Given the importance of angel investment to start-ups, university tech transfer professionals had best pay attention as financial reform moves through the U.S. Congress, according to Robert E. Litan, vice president of research and policy at the Kauffman Foundation in Kansas City, MO. Sec. 926 of the comprehensive financial reform bill, unveiled on March 15 by Senate Banking Committee Chair Christopher Dodd (D-CT), contains onerous provisions that would deter start-up companies from seeking angel investments, Litan maintains. In an opinion piece published in the Huffington Post, he warns that the bill would raise the costs of seeking angel investment and require start-ups seeking angel investors to file with the Securities and Exchange Commission (SEC), which would have 120 days to review the request. Currently, start-ups can raise money from accredited angel investors quickly, without state or regulatory approvals. The Dodd provisions also would double the net worth or income thresholds for investors to be “accredited.” The provisions “are both unnecessary and unhelpful at a time when policymakers should be looking for ways to make it easier to finance new businesses, especially the potentially high-growth, job-creating companies capable of attracting outside investors,” Litan writes.
However, commenting on the Entrepreneur Daily Dose blog, writer Carol Tice suggests that requiring entrepreneurs to file with the SEC before they seek angel funds might have two beneficial effects. Entrepreneurs would work harder on their business plans, financials, and projections to meet SEC requirements, she points out. In addition, such a requirement would produce “a sort of winnowing effect where flakier businesses would fall out of the running, leaving a clearer field for stronger concepts to connect with angels,” Tice says.
Sources: Ewing Marion Kauffman Foundation and Entrepreneur.com