Congress looks to angels to revive economy

By J.D. Harrison, Published: April 1 | Updated: Wednesday, April 2, 7:45 AM

Hoping to fuel more job-creating companies, lawmakers on both sides of the aisle are crafting legislation intended to encourage individual start-up investors, commonly called “angel investors,” to pour even more capital into new and growing businesses — but they don’t all agree on the best way to help.

“We want you to make more investments, we want you to take more risks,” Sen. Chris Murphy (D-Conn.) told investors at the Angel Capital Association’s annual summit last week in Washington. “So why don’t we take a look at our regulatory structure so that we’re reducing the barriers to the type of investments that you make, not increasing them.”

In the United States, angel investors funnel more than $1 billion into thousands of early-stage companies every year, and more of that money is moving into rapidly growing sectors like mobile and health care technology, according to a new report by Silicon Valley Bank and the Angel Resource Institute, a research organization.

In addition, angel funding is increasingly spread out across the country, as opposed to traditional venture capital (pooled money among a group of investors), which has long been concentrated in metropolitan areas, particularly technology hubs like New York City, Boston and Silicon Valley in California.

Rep. Patrick McHenry (R-N.C.) emphasized that second point in his own remarks at the conference, calling angel investors “very important for us in the rest of America, the ones outside of large urban areas, to ensure that entrepreneurs with great ideas have an opportunity to get started.”

In an attempt to encourage those investors to put more of the their wealth behind a larger number of companies, Murphy, McHenry and other lawmakers in both chambers are working on proposals meant to make start-up investing simpler and more financially appealing. Here’s a look two of the ideas they are working on right now in Congress.

National angel tax credit

Murphy, for one, has put forth a bill that would create a national angel tax credit, which would give investors a tax break worth up to 25 percent of their total annual investments in high-tech start-ups based in the United States.

The proposal is modeled after a program in Murphy’s state, which allows Connecticut investors who funnel at least $100,000 to an early-stage business in certain sectors to take an income tax credit equaling up to 25 percent of their investment. Since it started in 2010, it has supported more than 200 investments from 90 angel investors going to dozens of companies in fields like biotech, clean technology and information technology.

“Our tax credit has worked,” Murphy said. In addition to funding companies that create jobs, he argued that expanding the credit nationwide will help “target growth in the science, technology and engineering fields, so the United States can continue to lead the world in innovation.”

Murphy acknowledged that the proposal could be a tough sell as policymakers are currently looking for ways to simplify the tax code, not add new deductions. Moreover, the proposal has not sat well with consumer groups, who have slammed the tax break as yet another handout to some of wealthiest Americans.

However, David L. Verill, founder of Hub Angels Investment Group in Boston and chairman of the Angel Capital Association, says that with successful entrepreneurs-turned-investors, that money will nearly always be funneled right back into the economy. Citing talks with other angel investors, he believes most would “plow the savings they get from the tax credit right back into another company.”

“So it’s not going into the third house or the yacht or something like that,” he said. “It’s getting churned right back into the entrepreneurial ecosystem.”

Reworking the JOBS Act

North Carolina’s McHenry called the national angel tax credit idea a good idea — but he says lawmakers should first follow up on the JOBS Act.

Signed into law two years ago, the Jumpstart Our Business Startups (JOBS) Act directed the Securities and Exchange Commission to ease a number of restrictions on the way entrepreneurs can communicate with and solicit funding from investors. However, a number of lawmakers and investment groups have complained that, in writing the rules to implement those changes, the SEC has actually made it harder rather than easier for companies to reach out to investors.

As part of the law, for instance, regulators were to lift the ban on what is called general solicitation, which had prevented companies from widely advertising their securities offerings to investors. In doing so, though, officials haveproposed some new requirements for certain investors — requirements that McHenry says have made some of the key provisions in the law “unworkable.”

He pointed out that regulators now require investors in some cases to file documentation two weeks in advance of launching discussions with a company in which they may consider investing. Noting that angel investors only tend to invest in a tiny fraction of the businesses from which they hear pitches, McHenry said “the idea that you are going to prefile 15 days before you even start discussions is absolutely absurd.”

Meanwhile, the proposed regulations could require some angel investors to start proving their level of wealth via third-party certification, moving away from a longstanding precedent of self-certification for accredited investors.

“They’re putting friction where there wasn’t any before,” Verill said.

If the agency doesn’t amend some of those rules, Congress may step in.

“At the end of the day, it’s going to be up to Congress to legislate and fix this problem, and we’re working on that now,” McHenry said, later adding, “I think you’ll see further action in a bipartisan way to hold [the SEC] accountable.”

However, that might not happen right away. McHenry noted that the regulations are already well behind schedule, with some rules still yet to be finalized. And with the mid-term elections looming, many lawmakers are currently too preoccupied on the campaign trail to craft and debate new legislation on the Hill.

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 http://www.washingtonpost.com/business/on-small-business/congress-looks-to-angels-to-revive-economy/2014/04/01/b7dc926e-b9c6-11e3-9a05-c739f29ccb08_story.html
 
  

By ZACHARY J. GUBLER

Crowdfunding has the potential to revolutionize the financing of small business, transforming millions of users of social media such as Facebook into overnight venture capitalists, and giving life to valuable business ideas that might otherwise go unfunded. Entrepreneurs have already used this fundraising technique on popular crowdfunding websites such as Indiegogo, Kickstarter and Startsomegood to get their ideas off the ground—including a device to track a person's daily activities, an art book about the Dead Sea, and an effort to support poor communities in Bangladesh.

Though crowdfunding is still in its infancy, the ability to raise capital via the Internet may in time become a significant spur for economic growth—to say nothing of giving ordinary investors the opportunity to get in on the ground floor of the next big idea.

Last year Congress passed the JOBS Act—for Jumpstart Our Business Startups—to remove the barriers in securities laws that prevent entrepreneurs from using crowdfunding to sell equity to ordinary investors and let companies raise up to $1 million through the Internet. President Obama signed the law this past April, and the Securities and Exchange Commission is tasked with implementing its provisions. But the agency has been slow to adopt new regulations and is asking for more time. The delay has been attributed to the complexity of the issues and the need to get the rules right.

Yet it might be wishful thinking to believe that the SEC can get these rules right, at least on the first try, because the effects of the regulations are hard to predict in such a new investing realm. If we require companies that raise more than $500,000 through crowdfunding to provide investors with audited financial statements (a rule that the SEC is considering), will that substantially reduce the incidence of fraud? Or will it undermine crowdfunding by imposing an impossible requirement on companies that don't yet have any financials to audit?

Crowdfunding raises dozens of such thorny questions for which there are no reliable answers because of the untested waters. Instead of trying to get the rules right on the first try, why not take an approach that will maximize the probability of getting it right a few years down the road?

A regulatory experiment might do the trick. Specifically, the SEC, in adopting its rules, could treat crowdfunding with a relatively light regulatory touch: for example, by not requiring audited financials but specifying that the rule will expire after three to five years. If the evidence over that period suggests the incidence of fraud is high, then the agency might impose stricter and more permanent requirements.

True, an agency or Congress can always change its rules or laws after the fact in light of experience. But that's not always so easy. A sunset provision, however, forces a regulator to overcome the inertia of the status quo. Particularly with crowdfunding, the SEC can take positive steps to gather the relevant information that will be necessary when it revisits the rules after the test period.

An experimental approach isn't free of obstacles. Interest groups that favor a particular rule or regulation will, everything else being equal, strongly prefer that their approach be adopted on a permanent basis. Federal courts, especially the D.C. Circuit Court of Appeals, have in recent years required the agency to make a more thorough case that the benefits outweigh a rule's costs. This requirement could be a problem for rules that are deliberately experimental.

Still, the hurdles might be overcome. On the political front, experimental crowdfunding rules might be precisely what is needed to reach consensus and to prevent gridlock and legal challenges. It would give those who favor light regulation a limited period to see what happens. And it would give those who favor strict regulations the evidence they need to make the case. Federal courts might also give their blessing to a regulatory approach designed to generate the data necessary to satisfy cost-benefit analysis.

If crowdfunding really is the innovation that many anticipate, investors should be allowed to take advantage of it sooner rather than later. We may end up with a better, more robust system for raising small business capital than endlessly agonizing over the unprovable "right rules." An experimental approach to regulation might be the way to get the JOBS Act to start producing jobs.

Finally, there would be a satisfying symmetry in getting to the optimal regulatory regime by using the type of innovation and experimentation that characterizes the very business startups the JOBS Act is designed to help.

Mr. Gubler is professor of law at Arizona State University's Sandra Day O'Connor College of Law. 

Read this article at the Wall Street Journal website here.

Hundreds of Americans gathered at the Vietnam Memorial Wall in Washington D.C on Flag Day to pay tribute to their family, friends and loved ones who courageously fought in the Vietnam War.  Among the names read included longtime Burke County resident and Vietnam veteran Glenn Otis.

Glenn served as a sergeant in the United States Marine Corps, where his bravery in both the battles of Khe Sanh and Con Thien earned him a Purple Heart medal. After he completed his service in 1968, Glenn received a Presidential Citation for Bravery, and then returned home to North Carolina.

Although Sgt. Glenn came home from Vietnam with no external physical wounds, the battlefields left his lungs in poor condition. His health deteriorated over time, and as a result Sgt. Glenn died in 2007 due to internal wounds from his service. Although his name is not in scripted on the Vietnam Memorial Wall, he is counted among the thousands of American patriots who gave their lives as a result of valiantly serving in Vietnam. 

Otis Glenn’s wife, Judith Glenn, read her husband's name in front of the Vietnam Veteran’s Memorial Wall in 2009 and added his name to the Vietnam Honor Roll Book to serve as a permanent remembrance of his service.

Over fifty years after his homecoming, Sgt. Glenn’s name continues to be spoken at the wall. The annual Flag Day ceremony commemorates not only those who fell on the battlefield, but also those who perished as a result of war injuries once they returned home.

In 2012, 96 additional heroes were inducted into the Vietnam Honor Roll Book.

During the 1960s, much protest arose regarding whether or not the United States should actually be engaged in the war. As a result, many war heroes never received a proper homecoming or welcome from their fellow citizens. Speakers at the memorial event today called upon citizens to remember the patriotism of those who served in Vietnam as America continues to face new challenges. 

Thumbs up, thumbs down

By The Record Editorial Staff

THUMBS UP to U.S. Rep. Patrick McHenry for crafting a bill to help business owners that House members couldn’t refuse. His legislation to allow small businesses and entrepreneurs to raise money by securing small contributions from many sources – called “crowdfunding” – cleared the full House by a vote of 407 to 17. That’s a margin almost unheard of, given the divisiveness in Congress these days. The legislation would allow companies to raise up to $2 million, with individuals limited to investments of $10,000 or 10 percent of their annual income. Now, the Securities and Exchange Commission prohibits crowdfunding. It’s a good bill that can provide smaller companies with much-needed start-up money or operating expenses with relatively little risk to investors. We urge the Senate to give the Entrepreneur Access to Capital Act the same support as the House.

http://www2.hickoryrecord.com/news/2011/nov/04/thumbs-thumbs-down-ar-1576335/