Angel investors are the lifeblood of the high-growth startups that create the majority of jobs and innovations in the U.S.
In 2013, accredited angel investors directly invested $24.8 billion into nearly 71,000 early-stage companies, according to estimates by the Center for Venture Research at the University of New Hampshire.
Now this capital, so vital to the creation and growth of all of our nation’s entrepreneurial businesses, is at risk.
Here’s the situation: Under Securities and Exchange Commission regulations to qualify as an angel investor, individuals must be “accredited” investors. An accredited investor is defined as someone with $1 million in net worth, excluding the value of a primary residence, or an income of at least $200,000.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires the SEC every four years to review the definition of an accredited investor “for the protection of investors, in the public interest, and in light of the economy.”
In the 2014 review, the SEC is currently considering whether the current financial thresholds should be arbitrarily raised based on inflation. We went through this process last in 2010 at the beginning of Dodd-Frank, when the value of the primary residence was removed from the net worth calculation.
According to both SEC and U.S. Government Accountability Office estimates, adjusting the thresholds for inflation would increase the net worth standard to about $2.5 million and annual income to $450,000.
The SEC and GAO further estimate that under these changes, 60 percent of all accredited angel investors would no longer qualify to make angel investments.
A survey of the Angel Capital Association’s members last January found that more than 25 percent of the organization’s 12,000 plus members would lose accredited investor status if net worth and income thresholds were raised.