Financial reform legislation currently under consideration by Congress could cripple angel investor groups if certain provisions aren’t removed.
A section of the “Restoring American Financial Stability Act of 2009,” proposed by Sen. Chris Dodd, would change the definition of an accredited investor — effectively raising the net worth requirement from $1 million, or $200,000 in annual income, to $2.3 million, or about $450,000 in annual income.
Sid Chambless, executive director of the NCN, said he's seen statistics that show the provision would disqualify half of the nation's angel investors from participating in private placements, including some of his organization's members.
"It would mean fewer eligible investors and fewer companies would receive funding," he said.
Chambless sent a letter to Sens. Bob Corker and Lamar Alexander and Rep. Jim Cooper on Thursday, urging them to push for the removal of this provision from the bill.
His concerns echo sentiments of the National Venture Capital Association and Angel Capital Association, which sent a joint letter to Dodd on March 2 asking for that section and another provision be removed. (See the letter here).
The groups argue: "At a time when many accredited investors have lost more than 20 percent of their net worth in 2008 and innovative start-ups are having an increasingly difficult [time] raising equity capital, decreasing the potential pool of angel investors is counter-productive to supporting the very companies that will create new high-paying jobs."
The NCN was founded in 2003 and has funded 19 companies with nearly $18 million. Total capital transactions involving NCN investors is more than $70 million.