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Angels Stay Safe from the Law

SMBs and startups can celebrate the failure of some proposed financial reforms.
July 16, 2010
URL: http://www.entrepreneur.com/article/207522

Small businesses and startups can celebrate an averted disaster: The Restoring American Financial Stability Act of 2010, passed by the Senate in May, didn't include provisions that could have dramatically altered the way angel investors operate.

As it made its way through the legislative grind, the reform bill was going to require a 120-day regulatory review of angel deals, double the current net worth standard for angel accreditation, set an increased $450,000 income standard, up from $200,000, for accreditation and potentially require more red tape and regulatory review at the state level--all of which would have put a damper on early-stage investments. But the passage of an amendment written by Sen. Kit Bond, R-Mo., eliminated those provisions.

"In terms of regulations that entrepreneurs need to watch for, it got rid of all of the things people were concerned about," says Marianne Hudson, executive director of Angel Capital Association in Kansas City, Mo. "We were left with essentially the same set of regulations we have now--with one very good addition, which is a better way to look for bad actors with a past record of deceit or fraud."

The amendment did retain a clause that disallows investors' homes to be calculated into the $1 million net worth minimum. It also says the SEC may reevaluate these standards four years after the bill's passage.

"There have always been pressures to increase the standards for accredited investors and there will continue to be," Hudson says. "We need to stay vigilant about that."