Ahead of the official lifting of the ban on general solicitation slated for September 23rd, angel investors are becoming more vocal in their opposition to choice parameters of the new rule. A recent petition launched on ipetition.com targets three specific aspects of the rule that one angel investor argues should either be omitted altogether or require more guidance from regulators ahead of implementation.
With respect to the new regulation, I am specifically writing to:
1. Request that the Commission withdraw its proposed amendments to Regulation D and Form D.
2. Propose clarification that limited “Friends and Family” participation by non-accredited investors in 506 (c) issues is allowed.
3. Propose clarification of the “facts and circumstances” that can be used by issuers to establish that an investor is accredited under 506 (c).
The angel investor argues that if implemented in its current form, Rule 506(c) could drive angels out of early-stage investments.
The SEC is understandably acting to regulate the securities industry and the $1.7 trillion annually invested in private companies (compared to $1.2 trillion raised via public markets in 2012). However, the SEC may accidentally grossly damage the vital angel investing industry in the process. Angel investors form the backbone of the startup economy. Each year, the US angel community invests approximately $23 billion in over 67,000 new start-up businesses. Nearly all net new jobs in the United States between 1980 and 2005 came from companies 5 years old or less, according to a Kauffman Foundation Study, the great majority of which were initially funded by angels. Preserving the capital investment that the angel community makes in start-up companies is key to job growth.
The petition has 38 signatures of a stated 100 signature goal.