How a new bill would reduce the number of angel investors | Hacker News Reader

How a new bill would reduce the number of angel investors

stevewelch.tumblr.com

13 pointsAndrewWarner10 comments

Why are there these restrictions (the existing, lower ones) in the first place? The Wikipedia entry for accredited investors seems to suggest it's to "protect" people from losing all their wealth through high risk investments, but that seems spurious considering casinos aren't limited to the rich.

My guess would be that they want to stop pyramid schemes and the like with this kind of legislation. Not that I agree that the government should be controlling how you invest your money, but people can be naive when confronted with a good swindler.

A good swindler... like a state lotto ticket salesman!

While I agree lotteries are a voluntary tax on the poor, I haven't seen anyone advertise a lottery as an investment (i.e. a vehicle where there is a possibility that the original capital can be recouped with profit).

A lottery or casino is gambling in that everyone that participates understands that the bet is lost on the outcome of a single event. Pyramid schemes, ponzie schemes, and other similar scams imply the inevitability of a long term return on investment which is impossible to occur due to the nature of the transaction.

Or Social Security, the greatest Ponzi scheme on earth!

The qualified-investor concept provide a way to short-circuit a lot of investor-protection legal rigmarole. If I want to offer an investment to the public, I need to undergo a lot more effort and expense than a private placement from a "qualified" investor.

Title is a bit misleading since the "how" doesn't come until the middle of Steve's letter. Here it is:

<quote>

First, the bill would redefine who would be qualified to be an angel investor. Currently individuals with either $1 million in investable assets or $250,000 in income qualify as accredited investors. The new bill would change this to individuals with $2.3 million in assets or $450,000 in income. According to the Kauffman Foundation, this would eliminate 77% of accredited investors. This single handedly would reduce the amount of capital available to early stage businesses and stunt our much needed job creation.

In addition, the new bill would require any company attempting to raise angel investment to seek SEC approval, which would take up to 4 months. As an active angel investor myself, I can say with certain that companies in this stage can rarely wait four months for funding. They will simply be forced to close up shop.

</quote>

Investing cash will create new jobs, spending will preserve existing jobs and saving cash will destroy jobs.

Can someone please explain why it's preferable to raise money from an angel than any other citizen, besides connections/networking advantages? What's the legal reason behind having "accredited investor" status - what can an accredited investor invest into that a civilian cannot?

Angel is a legally meaningless term. Some investors provide benefits beyond cash in certain cases while others don't.

> What's the legal reason behind having "accredited investor" status - what can an accredited investor invest into that a civilian cannot?

Those are two separate questions.

The reason is to "protect" investors.

Companies can accept investment from accredited investors in certain situations but not from unaccredited ones. These situations involve registration, disclosure, and other things.

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