Tell HN: Senator Dodd Has Mostly Listened Concerning Regulation D
(1) altered the definition of "accredited investor" by increasing the thresholds for an individual from $1 million in net worth or $200K in annual income to about $2.3 million in net worth (excluding value of principal residence) or $450K in annual income; and
(2) subjected many Regulation D to filings to SEC review during a mandated 120-day wait period and also opened up such filings to all sorts of new state regulation by removing federal preemption in this area of private placements.
These provisions posed a potentially serious risk to startup funding. ACA, for example, estimated that the "accredited investor" changes would cut the number of qualified angel investors by an estimated 77%. Many in the startup community wrote to Senator Dodd and others strongly urging them to fix these provisions.
It appears that Senator Dodd has mostly listened. Last week, he joined with Republican Senator Kit Bond to offer a bipartisan amendment to the banking bill that represented a significant compromise on the Regulation D issues.
The Bond/Dodd amendment does the following: (1) leaves the definition of "accredited investor" basically unchanged until at least 2014, though the $1 million net worth threshold must now be calculated without including the value of an investor's principal residence; and (2) deletes the 120-wait period and blocks increased state meddling with Regulation D offerings.
This news is HUGE for startups. The result is not perfect but, compared to what might have been, this is a significant reprieve for Regulation D that will allow funding deals in the startup world to continue largely unabated and that defeats the deal-killing rules that otherwise might have passed in this bill.
I had been looking for a simple reference point on the web where this had been cleanly reported but was unable to find it - hence this post.
At this point, the Senate version of the banking bill is as noted above while the House version makes no changes whatever to Regulation D. The good news, then, is that this bill should pass either in the form summarized above or with no changes at all to Regulation D should the above Senate provisions be dropped altogether in conference.
I will link to some of the partial reports of this in a comment.