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Mark my words: all of Silicon Valley will regret it if the federal government gets involved in angel financing, "collusion" or no colllusion. It is not easy to

Mark my words: all of Silicon Valley will regret it if the federal government gets involved in angel financing, "collusion" or no colllusion. It is not easy to build a Silicon Valley, but choking off deal flow with red tape could well destroy it. When the government enters an area on the basis of negative press coverage, it does not have an informed opinion or a light touch. Think about it: years later, we are still taking off our shoes and surrendering our liquids at the airport. Policies written in haste after a media event are almost never revisited or changed, no matter how much economic damage they do. I don't want to paint a mental picture by giving too many details, but you can imagine what any government assault on angels would do to the financing environment. This is exactly the kind of premise that a broke California (or federal) government can use to impose new taxes, just like police officers are ordered to increase ticketing when the city needs revenue. Bottom line: the cure would be far, far, FAR worse than the disease.

sachinag 16y ago
The FBI is investigating AngelGate: http://www.bizjournals.com/sanfrancisco/blog/2010/09/fbi_reportedly_looking_into_angelgate.html http://www.bizjournals.com/sanfrancisco/blog/2010/09/fbi_rep...
- ajju 16y ago
  Is FBI the agency tasked with investigating allegations of anti-competitive behavior? Interesting. This is the last thing the valley needed though.
  - _delirium 16y ago
    I don't think they have primary responsibility for antitrust law, but the FBI often assists the Department of Justice's Antitrust Division (http://www.justice.gov/atr/ http://www.justice.gov/atr/) with the fieldwork part of investigations (the FBI is an agency of the DoJ).
  - stretchwithme 16y ago
    I love how government, the most anti-competitive entity there is, will be investigating anti-competitive behavior. Physician, heal thyself.
    - lzw 16y ago
      I hate how you were down voted for pointing out a simple truth. Every industry government gets involved in, it passes laws making competition illegal. We had a thriving and quickly growing mail industry in this country before government took it over (for the purpose of censorship at the time) and made delivering first class mail illegal. They actually do sting operations and fine companies caught forwarding "non time sensitive mail" via fedex! This is just one example. Obama took over general motors by force, against the will of bond holders and handed out a large chunk to the unions.... And then a few months later a big scare was started against Toyota on spurious grounds. This is not a coincidence. Recently they made it illegal to sell private health insurance (not fully in effect yet so you can still get it, though prices are rising) and soon only government insurance will be available, though private companies will be allowed to underwrite, presuming of course, that they currier enough favor with government regulators. The very definition of government-- a monopoly on the use of force over a geographic region- is anti competitive, as it prevents ant other governments from forming in the area... Even if the people in a particular area prefer a different form of government.
      - adrianwaj 16y ago
        This is Pres Obama's experience with health care... what would you be doing to fix health care? "I remember my mother. She was 52 years old when she died of ovarian cancer, and you know what she was thinking about in the last months of her life? She wasn’t thinking about getting well. She wasn't thinking about coming to terms with her own mortality. She had been diagnosed just as she was transitioning between jobs. And she wasn’t sure whether insurance was going to cover the medical expenses because they might consider this a preexisting condition. I remember just being heartbroken, seeing her struggle through the paperwork and the medical bills and the insurance forms. So, I have seen what it's like when somebody you love is suffering because of a broken health care system. And it's wrong. It's not who we are as a people." http://en.wikipedia.org/wiki/Ann_Dunham http://en.wikipedia.org/wiki/Ann_Dunham
- alain94040 16y ago
  That information is incorrect. There is as of today no crebible information proving that the FBI is on the story. Those articles you are referring to are either misquotes or arranged to be more sensionalistic.
adrianwaj 16y ago
For me, minimum capital requirements to be an accredited investor is already far worse than the disease. I'd prefer to see certification programs that people raising money must apply-for, and have that be the basis of whether an investment is valid for the market, rather than placing a capital requirement on potential investors as the way to determine if an investor is smart enough to reject scams, and thus save the government from complaints and minimize lawsuits than what would happen if joe public and his granny could invest their savings. Perhaps there could be a certification program too for people wanting to invest. This I think would free up capital and opportunity, ie real micro finance.
- protomyth 16y ago
  Certifications are generally used to keep people out of a market and allow entrenched players to control things. Look at the state of Louisiana's Florist License for and example of the absurd and protectionist.
- gojomo 16y ago
  Excellent ideas. Why does a $1mm net worth indicate more 'sophistication' than (for example) having an MBA, or business-law-focused JD, or having passed the Series-7 or bar exams? Or, there could be a standard waiver-of-claims-of-unsophistication allowing those under the current 'accredited' limits to get the same legal treatment as those meeting the limits.
  - adrianwaj 16y ago
    Precisely. I think the key with micro-finance is that investors can be diverse, and they can actively seek investments which they can then personally assist, and at the same time entrepreneurs can also try and locate the right investors who'll facilitate the growth of their system. This is something baby-boomers would love doing, with the time, disposable income, and connections they can offer. Furthermore, imagine being able to tell a CEO "we'll let you use our api but only if we can have equity in your system." In this case, microfinance supports systems integration. Another benefit, is that micro-finance would allow entrepreneurs to raise funds more quickly to build more systems, with the goal of having 1 or 2 accepted into some larger system that can pay for its usage. -- I am thinking a http://www.kiva.org http://www.kiva.org but for entrepreneurs and investors. It'd have to track reputations and act as a hub for financings and subsequent distributions.
dschobel 16y ago
Is the story getting any coverage outside the SV echo chamber? I'd be quite surprised if we see the issue cross over into the mainstream.
- jogle 16y ago
  I read something on msnbc a couple days ago but can't find the link. Here are some from more mainstream sources than TechCrunch, though: http://blogs.wsj.com/venturecapital/2010/09/24/the-daily-start-up-angelgate-escalates/ http://blogs.wsj.com/venturecapital/2010/09/24/the-daily-sta... http://www.bbc.co.uk/blogs/thereporters/maggieshiels/2010/09/angelgate_-_a_tech_conspiracy.html http://www.bbc.co.uk/blogs/thereporters/maggieshiels/2010/09... http://www.businessinsider.com/angelgate-is-overblown-2010-9 http://www.businessinsider.com/angelgate-is-overblown-2010-9
  - razin 16y ago
    I'd hardly consider Business Insider to be mainstream.
- TheCondor 16y ago
  I was going to ask this with it be limited to not just the SV echo chamber but the Techcrunch one as well. What stood out to me the most, maybe because I'm not in SV, but the claim that ~10 "angels" were involved with 99% of the startups in SV. That just doesn't seem possible in a really healthy startup environment. I mean, there are startups that self boot-strap, there are startups that have a single owner that can fund them, there are startups that have a reputation and pedigree and go straight to institutional funding. There are also companies that stay below radar. How many software companies are we talking about in the greater SV Bay Area? 1200? 1500? And these 10 guys are in nearly all of them? Surely these are only the startups that fill in their crunchbase details or something, right? Does nobody go outside the valley for funding?
bhiggins 16y ago
I think it's far more likely that, already, the only ones with regrets will be the ones involved.
known 16y ago
I've a different pov. Govt intervention aka regulation is needed whenever & wherever there is an exploitation. http://en.wikipedia.org/wiki/Microfinance#Other_criticisms http://en.wikipedia.org/wiki/Microfinance#Other_criticisms
sfgary1 16y ago
Though these guys have an outsize influence on Web 2.0 apps there are still enough angels out there to minimize the effect of any possibility of collusion among a few angels. If that was what the meeting was about, which I doubt. I think this is a storm in a teacup.The government has enough things to worry about in an economy going south to do anything here.

sachinag 16y ago

The FBI is investigating AngelGate: http://www.bizjournals.com/sanfrancisco/blog/2010/09/fbi_reportedly_looking_into_angelgate.html http://www.bizjournals.com/sanfrancisco/blog/2010/09/fbi_rep...

ajju 16y ago
Is FBI the agency tasked with investigating allegations of anti-competitive behavior? Interesting. This is the last thing the valley needed though.
- _delirium 16y ago
  I don't think they have primary responsibility for antitrust law, but the FBI often assists the Department of Justice's Antitrust Division (http://www.justice.gov/atr/ http://www.justice.gov/atr/) with the fieldwork part of investigations (the FBI is an agency of the DoJ).
- stretchwithme 16y ago
  I love how government, the most anti-competitive entity there is, will be investigating anti-competitive behavior. Physician, heal thyself.
  - lzw 16y ago
    I hate how you were down voted for pointing out a simple truth. Every industry government gets involved in, it passes laws making competition illegal. We had a thriving and quickly growing mail industry in this country before government took it over (for the purpose of censorship at the time) and made delivering first class mail illegal. They actually do sting operations and fine companies caught forwarding "non time sensitive mail" via fedex! This is just one example. Obama took over general motors by force, against the will of bond holders and handed out a large chunk to the unions.... And then a few months later a big scare was started against Toyota on spurious grounds. This is not a coincidence. Recently they made it illegal to sell private health insurance (not fully in effect yet so you can still get it, though prices are rising) and soon only government insurance will be available, though private companies will be allowed to underwrite, presuming of course, that they currier enough favor with government regulators. The very definition of government-- a monopoly on the use of force over a geographic region- is anti competitive, as it prevents ant other governments from forming in the area... Even if the people in a particular area prefer a different form of government.
    - adrianwaj 16y ago
      This is Pres Obama's experience with health care... what would you be doing to fix health care? "I remember my mother. She was 52 years old when she died of ovarian cancer, and you know what she was thinking about in the last months of her life? She wasn’t thinking about getting well. She wasn't thinking about coming to terms with her own mortality. She had been diagnosed just as she was transitioning between jobs. And she wasn’t sure whether insurance was going to cover the medical expenses because they might consider this a preexisting condition. I remember just being heartbroken, seeing her struggle through the paperwork and the medical bills and the insurance forms. So, I have seen what it's like when somebody you love is suffering because of a broken health care system. And it's wrong. It's not who we are as a people." http://en.wikipedia.org/wiki/Ann_Dunham http://en.wikipedia.org/wiki/Ann_Dunham
alain94040 16y ago
That information is incorrect. There is as of today no crebible information proving that the FBI is on the story. Those articles you are referring to are either misquotes or arranged to be more sensionalistic.

adrianwaj 16y ago

For me, minimum capital requirements to be an accredited investor is already far worse than the disease. I'd prefer to see certification programs that people raising money must apply-for, and have that be the basis of whether an investment is valid for the market, rather than placing a capital requirement on potential investors as the way to determine if an investor is smart enough to reject scams, and thus save the government from complaints and minimize lawsuits than what would happen if joe public and his granny could invest their savings. Perhaps there could be a certification program too for people wanting to invest. This I think would free up capital and opportunity, ie real micro finance.

protomyth 16y ago
Certifications are generally used to keep people out of a market and allow entrenched players to control things. Look at the state of Louisiana's Florist License for and example of the absurd and protectionist.
gojomo 16y ago
Excellent ideas. Why does a $1mm net worth indicate more 'sophistication' than (for example) having an MBA, or business-law-focused JD, or having passed the Series-7 or bar exams? Or, there could be a standard waiver-of-claims-of-unsophistication allowing those under the current 'accredited' limits to get the same legal treatment as those meeting the limits.
- adrianwaj 16y ago
  Precisely. I think the key with micro-finance is that investors can be diverse, and they can actively seek investments which they can then personally assist, and at the same time entrepreneurs can also try and locate the right investors who'll facilitate the growth of their system. This is something baby-boomers would love doing, with the time, disposable income, and connections they can offer. Furthermore, imagine being able to tell a CEO "we'll let you use our api but only if we can have equity in your system." In this case, microfinance supports systems integration. Another benefit, is that micro-finance would allow entrepreneurs to raise funds more quickly to build more systems, with the goal of having 1 or 2 accepted into some larger system that can pay for its usage. -- I am thinking a http://www.kiva.org http://www.kiva.org but for entrepreneurs and investors. It'd have to track reputations and act as a hub for financings and subsequent distributions.

dschobel 16y ago

Is the story getting any coverage outside the SV echo chamber? I'd be quite surprised if we see the issue cross over into the mainstream.

jogle 16y ago
I read something on msnbc a couple days ago but can't find the link. Here are some from more mainstream sources than TechCrunch, though: http://blogs.wsj.com/venturecapital/2010/09/24/the-daily-start-up-angelgate-escalates/ http://blogs.wsj.com/venturecapital/2010/09/24/the-daily-sta... http://www.bbc.co.uk/blogs/thereporters/maggieshiels/2010/09/angelgate_-_a_tech_conspiracy.html http://www.bbc.co.uk/blogs/thereporters/maggieshiels/2010/09... http://www.businessinsider.com/angelgate-is-overblown-2010-9 http://www.businessinsider.com/angelgate-is-overblown-2010-9
- razin 16y ago
  I'd hardly consider Business Insider to be mainstream.
TheCondor 16y ago
I was going to ask this with it be limited to not just the SV echo chamber but the Techcrunch one as well. What stood out to me the most, maybe because I'm not in SV, but the claim that ~10 "angels" were involved with 99% of the startups in SV. That just doesn't seem possible in a really healthy startup environment. I mean, there are startups that self boot-strap, there are startups that have a single owner that can fund them, there are startups that have a reputation and pedigree and go straight to institutional funding. There are also companies that stay below radar. How many software companies are we talking about in the greater SV Bay Area? 1200? 1500? And these 10 guys are in nearly all of them? Surely these are only the startups that fill in their crunchbase details or something, right? Does nobody go outside the valley for funding?

bhiggins 16y ago

I think it's far more likely that, already, the only ones with regrets will be the ones involved.

known 16y ago

I've a different pov. Govt intervention aka regulation is needed whenever & wherever there is an exploitation. http://en.wikipedia.org/wiki/Microfinance#Other_criticisms http://en.wikipedia.org/wiki/Microfinance#Other_criticisms

sfgary1 16y ago

Though these guys have an outsize influence on Web 2.0 apps there are still enough angels out there to minimize the effect of any possibility of collusion among a few angels. If that was what the meeting was about, which I doubt. I think this is a storm in a teacup.The government has enough things to worry about in an economy going south to do anything here.