

First, let's kill all the angels: Congress takes aim. - failquicker
http://www.philstockworld.com/2010/04/17/first-let’s-kill-the-angels/

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gyardley
Looks like whoever reposted John Mauldin's weekly newsletter chopped off the
section that needs to be included to be allowed to repost it. Jerk move.
Because John's newsletter is awesome - he's best when discussing the
implications of skyrocketing sovereign debt - and because you might want to
subscribe to it, here's what the article omitted:

 _You have permission to publish this article electronically or in print as
long as the following is included:_

 _John Mauldin, Best-Selling author and recognized financial expert, is also
editor of the free Thoughts From the Frontline that goes to over 1 million
readers each week. For more information on John or his FREE weekly economic
letter go to:_ <http://www.frontlinethoughts.com/learnmore>

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barnaby
Duh, big banks would win. Think about it, if they remove competition from the
private equity market, then they monopolize capital financing.

This revision is nothing more than a monopoly bid.

~~~
api
I wish more people got this. Regulations, especially complex and expensive
ones, always favor large incumbents in a market over smaller or newer
competitors. Expensive regulatory requirements are a regressive tax within the
business world.

The time and complexity is often as bad as the money. Time and complexity is
something smaller ventures are incapable of dealing with, while larger
ventures can easily just throw their big bureaucratic might at it.

We seem to be rushing headlong toward a kind of Soviet economy in which huge
mega-corporations aligned with the state run everything. (Actually, fascism is
the proper term for this... but lumbering dinosaurs like the Telcos, GM, etc.
are a little more Soviet in their drab outward appearance.)

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Jdxdiego
While there is inherit risk involved in angel investing, it has been a fairly
straightforward method for increasing one's wealth. It is becoming
increasingly clear (to me at least) that this congress and administration are
using regulation and governmental control to stifle and limit the production
of wealth that cannot be taxed at a high rate. In most cases, an angel
investment will be taxed as a capital gain, and usually one that is considered
long term at a lower rate.

~~~
eli
I'm sorry, but this really sounds like a conspiracy theory. There are much
saner ways to raise taxes on the rich -- even if you were inclined to be
sneaky about it.

~~~
Jdxdiego
An example of a saner way?

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jordanb
How many angel investors really have less than $2.3 million in assets?

If I had to guess, I'd say that the increase in the cap was to try to cut down
on Wall Street shysters ripping off doctors and marketing VPs. People with
less than two million in assets are probably not full time investors, but
rather are working-wealthy. They have day jobs and they don't have staff
accountants or lawyers.

But I could be wrong. Maybe this cap will have a negative impact on Angels. If
so, the thing for Angel firms to do is contact your California senators, whose
votes will be critical in the passage of the bill, and get an amendment

~~~
anamax
> How many angel investors really have less than $2.3 million in assets?

Wealth seems to follow a power law, so there are probably over 2x as many at
$1M as there are at $2M.

> If I had to guess, I'd say that the increase in the cap was to try to cut
> down on Wall Street shysters ripping off doctors and marketing VPs.

How about some evidence that this is actually occurring?

Heck - how about some evidence that "Wall Street shysters" are even trying to
get money from angels?

Note - Madoff was running a completely different racket, one well within the
purview of the SEC, and they didn't catch on for decades. (He was supposedly
stock picking.)

> If so, the thing for Angel firms to do is contact your California senators,

Angels don't have firms. Yes, there are some groups, but most angels aren't in
them.

Most folks affected this don't even know that it's something that they should
be concerned about because they haven't done the angel thing yet. This means
that they never will, and the folks who they would have funded likely won't
get funded.

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gojomo
I want to know who, by name or agency, thinks raising the 'accredited
investor' thresholds is a good or necessary step.

Accredited investors aren't asking for this change. The participation of
private investors (of any net worth) in regular equities was a non-factor in
current financial troubles, or indeed any financial troubles of recent
decades.

If lessons from the recent crisis are what's motivating new net worth
requirements on investments, how about new rules to block submillionaires from
buying homes? That's be more rational as a reaction to the mortgage bubble
than blocking millionaires from investing in companies!

(I don't expect even lame-duck Dodd to tell average Americans they're too
easily duped to own homes; we should be equally outraged he wants to tell
millionaires they're too easily duped to make private equity investments.)

~~~
krf
Microsoft, Google, Yahoo, Apple, Oracle and all other large tech corporations
benefit if the money to startups is cut off or diminished.

Getting rid of potential competition through legislation is a tried and true
method.

~~~
InclinedPlane
Google uses startups for hiring inflow, I doubt they want to choke them off.

~~~
chancho
Starving startups of cash makes them easier to buy.

~~~
radicaldreamer
But it also reduces the number/quality of the startups worth buying.

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carbocation
I am naive on this issue, and I am going to assume good faith on the part of
Congress for a moment. Presumably they are trying to protect someone - whom?
It seems to me that angel investors were not the ones devastated by the
subprime mortgage and banking crises. This appears to be a fix in search of a
problem.

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blasdel
Please stop repeating the same bullshit that seemingly every VC pundit is
repeating about the Dodd bill. The "2.3m" figure is a total fabrication!

The bill does not set new requirements at all. It just explicitly authorizes
the SEC to adjust the income & net-worth requirements for inflation. The SEC
was already empowered to alter the requirements independently of legislation
(since they were not set by legislation), but they've never done so.

The figures quoted are pulled out of their ass — they just took the old
figures and adjusted for the last 30 years of inflation since they were set.
Nothing in the bill says the SEC has to adjust it all at once or at all.

~~~
anamax
> The bill does not set new requirements at all. It just explicitly authorizes
> the SEC to adjust the income & net-worth requirements for inflation.

Oh really? Let's look at what the relevant section, 412, actually says.

19 SEC. 412. ADJUSTING THE ACCREDITED INVESTOR STAND20 ARD FOR INFLATION.

21 The Commission shall, by rule—

22 (1) increase the financial threshold for an ac23 credited investor, as set
forth in the rules of the

24 Commission under the Securities Act of 1933, by

25 calculating an amount that is greater than the

[page break omitted]

1 amount in effect on the date of enactment of this

2 Act of $200,000 income for a natural person (or

3 $300,000 for a couple) and $1,000,000 in assets, as

4 the Commission determines is appropriate and in the

5 public interest, in light of price inflation since those

6 figures were determined; and

7 (2) adjust that threshold not less frequently

8 than once every 5 years, to reflect the percentage in

9 crease in the cost of living.

<http://banking.senate.gov/public/_files/AYO09D44_xml.pdf>

If you're going to argue that "shall" doesn't mean that the SEC is being told
to compute a number and apply it, please provide supporting evidence.

~~~
blasdel
I had read it before as authorization, but you're right that it does command
the SEC to raise the numbers at least every 5 years starting now, but it
leaves the increases completely up to the SEC.

The "2.3m" figure is bullshit, the maximum that the SEC could possibly
justify.

~~~
anamax
> it leaves the increases completely up to the SEC.

Not at all - it specifies the factor to be used.

They seem to have some leeway in the initial bump, but since they've been
given their marching orders, it's absurd to think that they'll deviate much.
Note that there will be no legal basis for arguing for such a deviation.

> The "2.3m" figure is bullshit, the maximum that the SEC could possibly
> justify.

Suppose that they go with $2M instead of $2.3M. Will you regard that "yeah, I
was correct, you folks were crying wolf"?

I'm serious - what's your "I was wrong" number?

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SamAtt
Worst...written...article...EVER! This is the point (found 2 pages or 954
words down the article)

"There are three changes that should have a particular effect on angel
investors, a catch-all category which includes everyone from friends and
family members who invest in a startup, to unaffiliated wealthy individuals,
to side investments made by venture capitalists acting on their own.

"First, 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."

He also makes the point that registering with the SEC is expensive ($100,000+
in legal fees) and that he believes the "accredited investor" limits will be
raised even further. The rest of the piece is just filler.

(for anyone down voting this let me point out this article goes on for 9
printed pages and doesn't even explain who benefits from these clauses. That's
just bad writing)

~~~
jbooth
Yeah, I read a solid 2 pages of hyperbolic claims about how "devastating" this
will be and how important angels are and how they're great and everything
before I gave up on learning any actual facts and clicked back here. Thanks
for the summary.

How does the bill define "startups", for one? I'm perfectly capable of
believing there will be regulations which have adverse unintended consequences
on startups from this bill but that sounds extremely onerous -- is that for
IPOs, only? I'd actually agree with that. If it's for raising seed money or
anything up through a series C, I'd disagree, very strongly in the case of
earlier rounds. The article doesn't tell us which it is, though.

~~~
anamax
> is that for IPOs, only?

IPOs were "hurt" by Sarbanes Oxley, the reaction to Enron. (No, there's
nothing in it that would have affected Enron.)

> If it's for raising seed money or anything up through a series C, I'd
> disagree, very strongly in the case of earlier rounds. The article doesn't
> tell us which it is, though.

While that article may not have provided every piece of information that you'd
like, Google is your friend. Above I quoted the relevant section AND provided
a link.

