Wake up entrepreneurs! Here's why you should care about Senator Dodd's Financial Reform Bill

Senator Dodd's Restoring American Financial Stability Act of 2010" passed the Senate Banking Committee on March 22nd and the bill will now move to the Senate floor. If this bill gets passed there will be some serious repercussions for the start up ecosystem - entrepreneurs, angels and VC investors. Its time to take action NOW.

So, why should you the entrepreneur be concerned with a bill primarily targeting the banking sector? In this sweeping finacial reform bill, there are three major issues which will have an impact on a start up that is considering raising money from angel investors.

1. Currently an "accredited investor" is someone with a income of $200,000 (or $300,000 for a couple) and $1M in assets. As per the sec. 412, the bill proposes to raise this threshold to account for inflation. This increase could potentially cut down on the number of angel investors who invest early on in young and promising start ups such as yours. As per the data from this Business Week article , the increased threshold could result in a 77% drop in the number of accredited investors! Also, the same article talks about how a start up with unaccredited investors may make them unfavorable for VC investments in subsequent rounds. As if life as an entrepreneur wasn't hard enough...

2. The next major issue for you the entrepreneur would be the proposed change suggested in sec. 926 regarding securities filed under Regulation D . Based on what has been suggested in the draft bill, start ups and private companies that are raising funds cannot close on their financing until SEC or a state regulatory authority has reviewed the filing and this could take as long as 120 days! So, instead of closing small funding cycles quickly and moving on with your product development, you are stuck waiting for your paper work to pass through the regulatory quagmire.

3. The same sec. 926 also increases the threshold for the federal preemption of state authority to kick in. So, as an entrepreneur even though you are raising a small amount of money each state can impose its own set of regulations. This implies that in addition to meeting the requirements of the sate in which you are incorpoarted, you will have to file in every state from which you have an accredited investor. Once again making the process of raising seed money from angels very expensive and even prohibitive to go across state lines.

In a time when start ups offer the biggest potential to reduce unemployment and take us beyond this economic nightmare, this bill only serves to throw more roadblocks by effectively increasing the cost of doing business.

If you want to do something about this, do contact your senators and representatives in Congress. Also, take the time to sign the online Save Reg D petition at http://www.gopetition.com/online/32354.html.