Regulations could stifle US angel investors cutting off vital seed capital for startups.
US Technology News website www.techflash.com reported that United States senator Chris Dodd’s regulatory reform bill holds some unpleasant surprises in store for angel investors and start-ups hoping to raise seed capital. The bill primarily aimed at addressing the risk to the systemic system also happens to directly target the way start-ups raise capital.
“Under the old rules, startup companies could raise money from accredited investors simply and easily.” reports the Tech Flash, however now they will need to make a filing with the Securities and Exchange Commission (SEC). This will significantly delay the process with the SEC taking 120 days to review the filing.
If the SEC fails to review a filing, the security won’t be considered a “covered security” and therefore will not be exempt from the scrutiny of state securities regulators.
The bill also proposes raising “accredited investor” thresholds. This will mean and that angels will need to be significantly better off – in some cases double their net worth – to invest in seed start-ups.This could well cut off the lifeblood for many early stage enterprises in the process