Over the past 30 years, the United States has developed an infrastructure to nurture, grow, and fund early stage companies that is the envy of the world. There are more than 250,000 active angel investors in this country, and nearly one out of every five of the startup investments they make are in California. At the Tech Coast Angels, California’s most-active group of individual investors, we believe the current system serves our innovation economy very well. But it may effectively be shut down if revisions the Securities and Exchange Commission proposed in July for Regulation D of Rule 506 are allowed to stand.
If you ask entrepreneurs how they secured their investors or vice versa, the answer 90 percent of the time would be “networking.” That’s particularly the case in San Diego, where our innovation community thrives on personal engagement and introductions. The old business adage is true: people buy from people that they know, like, and respect.
But a misguided effort to regulate such networking is one of the things that makes the SEC’s Reg D changes really troubling.
In finalizing a portion of the 2012 JOBS Act, the agency wants to lift a decades-old ban that has prevented hedge funds, private equity firms, and other investment entities from soliciting investors by marketing their offerings to a wide audience.
The proposed rules cover how investors can be solicited, and provide guidance on how issuers could “reasonably” verify that the investors they are soliciting meet SEC criteria as “accredited investors.” There also is a proposed rule disqualifying “bad actors” from investing in private offerings, and another requiring entrepreneurs to submit multiple reports and information for solicited offerings.
At the Tech Coast Angels, we applaud the SEC’s focus on protecting the public from fraudsters. But we are concerned these rules will prove too
