Feds look to further suppress start-up job creation

Today’s Wall Street Journal has an editorial blasting the proposed federal regulation of angel investors included in Senator Dodd’s financial reform bill. This proposal has received significant discussion in the tech and venture capital blogs over the last couple of weeks and now the WSJ chimes in. Here’s a taste from the editorial.

Senator Chris Dodd’s 1,400-page financial reform bill contains many economic land mines, and here’s one of the worst: Provisions that would make it harder for business start-ups to raise seed capital.

Currently, wealthy individuals who want to invest directly in a new business can do so with minimum interference from regulators. The law requires only that the investor be “accredited” by meeting thresholds for net worth ($1 million) or income ($250,000). Entrepreneurs depend on these “angel” investors, since many new businesses lack the collateral for bank loans and are too small to interest venture capitalists.

Amazon, Yahoo, Google and Facebook all benefited from angel investors, who typically target companies under five years old. According to a 2009 Kaufman Foundation study, such firms are less than 1% of all companies yet generate about 10% of new jobs. Between 1980 and 2005, companies less than five years old accounted for all net job growth in the U.S. In 2008, angels invested some $19 billion in more than 55,000 companies.

Mr. Dodd’s bill would change all this for the worse. Most preposterously, it would require that start-ups seeking angel investments file with the Securities and Exchange Commission and endure a 120-day review. Rare is the new company that doesn’t need immediate access to the capital it raises, and a four-month delay is the kind of rule popular in banana republics that create few new businesses.

What the heck is the purpose of this proposal? It is ridiculous to include this in a regulatory bill aimed at preventing systemic collapse of our financial system. Angel investors constitute a systemic risk? Yeah, right. Ridiculous. But also dangerous – yet another proposal from Washington that will suppress the creation of jobs and the growth that we need to get our economy back on track. Plus it puts the federal government in the middle of yet another aspect of our economy. Of course, to the D.C. crowd that’s a feature, not a bug.

This VentureBeat post contains links to more opinions and information on this stupid and damaging proposal.

This entry was posted in Current Affairs, Entrepreneurship, Public Policy. Bookmark the permalink.

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