Dodd Bill Update: Listening to the Market
Like an entrepreneur listening to market feedback while designing a product, Senator Christopher Dodd (D-Conn) has made some improvements to features of his pending legislation that we described last month. Originally designed to fight the “too big to fail” problem in the financial markets, many constituents—including the Angel Capital Association and the National Venture Capital Association—have highlighted that it could inadvertently render startups “too small to succeed.” These new enhancements are steps in the right direction. The legislation is still pending, however, and other voices—particularly state regulators seeking more power—could oppose the amendments and hinder entrepreneurs.
Senator Dodd has proposed two amendments to his own legislation based on feedback from the entrepreneurial community. One would leave the current standard for accredited investor at a net worth of $1 million (as previously proposed, the bill would have more than doubled this figure) but would add a new provision that the calculation would exclude the value of the investor’s primary residence. It also would allow the Securities and Exchange Commission to revisit the definition periodically. The other amendment would maintain regulatory consistency across states for entrepreneurs raising money while disqualifying parties who have been identified as “bad actors” by state or federal regulators.
While no change to the accreditation standard would have been preferable, Dodd’s new approach is a reasonable compromise. The change to the regulatory environment provides uniformity for entrepreneurs while increasing investor protections for all types of private fund raising.
Many state regulators reportedly are still continuing to seek to expand their control over private fund raising and might oppose these positive steps for entrepreneurs. We hope Senator Dodd and his colleagues continue their support of entrepreneurship, job creation, and economic growth and pass the legislation and these amendments.