On Thursday, the Investor Advisory Committee to the SEC met and approved a short list of broad recommendations to update the definition of accredited investor. I Live Blogged the event with Joe Wallin of Davis Wright Tremain and Marianne Hudson of the Angel Capital Association. The good news is that if you are currently an accredited investor, don't worry - you are still an angel investor today.
The recommendations were fairly broad and didn't change the dollar amount that would qualify you to be an angel investor. The recommendations (which can be found in this pdf) do explore the requirements of income and net worth as well as a few other aspects. This is a long process and this meeting to accept the recommendations is just one step in that process. The recommendations did include one interesting item that is starting to generate a lot of discussion. One of the accepted recommendations is to explore expanding the pool of accredited investors by adding a test of some kind to allow new investors who don't qualify by other means to become an accredited. This is an interesting area as I hear quite often from new investors that they are surprised there is no test or way for them to become an accredited investor.
The recommendations and discussion boil down to following:
- The IAC discussed leveraging existing angel group membership as a qualification (for example the ACA Established Angel Group certification) in an effort to meet one of the recommendations of introducing new tools for accredited investor verification. This may also include new online tools.
- One of the recommendations was to leave the current financial qualifications alone for now, but explore if and how it may be changed in the future.
- Regardless of financial or sophistication measures, a methodical approach to adjusting the standard over time is one of the recommendations.
- Another financial related recommendation was to introduce some form of sophistication requirement where an individual would take a test (likely a FINRA administered test) to become accredited regardless of financial status.
- The last recommendation relates to individuals who recommend investment in a private company, they can’t have a personal stake or be compensated by the issuer. If they are compensated at all, they need to be compensated by the buyer and must accept a fiduciary duty.
Additionally, the IAC recommended that the SEC’s proposed rules on Form D be published as final rules. The hope is to get better data on Reg D offerings. These are the often loathed rules that will require issuers to file an advanced Form D 15 days before generally soliciting, providing all fundraising materials, etc., with the potential penalty of losing the right to raise capital for a year. I agree with the ACA on this one that the move would be disastrous.
I'm not sure I agree Anthony over at Crowdfundinsider that the new recommendations would significantly decrease the pool of accredited investors. I think that we as a community of investors and entrepreneurs need to continue participating in the conversation to ensure that things like sophistication becomes a method of expanding the number of accredited investors instead of decreasing. This is something that we need to stay involved in until it is done right.