Proposed Financial Reform Does Not Tout the Start Up

Thomas Friedman might tout the start up, but proposed financial regulation does not.   According to Robert Litan from Kaufmann, there are provisions in the legislation making its way through Congress that would slow down start ups.

Under existing law, startup companies can raise money easily and quickly from “accredited investors” — individuals with substantial wealth or income. There is no need for the companies or the investors to gain approval from any state or regulatory official.

All of this would change if Section 926 of the Dodd bill is included in any final reform legislation. That section would require, for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding.

The negative impact of the SEC filing requirement would be aggravated by the proposed doubling of the net worth or income thresholds required for investors to be “accredited.”


So why are these provisions in the bill?   Again, according to Litan:

It is difficult to know why these provisions are in a much larger bill whose primary aim is to address the fundamental causes of the recent financial crisis…  There is no evidence that angel investment in startup companies played any role whatsoever in events leading up to the financial crisis.