Financial Reform Legislation Gives Angel Investors a Break

Angel Investors Get a Break in Revised Financial Stability ActInvestors in startups and small businesses have been concerned about language buried deep within the Restoring Financial Stability Act of 2010, the financial reform bill passed by Congress this week. At one point during the lengthy debate over the bill, it would have made two changes that would have had a negative impact on angel investing nationwide.

First, the bill would have redefined “Accredited Investors” in a small business to require higher income levels and net worth. Accredited investors are wealthy individuals who register with the SEC and are able to demonstrate an understanding of risky investments such as angel financing. Under the proposed changes, the minimum annual income for an accredited investor would have increased from $200,000 to $450,000, and minimum assets would have increased from $1 million to $2.3 million.  Experts estimated the changes would have eliminated between half and two-thirds of current angel investors from being able to invest in small businesses.

The second provision would have affected Regulation D (commonly known as Reg D) by giving the SEC 120 days to review a securities offering-an excessive length of time, in many experts’ opinions, that would further hamper the abilities of small companies to gain financing.

Fortunately for small businesses, members of the Angel Capital Association reached out to the bill’s author, Senate Banking Committee Chairman Christopher Dodd (D-CT).

In May, a bipartisan amendment sponsored by Dodd and other senators restored the definition of “Accredited Investor” to the former income and asset levels, with just one change: a primary residence can no longer be listed as an asset. The 120-day waiting period was removed; instead, the amendment directs the SEC to issue rules within one year for disqualifying offerings and securities sales involving “bad actors” (people with a record of violating certain federal or state laws).

The final legislation will help the more than 100,000 angel investors nationwide continue to invest in startup businesses, fund growth and generate jobs.

Find full details on the Angel Capital Association’s website.

Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.