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Get the Anti-Startup and Anti-Angel Provisions Struck From Dodd's Banking Bill

53 points by davidblerner 17y ago

There is a rather large missile rapidly approaching America's innovation culture. Predictably, it has been hurled in the most careless of manner by a group of uninformed politicians and their staffers in the form of Senator Dodd's sweeping Banking Bill. Putting aside the merits and thrust of the Bill itself, (which ostensibly seeks to regulate the banking industry), there are two provisions in it which, if not removed ASAP, will essentially wipe out a large chunk of one of America's engines of innovation- namely angel investing. These provisions will raise the bar on the definition of an 'accredited investor' from $1M in net worth or $250K in annual income to $2.3M in net worth or annual income of $450K! It will also hamstring angel investing by slapping any such investment with a 120 day SEC review.

startuprules 17y ago
It's clear that this administration is very much against startups....with government takeover of many industries, healthscare bill designed to tax investments/burden small companies with large health premiums, and now this. What can we do? Well, unless we remove the politicians that keep voting for these proposals, we will have no choice but to relocate to a friendlier country that doesn't try to kill startups at its infancy. In this day and age, anybody can launch a lean startup overseas.
- JamieEi 17y ago
  Exactly which industries have been "taken over"?
  - startuprules 17y ago
    Auto, Banking, Student lending, Home Mortgage, Healthcare.
    - ghotli 17y ago
      I downvoted this because it's rather subjective as to what the definition of "taken over" is and you provided no evidence to support your broad claims.
      - waterlesscloud 17y ago
        Student lending isn't subjective, it's completely taken over.
        _pius 17y ago
        Not so much. The U.S. government has always assumed all of the risk on student lending and was essentially just giving free money to certain private lenders without getting anything in return. It's removing a layer of bureaucracy more than it's a government takeover. http://www.coffeehousetalks.com/2010/03/landmark-day-for-education-finance.html http://www.coffeehousetalks.com/2010/03/landmark-day-for-edu...
        waterlesscloud 17y ago
        The government was getting plenty in return, an educated populace. That "bureaucracy" was a private industry. Now it's gone.
        hga 17y ago
        Errr ... is the formerly private bureaucracy going to be replaced by ATMs or the like? I'm not aware of any claims that this will result in a net loss in loan administration headcount.
        lenley 17y ago
        Just like the "online tax industry" is fighting to keep the IRS and state tax services from offering direct online tax filing. I'd likely still use tax-prep software, but I'd like the option to file directly to the irs without an intermediary trying to charge me for services. I guess that would be another "government takeover." :|
hnsummary 17y ago
Article Summary: Buried inside of the new banking bill is a provision that will raise the requirements to be an accredited investor. The new bill is proposed by Chris Dodd, the senator from Connecticut. The requirements are increasing from $1m in net worth or $250k in annual income to $2.3 million in net worth or $450k in annual income. Angel investment will also have to undergo a 120 day SEC review. http://hnsummary.com/2010/03/30/get-the-anti-startup-and-anti-angel-provisions-struck-from-senator-dodds-banking-bill/ http://hnsummary.com/2010/03/30/get-the-anti-startup-and-ant...
- aliston 17y ago
  Are there really that many angel investors that fall within the 1M to 2.3M net worth range? My initial gut reaction is that this seems to be a bit of an overblown issue. In the bay area at least, virtually anyone with a home on the peninsula probably has a net-worth of around 1M. If the average angel investment is around 100K (not scientific, just a hunch), someone with a net worth of 1M would be investing 10% of their net worth in a really risky investment venture... I would think, therefore, that most angel investors have a significantly higher net-worth in that case.
  - rosser 17y ago
    Even if the overwhelming majority of potential angels were worth more than the new base threshold, the 120-day SEC review period remains deal-breaker enough.
  - anamax 17y ago
    > In the bay area at least, virtually anyone with a home on the peninsula probably has a net-worth of around 1M. You're forgetting that most of those folks also have hefty mortgages, so their net ownership of their houses is considerably less than the value of their house. (I doubt that the median price of houses in the valley is high enough that "virtually all" are worth >$1M.) However, none of this matters because the definition of "net worth" used for determining whether someone is an "accredited investor" specifically excludes many things, including residences. There's a huge drop-off from $1M to $2M in assets, no matter how defined. These things obey power laws.
tibbon 17y ago
I'm confused why anyone would put this provision in a bill. Does anyone have any background that might fill in the motivation here? They always talk about being pro small business, but this seems fairly blatantly against it.
- hga 17y ago
  "always talk about being pro small business" Watch what they do, not what they say.... I for one am at a loss. Someone is writing these provisions and getting them into the Dodd bill. The questions are who and why. If I were to assume this was tied to the proposals to regulate VCs as ostensibly major economic players that pose systemic risks (insane on its face, since they're too small and their time frames are too long), then it could be part of a general anti-disruptive business thrust. That's what zapping the junk-bond market was all about (details upon request). In this case it could be an attempt to make sure there are fewer little mammals to eat the eggs of existing dinosaurs and drive them to extinction. The Internet is certainly acting as a massive disruptive force.... But the above musings are very vague, I don't see a tighter cause and effect, just a couple of data points. But provisions like this aren't put into bills randomly. Someone thinks they're a good idea for someone (not necessarily the nation). Maybe they want to devolve this to the states? There are strong incentives for that to happen in the bill, but I can't see how that would be a good thing for the nation, and it's not like the SEC is really overworked.
- jplewicke 17y ago
  I think it's most likely an attempt to cut down on fraudulent hedge funds. Currently, having "accredited investor" status is sufficient and usually necessary to invest in hedge funds, prvate equity funds, and startups. During the dénouement of the financial crisis, many mini-Madoffs were discovered, usually in the $5-200 million range. Most of these were pyramid schemes dressed up as hedge funds, but a few were fraudulent startups as well. I think the main reason they're changing the definition of "accredited investor" is because it also affects who can invest in hedge funds, not because they're trying to affect startups per se. This is probably classic "unintended consequences."
  - 17y ago
jbellis 17y ago
My inner cynic wonders if the rest of the bill is as clueless about the other industries it regulates, as it is about startups.
- startuprules 17y ago
  the politicians aren't clueless; they know their job is to support the multi conglomerates - killing competition and funneling taxpayer money to those conglomerates via bailouts
  - credo 17y ago
    If that were the case, why is Wall Street lobbying against the Financial reform bill ? Most expectations are that Wall street will spend tens of millions of dollars against the bill
    - hga 17y ago
      Who's saying it's not bad for many if not most companies?
deleted 17y ago
[deleted]

53 points by davidblerner 17y ago

startuprules 17y ago

It's clear that this administration is very much against startups....with government takeover of many industries, healthscare bill designed to tax investments/burden small companies with large health premiums, and now this. What can we do? Well, unless we remove the politicians that keep voting for these proposals, we will have no choice but to relocate to a friendlier country that doesn't try to kill startups at its infancy. In this day and age, anybody can launch a lean startup overseas.

JamieEi 17y ago
Exactly which industries have been "taken over"?
- startuprules 17y ago
  Auto, Banking, Student lending, Home Mortgage, Healthcare.
  - ghotli 17y ago
    I downvoted this because it's rather subjective as to what the definition of "taken over" is and you provided no evidence to support your broad claims.
    - waterlesscloud 17y ago
      Student lending isn't subjective, it's completely taken over.
      - _pius 17y ago
        Not so much. The U.S. government has always assumed all of the risk on student lending and was essentially just giving free money to certain private lenders without getting anything in return. It's removing a layer of bureaucracy more than it's a government takeover. http://www.coffeehousetalks.com/2010/03/landmark-day-for-education-finance.html http://www.coffeehousetalks.com/2010/03/landmark-day-for-edu...
        waterlesscloud 17y ago
        The government was getting plenty in return, an educated populace. That "bureaucracy" was a private industry. Now it's gone.
        hga 17y ago
        Errr ... is the formerly private bureaucracy going to be replaced by ATMs or the like? I'm not aware of any claims that this will result in a net loss in loan administration headcount.
        lenley 17y ago
        Just like the "online tax industry" is fighting to keep the IRS and state tax services from offering direct online tax filing. I'd likely still use tax-prep software, but I'd like the option to file directly to the irs without an intermediary trying to charge me for services. I guess that would be another "government takeover." :|

hnsummary 17y ago

Article Summary: Buried inside of the new banking bill is a provision that will raise the requirements to be an accredited investor. The new bill is proposed by Chris Dodd, the senator from Connecticut. The requirements are increasing from $1m in net worth or $250k in annual income to $2.3 million in net worth or $450k in annual income. Angel investment will also have to undergo a 120 day SEC review. http://hnsummary.com/2010/03/30/get-the-anti-startup-and-anti-angel-provisions-struck-from-senator-dodds-banking-bill/ http://hnsummary.com/2010/03/30/get-the-anti-startup-and-ant...

aliston 17y ago
Are there really that many angel investors that fall within the 1M to 2.3M net worth range? My initial gut reaction is that this seems to be a bit of an overblown issue. In the bay area at least, virtually anyone with a home on the peninsula probably has a net-worth of around 1M. If the average angel investment is around 100K (not scientific, just a hunch), someone with a net worth of 1M would be investing 10% of their net worth in a really risky investment venture... I would think, therefore, that most angel investors have a significantly higher net-worth in that case.
- rosser 17y ago
  Even if the overwhelming majority of potential angels were worth more than the new base threshold, the 120-day SEC review period remains deal-breaker enough.
- anamax 17y ago
  > In the bay area at least, virtually anyone with a home on the peninsula probably has a net-worth of around 1M. You're forgetting that most of those folks also have hefty mortgages, so their net ownership of their houses is considerably less than the value of their house. (I doubt that the median price of houses in the valley is high enough that "virtually all" are worth >$1M.) However, none of this matters because the definition of "net worth" used for determining whether someone is an "accredited investor" specifically excludes many things, including residences. There's a huge drop-off from $1M to $2M in assets, no matter how defined. These things obey power laws.

tibbon 17y ago

I'm confused why anyone would put this provision in a bill. Does anyone have any background that might fill in the motivation here? They always talk about being pro small business, but this seems fairly blatantly against it.

hga 17y ago
"always talk about being pro small business" Watch what they do, not what they say.... I for one am at a loss. Someone is writing these provisions and getting them into the Dodd bill. The questions are who and why. If I were to assume this was tied to the proposals to regulate VCs as ostensibly major economic players that pose systemic risks (insane on its face, since they're too small and their time frames are too long), then it could be part of a general anti-disruptive business thrust. That's what zapping the junk-bond market was all about (details upon request). In this case it could be an attempt to make sure there are fewer little mammals to eat the eggs of existing dinosaurs and drive them to extinction. The Internet is certainly acting as a massive disruptive force.... But the above musings are very vague, I don't see a tighter cause and effect, just a couple of data points. But provisions like this aren't put into bills randomly. Someone thinks they're a good idea for someone (not necessarily the nation). Maybe they want to devolve this to the states? There are strong incentives for that to happen in the bill, but I can't see how that would be a good thing for the nation, and it's not like the SEC is really overworked.
jplewicke 17y ago
I think it's most likely an attempt to cut down on fraudulent hedge funds. Currently, having "accredited investor" status is sufficient and usually necessary to invest in hedge funds, prvate equity funds, and startups. During the dénouement of the financial crisis, many mini-Madoffs were discovered, usually in the $5-200 million range. Most of these were pyramid schemes dressed up as hedge funds, but a few were fraudulent startups as well. I think the main reason they're changing the definition of "accredited investor" is because it also affects who can invest in hedge funds, not because they're trying to affect startups per se. This is probably classic "unintended consequences."
- 17y ago

jbellis 17y ago

My inner cynic wonders if the rest of the bill is as clueless about the other industries it regulates, as it is about startups.

startuprules 17y ago
the politicians aren't clueless; they know their job is to support the multi conglomerates - killing competition and funneling taxpayer money to those conglomerates via bailouts
- credo 17y ago
  If that were the case, why is Wall Street lobbying against the Financial reform bill ? Most expectations are that Wall street will spend tens of millions of dollars against the bill
  - hga 17y ago
    Who's saying it's not bad for many if not most companies?

deleted 17y ago

[deleted]