to Animal Farm everyone. In the long run we're all just so much glue.

[MJ]

"...investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $250,000)."

I suppose the thought is that an investor making less than that might be financially ruined by a venture's failure. The thinking is of a piece with the inistance on universal health coverage. The little people must not be allowed to assume more than government approved levels of risk.