Dodd Bill Could Drain Angel Pool, Make Startup Financings More Confusing
Most of the debate over Chris Dodd’s financial reform bill has involved the proposed creation of a consumer protection agency. But there also are some smaller provisions in the 1,139-page bill that would directly impact angel investors and startup companies. First up is Section 412, which would change the requirements under which someone can qualify as an “accredited investor.” Since 1982, individuals have been considered “accredited” if they had at least $1 million in personal assets and/or annual income of $200,000 ($300,000 in the case of a joint filing). Under Dodd’s proposal, however, the threshold would become subject to “price inflation” adjustments at least once every five years. The bill does not explain the metrics that would be used to determine “price inflation,” although a 2007 SEC report used a Department of Commerce price index to project a 90% hightening of the asset floor. That same index would have caused the individual and joint income tests to increase to $388,000 and $582,000, respectively. Accredited investor standards were originally created under a thesis that richer folks would have a better understanding of financial risk than would poorer folks, or would at least have the resources to hire
