Experts Argue Change to Existing Accreditation Standards Will Reduce Growth of New Businesses and Job Creation
(Shreveport, LA) – VC Experts (www.vcexperts.com), a leading source of private market investment information, and the Angel Capital Association, (ACA) are questioning an SEC proposal to change the qualifications for accredited investors. Analyses by VC Experts and ACA indicates that the SEC’s plan to make more stringent the financial requirements for angel investors to become accredited is likely to have a devastating effect on startups and job creation. The review of accreditation standards, which is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is projected to eliminate about 60 percent of eligible angel investors.
“I do not know of any issues of importance to our economy that can match the imperative of maintaining accredited investor status as it now exists,” said Joseph Bartlett, VC Experts Co-Founder and an attorney at McCarter & English, where he represents emerging growth companies and the VCs and angels that provide their funding. “The cornerstone of economic growth in the United States since World War II has been the availability of venture capital for the likes of Microsoft, Google, Apple. It is, of course, true that many (or most) business startups fail; but if the solution is deemed to be steps to minimalize the opportunities for startups to get funding, we are approaching the end of the road. ”
According to Bartlett, the rules changes would be compounded by the fact that venture capital has already departed the startup community in favor of mezzanine style growth capital investing. Startups have become critically dependent upon angels. Data compiled by the Brookings Institution and Kansas City’s Kauffman Foundation reveals that business startups have been in a steady decline over the past three decades and are now outpaced by business closures. The Center for Venture Research at the University of New Hampshire research indicates that 71,000 companies benefited in 2013 from $24.8 billion from Angel investments.
“The Angel community is what fuels emerging growth companies in this country today,” Bartlett said. “And, this cry of alarm about increasing the difficulty of qualifying as an angel must be taken seriously. Without this phenomenon factored into our economic landscape, the evidence is clear there will be little growth or job creation."
Currently, an individual accredited investor is defined as someone with $1 million in net worth, excluding the value of a primary residence, or annual income of $200,000. At issue with the SEC proposal is whether these financial thresholds should be arbitrarily raised based upon inflation.
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