Startups Get Hit By Shrapnel In The Banking Bill

There is a big banking reform bill working its way through the Senate right now. It is sponsored by Chris Dodd, Chairman of the Senate Banking Committee. It has a long name I can't remember, so I'll call it the Dodd Banking Bill.

What does a bill attempting to regulate the banking industry have to do with startups? Well unfortunately, it contains two provisions that are quite problematic and hurtful to entrepreneurs and startups. They are:

1) Changing the definition of a "qualified investor" in angel and venture deals. Not just anyone can invest in a startup company. You have to be a qualified investor. A qualified investor is currently defined as anyone with a net worth of over $1mm or net income of over $250k. Dodd's bill would increase that to $2.3mm and $450k respectively. And then index those numbers to inflation.

2) Eliminate the existing federal pre-emption over state regulation of "accredited offerings." Angel and venture financings could be regulated state by state creating a fairly burdensome set of rules  and regulations that each financing would need to be subject to. Currently there is a federal pre-emption that makes getting these kinds of deals done fairly easy.

I have no idea why either of these provisions ended up in a bill designed to regulate the banking industry. Entrepreneurs and startups don't use banks to finance them. They get their initial capital from angel investors and then VCs as they grow. This system works well, did not blow up in 2008, and is not in need of reform of the type Dodd wants to throw at us.

In fact, what we need is to eliminate all accredited investor requirements for small investments of up to $25k. Why does someone have to be a millionaire to invest in a friend's startup? I understand that we don't want someone mortgaging their home, or betting their entire life's savings on a startup. But for a small amount, like $25k, we should not be regulating angel investing.

My dad sent me an email the other day pointing out a news story about an incubator in Texas that was cranking out startups and creating jobs. He told me that he believes that the work entrepreneurs and the people who work with them (ie me) are doing is incredibly important to the health of our economy. He's right and we need to explain that to Chris Dodd and his friends in the Senate. If they are going to reform accredited investor regulations, they should liberalize them, not constrain them further.

I'll get on the phone and call my Senators and Representatives. Hopefully you'll do the same. This is nonsense.

UPDATE: Irene left these details in the comments which will be helpful when you contact your representatives:

The section numbers in question are Sec. 412 for accredited investors and Sec. 926 for federal pre-emption or Reg D.

Link to pdf of bill:

Link to TechFlash article with more info on possible influences:

UPDATE #2: Dan Primack of PE Hub has just posted that congress is listening to all the uproar over this. Maybe we'll get to keep things the way they are. But I am still going to make the case that we need an exclusion for small investments made by non-qualified investors.

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#Politics#VC & Technology

Comments (Archived):

  1. Pascal-Emmanuel Gobry

    I’ll have a post up tomorrow on why Dodd’s amendments are the best thing since sliced bread. ;)Seriously though, I’m 100% with you on that one, especially fully deregulating angel investments. There are no rules like that in France (to my knowledge in Europe), and I don’t see why there should be. Investing in a startup is by definition risky, people should be aware of it.

  2. Mark Essel

    I read Chris Dixon’s and others take on this one. The problem is that “accredited investors” are much easier for VCs to follow on invest in. I believe if this issue is corrected, we can ignore the qualification.If I can mortgage my house and bet it on black at a roulette wheel in Vegas, I can surely invest in a friends startup, regardless of how wealthy I am.

    1. andyswan

      They’ll sell 100 lotto tickets to a woman who just cashed her government check and tell you it’s for the common good of improving horrible public schools. That’s who these people are.They are so arrogant that they actually BELIEVE that they know better than you do how you should live, produce, spend and invest. They are elite, and they don’t mind conforming YOU to THEIR rules. They see themselves as slave-masters with a heart of gold, who “know what’s best” “for the people”Their scams are funded through the threat of sanctioned violence, authorized at the ballot box by the very people who they deem too unsophisticated to make fiscal decisions, and unwillingly, forcibly funded by the people who they say are capable of avoiding a scam.How about this? Any person entrusted with the right to vote for representatives in the federal government should be entrusted with the right to invest the fruits of their labor in any way they see fit. Mr. Dodd can make the decision concerning which of those rights he’d like to remove from the “unsophisticated”

      1. JLM

        Hobson’s Choice!Of course, in the original scheme of things “voters” were “landowners” and “taxpayers” — a scheme I kind of like right now.

        1. andyswan

          But how would that advance the spread of dependency???

        2. ShanaC

          Yes, but that made my property rights very confusing…

    2. Dave Pinsen

      Great point, Mark.This is a symptom of a broader problem in financial services though, one I touched on in the comment thread on Chris Dixon’s post about “Disrupting Wall Street” a while back. The problem is that regulators and the powers that be restrict the access of small investors to certain kinds of putatively risky investments, without considering that — when used the right way — they can lower the overall risk of a portfolio.

  3. timothysykes

    Lets go to DC, dinner is on me…Citronelle is delicious!

  4. Nick Giglia

    I don’t think anyone here or in the startup world at large is under any illusions about the success rate or the financial risk of investing in a startup. If people want to invest in my startup, and understand the risks, I see no issue with accepting the money.To me, this comes down to 2 things. First, there is a tendency at times for the government to want to protect us from ourselves. However, all this does is stifle innovation and make it that much harder for entrepreneurs to create the new wave of the U.S. economy. Second, and much more troubling, is the disconnect between the worlds of technology and entrepreneurship and politicians in Washington. We need to follow Fred’s lead and make our voices heard, because I’ll bet there are people out there who don’t understand the profound difference between banking and the VC/Angel world.Entrepreneurs built this economy, and we will re-build this economy. We should be given every advantage in doing so.

    1. jchewitt

      Just from my anecdotal experience: my father was an executive at Goldman Sachs for 13 years.While he was speaking to institutional investors about the “wonders of technology” and doing IPO deals, the man didn’t even know how to type. He had no real methodology for determining whether or not the companies he worked with were fundamentally sound or not. I set up my father’s first e-mail account in the early aughts.I probably knew more at age 10 about technology than the entire analyst department of GS did. Perhaps that may sound arrogant to some of you, but those kinds of reports were my Dick & Jane growing up. Not that some good companies didn’t emerge from that wreckage, but even so, the pop of the bubble devastated the public reputation of the tech sector as a whole. And VC!Why don’t they get tech?They don’t use it. They watch TV, love print media, never read books – tech is just “kid stuff” to them. They don’t understand its power as a platform for commerce. And they perhaps rightfully see it as a threat to their way of life. Luckily, mass adoption has become grown enough for it to be finally possible to push forward into a new era of economic prosperity.Maybe!If we hang together.

      1. ShanaC

        I don’t think this is unusual at all- the disconnect is often more common than we think.

  5. DGentry

    I can see eliminating accreditation requirements for small investments.For larger investments though, I think it makes sense to index the requirements to inflation. Its silly that we write specific dollar amounts into laws when the value of a dollar decreases over time. The sudden 2.3X increase sounds like the accumulated inflation since the accreditation requirements were initially imposed.As for why these provisions are in the banking bill, you know the answer and are just asking it rhetorically. Legislation == sausage.

    1. DGentry

      On further reflection, I’ve changed my mind. I do no believe small investments should be exempted from accreditation requirements.The requirements are there because angel investments do not enjoy most of the SEC protections that other forms of investment have. If we exempt small investments from the requirements I think the main impact would be to enable a legal form of investment fraud, creating barely plausible companies to hawk to unsophisticated investors who won’t understand the risk they are taking. This sort of activity already happens, but its a crime which can be prosecuted. It would skyrocket if we created a way for it to be perfectly legal.I agree it should be easier for friends and family to help someone start a small business. I suspect that happens already via informal channels (i.e. writing a check). It would be good to bring that kind of activity up into the mainstream and make it easier, but I don’t think a broad exemption in the law is a good way to do that.

      1. Mark Essel

        Let the buyer beware, not good enough?Of course fraud is prosecutable, but we have to remember how much liberty we give up (the upside) by tightening down on our security.If startups were completely predictable you’d only need enough funding to get them built. But they’re not. You and I don’t know which will be the superstars at the get go, and which will flame out. No one does, not even the best of the best VCs. While it’s far from random, it’s equally far from predictable. I think that’s why we have to do our best to maintain financial flexibility for early investors.I’ve lost plenty of money in the stock market (hundreds of thousands of 401k dollars). I’m not an informed investor, so I got burnt. But I had the freedom to do so. Why shouldn’t I have the same freedom to risk capital on startups. At least for failed startups I’d have the satisfaction of knowing that the next time around those founders would be a little wiser, and would remember my investment in them in the future. I’m sure if they ever got in the position to return my trust they would do so. Personal investments in people have a very different downside than faceless investments.Those stocks that tanked in 2008 could care less about my investment dollars. I look at my own savings in a variety of banking structures and wonder about the longevity of their value.(I liked this one not because I agree with it, but because you’re sticking with your thesis on all levels which I can respect)

        1. ShanaC

          We need truth in investing across the board. In theory FINRA is supposed to step in with Stocks: this doesn’t really happen majority of the time, alas. There is no real similar structure to FINRA for new companies that would fall under the VC asset class, so it is really buyer beware.And FINRA et all was in major hot water circa 2008. They are supposed to be guard dogs. And they failed….

    2. DGentry

      Since I’m on a roll responding to my own comments, I’ll continue.Increasing the requirements by 2.3x and indexing them to inflation will reduce the pool of venture funding. I’m not convinced thats a bad thing. In Silicon Valley at least, I believe part of the problem with venture returns is that there is just too much money in the pipes. Marginal ideas get funded, and we get 7 startups all chasing the same opportunity simply because each big VC firm wants have one in their portfolio.Were the investment distributed more equally around the world, I’m sure there is enough entrepreneurial activity to absorb that big pool of money. But it isn’t distributed equally, it clumps around centers of activity like Silicon Valley, NYC, Israel and Bangalore. It requires too much energy to canvas the huge number of secondary markets out there.I think raising the requirements may actually be a good thing for VC. The inflow of money from pension and hedge funds has already dropped, and this reduces the flow from the other end. Less money is actually good for VC as an investment class, in my opinion.Please don’t take this as a personal attack. Its not. I’m trying to comment on VC as a class of investment, not VCs. Any class of investment has an optimal amount of money, works well somewhere around that optimum, and less well when there is way too much or way too little. I think we overfunded VC as an investment class for the last 10-15 years.

      1. Mark Essel

        Should we be trying to optimize average VC returns?

        1. DGentry

          In the law, no. My habit of writing comments while thinking it through is not a good practice.The point I was trying to make is:+ I think indexing the accreditation thresholds for inflation is the right thing to do.+ The impact of this will be to reduce the pool of angel and VC investment money. I do not believe that is a bad thing, either for the economy nor even for VC investment as a class.

          1. Mark Essel

            I tend to lean towards less regulation, certainly in cases where there is a large amount of unknowns.It doesn’t take a suitcase of cash to know which startup will be a huge success versus smaller returns and failed ventures. If individuals wish to back friends, they should be free too without negatively signalling later stage investment.I think we want to encourage an environment that is ideal for many thousands of smaller returns, with the rare exception being the mega startup. Perhaps a different class of investment for a new breed of smaller cap startups?

          2. DGentry

            I respect that opinion. I’ll try to make this the comment I should have written in the first place:I think markets can only function when the level of manipulation and fraud is kept under control. I am not a student of economic history, but it is my impression that the stock market in the 19th and very early 20th centuries did not function well even after allowing for the communications technologies of the time.Angel and VC investment has a role, and startup businesses cannot be subjected to the reporting requirements of established and publicly traded companies without smothering them. I believe the sophisticated investor rules are a reasonable compromise. The ability to own a suitcase of cash is not the perfect measure of a sophisticated investor, but its not a bad proxy for one.I agree there is a need for small cap investments in startup businesses. These transactions are made all the time between friends and family, but they are done under the table and probably technically illegal (though there is also no interest in exposing and prosecuting it). I’d welcome a regulatory regime which brings that kind of investment into the light, but doesn’t encourage a wave of fraud.

          3. Mark Essel

            Now I understand where you’re coming from DG, appreciate the explanation.

      2. ShanaC

        I agree with this. I also keep thinking that there may be too many incubators- while mentorship is really neccessary, and you need essentially a pump of companies, I think there is way too much small stuff flowing through the system and it is causing echo effects and marginality for essentially the same reason. It almost feels like there is too much going on in Seed and Round A.Fred, you said you were hoping for a secondary market, with that you really need to be super educated on VC as a class of investment in order to shape the curve.

        1. Tereza

          I’ve spent a LOT of years studying, consulting and working on innovation. When you limit early-stage innovation, you get the syndrome of The Tallest Midget.Innovation is a funnel. You must, necessarily, have much volume at the wide end of the funnel, to have big stuff come out the other end. To optimize the outcome, you must maximize funnel throughput, give the businesses just enough to prove themselves out, and get really good at picking the winners early. Better investors pick better winners earlier.Innovation dies and gets too small when not enough is happening on the wide end of the funnel. We need as broad a number of ‘contestants’ as possible.When ideas are choked off too soon, or there is group-think among investors and innovators, and “out there” ideas are not supported, then the “Tallest Midget” happens. Structurally chokes out the Big Wins required for the innovation system to be profitable. Only middling, incremental ideas are expressed, get seed funding, etc. And these, frankly, are more the purvue of corporate intrapreneurship, not game-changing innovation.So in summary — the problem isn’t too many seed funded/Round A companies. The problem would be not enough startups, too narrow/small thinking, lack of disruptive enabling technologies, or insufficient understanding of the market that’s supposed to monetize the stuff.Sorry for the rant but this is an important one to me and I’ve seen too many people get this wrong.

          1. ShanaC

            I agree with that, but you still want to have enough cash to get the tall ones to the finish line. And it is taking longer now as the asset class changes- so how do you protect everyone involved from flaming out?

          2. Tereza

            The ones that will flame out should flame out. It’s a funnel, not a tube. A great opportunity, the tall ones, will find the money. i’m not concerned about Series B and beyond. We all know that what we used to call “venture” capital is hardly that anymore, and the true “venture” work is done by the seed/angel guys.If I talk to another VC who says, “we only do Series B and beyond”, i say, you’re a bank, not a VC.What I care about is providing maximum liquidity at the start of the funnel so as many seeds get water, so we can see who grows. And that’s what fixing this bils language is about. Then let the bigger ones (now erroneously called “venture”), pick the attractive ones to transplant, fertilize, etc. But if they’re not meant to grow, they have to die. Sounds harsh but it’s the only way.

          3. JLM

            Brilliant. I am stealing your entire post. And I will NOT acknowledge.

          4. Tereza

            I’ll let you steal it unacknowledged if you give me $25k in seed capital!

          5. Tereza

            …you have 120 days to write that check.

          6. JLM

            OK, check is in the ………………………………………………………………..e-mail! LOL

          7. Tereza

            No problem, my friend. I’m on PayPal.:-)

          8. JLM

            “give”? LOLI gave at the office!

          9. Tereza

            Was that before or after March of Dimes?

          10. ShanaC

            100% that they should flame out but not because we’re stupid and can’t figure money. Not that we can yet :)Personally I think part of the problem is we aren’t recognizing the following:A) angel and seed rounds are part of banking. Think of the way the shares are structured, especially once they hit the public market in some way. You just moved money.B) as a result we probably need other ways of raising the money. And the good question is how?

          11. Tereza

            Hey Shana — Why are they part of banking? I’m sorry, i’m not tracking your argument. Fill me in.

          12. ShanaC

            Because even at the seed/angel round, at essence, you are trading money for equity in the business. At its most basic, it is a form of loan, with equity as the guarantor (instead of house or something else). It is my understanding that this equity could go underwater (or dissolve aka bankruptcy) leaving the loaner (aka the fund, the angel) without money and also underwater, since on some level, the equity taken from the business is in fact a liability for the fund. However, if the company performs, said loan pays itself off through the cashflow than gets itself paid back through the equity’s dividends (if there are some) or sale. This inherently creates more money, as would be assumed by the basic principles of fractional banking.In essence, if you are giving money to people with the hopes of getting it back in greater quanties (including inflation) then you are participating in some means of fractional banking. You’ve changed the velocity of money in the US. If you are just causing clearing to happen faster (again, that will change the velocity of money) you are participating in banking. Even at $10,000 that can and will happen. It may be the amount of people you give $10,000 to. But it still happens.Most people don’t like that. It makes all of us very responsible for money…because in essence, you can’t escape the role banking puts on you. It allows you to send signals, and tell the world something by voting with your feet en mass. No one has to loan anyone money. No one has to loan money through a specific method. It’s in your hands. Think of it that way.

          13. Jishosan

            I was going to post pretty much the same thing as you, Tereza. I know that there is some portion of the argument that believes that you are diluting value by expanding investment choices in the pipe, but the opposite is often true. By creating a diverse investment landscape and lots of choice for markets, you’re providing innovative competition. This usually forces more feature and service aggregation from the gate, either in the form of competitive development or outright acquisition, both of which will create a more refined and robust market when stabilization occurs. Once people get used to a product or service, they will usually seek it out, even if it means moving to an alternate provider when theirs is swept from the market.

          14. Mark Essel

            I’m with you on this Tereza.Structurally we need to educate folks on how unpredictable systems work.Say you have 100 people that want to run in the race, and you have a qualifying round made by an arbitrary selection group that guesses who will be fastest by looking at the individuals and judging their physiques, leg lengths, etc. If you limit the initial pool to 10 out of the 100, you decrease the probability of getting the fastest runner substantially.Why cull the early phase at all? It’s arbitrary.

          15. JLM

            Brilliant comment. Well expressed and well played.I will steal the “Tallest Midget” to add to one of own favorites — “in the land of the blind, the one eyed Jack rules supreme”

      3. fredwilson

        there may be too much VC capital out there but i’ve never seen any data that suggests there is too much angel money out there. i think the opposite is true. there is too little angel capital out there

        1. Tereza

          Per my comment elsewhere in this thread….if you buy the ‘innovation funnel’ concept (which is not new thinking, but generally accepted), then the only way to spur innovation — and new small and big companies — and therefore jobs — is to allow as much and as frictionless angel funding as possible.To extend that concept, tax incentives to encourage investing in seed stage businesses would really help. Such as a pre-tax annual allowance for investment in pre-revenue businesses that are aged 2 yrs or less. And have an income minimum for this so folks aren’t going into foreclosure to support their friends.This is just a high-concept strawman, and I’m sure there are tangential issues I haven’t thought of but it feels directionally correct.The objective is to let people who have the cash put it into people they know and trust, to give them just enough to grow big enough to get the attention of the “big boy” angels and VC’s, as well as a whole lot of lucrative Lifestyle businesses which are not VC candidates but still great for the broader economy and job creation.

  6. HowieG

    Please explain the current Angel/VC rules. If I make only $100k a year and want to invest $25k in savings into a startup what is the difference between being an Angel/VC and whatever I would be called (partner?). Is there different tax and liability treatment?I think what would of been better is restricting VC’s and Start Up Equity Owners from cashing out their stock after an IPO to a longer period, say 2 or 3 years. I see another pump and dump with Social Media companies on the horizon. I myself will short Facebook immediately if it IPO’s above $7 billion, but the investors need $14bil to get their money back which is one reason for all the overhype.Everything should be focused on long term wealth and business creation rewarding those who build and create great companies.

    1. fredwilson

      the rules are simple, if suboptimalif you invest cash in a securities offering then you are subject to theregulationsand in that case, you need to be a qualified investorif you are granted options or restricted stock and do not invest cash, thenyou are not subect to the regulations

      1. HowieG

        Then I agree with your position. I think as with everything even the bubbles/hype that happen every so often its always buyer beware. And if they aren’t doing the proper research/due diligence into what they are investing that is the buyers problem.

    2. paramendra

      Facebook’s market value will easily, very easily exceed, 14 billion. It will end up being 40 billion. Mark my word.

      1. fredwilson

        already hastransactions in the secondary markets are well north of $15bn now2010/3/26 Disqus <>

        1. ShanaC

          But, we need a secondary market for everyone, and that you need qualified people for. Once you get a company at a certain maturity point, even if it isn’t going to public quite yet, I’m not sure the idea that the same class of investor that should invest in a seed/angel should handle secondary markets for a bigger company. There just seems to be something off because size points to different skill sets….

          1. paramendra

            Wanna buy some Facebook shares, Shana? I don’t blame you.

          2. ShanaC

            I am not a qualified investor (in fact, I don’t meet the threshhold to use SecondMarket). However, I would never nakedly buy Facebook Shares, even if their shares are keeping Elevation Partner’s Tuchus in the air. I would want to at minimum see the price and how liquid the individual shares are, and that is before trying to see if I can analyze something (if I were well trained) the swaps on say Facebook shares and their potential for IPO (orthogonal view on information about those shares)I have a high risk profile, definitely. I just know how to temper it by not being blind by my own weakness of not knowing …

          3. paramendra

            Oh boy. Wow. I’m not sure I followed the entire logic there. But in simplistic terms I think it is a very, very good idea to get hold of some Facebook shares, the earlier the better. If you can’t get hold of some now, buy on day one of its IPO. This is a sure winner. A Facebook IPO is going to be like the Google IPO, almost.

          4. ShanaC

            Yes, the shares are very valuable right now. There are two big factors for me right now1) They are cash flow positive and profitable- but are they profitable enough to project out profitablity on continual basis at a large margin though to justify their current trading value, which I can’t really see because I do not make the threshhold of ‘qualified investor’ in the US. (I decided that I’m crazy enough to do so and registered on SecondMarket as an observer….)2) I read Dot Con. (good book, very glum, I don’t always agree with it) Facebook will have a really Large IPO. IPOs are complex creatures and the hard work starts the next day- the market is not a nice place. As per Jchewitt comment above- a large chunk of the people buying Facebook will buy it not even understanding how the company works, which could cause rapid swings in the stock. It also will only go public as the IPO market really opens- which is going to be a massive problem attack for someone like me. Facebook deserves to go public, the dryness of the recent era has caused some weird effects where some companies that need to die or be bought are just not quite coming together.we’re starting to see deals happening, but if you read the blog dealjournal, why are we not seeing a media/technology something buying spree too? We’ve seen some, but not to this huge extent for the amount of cash lying around. Eventually there will also need to be some writedowns, and it might be in the form of an IPO spree and then takeover of companies that should not be listed, or will be re-evaluated by the market under totally different terms. There is something very I love the 90s feeling right now. And I dislike it, I feel like we should have grown up a tad.3) I think derivatives and looking at financial statements (as per all the MBA stuff) is a must before you invest. You probably should also start talking to analysts and starting calling product managers at facebook. You want to see financial health and what the market thinks of the financial health of a company. it is a serious thing to buy a stock, it is not something you want to do willy nilly. I can’t say I have done this for Facebook. It would be idiotic for me to jump in, it is a great way for me to lose money, because I just bought something I don’t understand.4)Finally, I keep having this argument with myself. I’m not totally sure the internet has matured enough to really know what business models work and why. It’s a massive new era and it is still prone to self-inflicted and other inflicted hype. It does bother me that the damn thing is not mature enough that you see internet technology and computers making the front pages of Newspapers in print editions. I find that element of convergence a period that needs to pass, and once we get there, we’ll get some clarity about business models. Personal opinion.This is not complicated, I just am the type to take investing in something very seriously, knowing that other people who are investing are also doing so. If they are going to try eating me (and they might) I might want to try eating them first. So says the market.

          5. paramendra

            Shana, the star commenter here at Your complex logic threads have me starry-eyed. 🙂 My simple suggestion I continue to cling to. Facebook is a buy. I am giving a strong buy signal. 🙂

  7. Louis Marascio

    Why 25k? Is the government really the best group to tell me how I can spend my money? As Mark pointed out, there is nothing to stop me from mortgaging my house and gambling my money away… why are they trying to stop me from investing it? Nanny state politics are unfortunate.

    1. fredwilson

      i was just suggesting a numberit could be any number but the lower it is, the more realistic of gettingsomething done

      1. Louis Marascio

        Practically, I agree. I just find it unfortunate that there be any number at all–the government shouldn’t be telling me how to invest my money, because they certainly don’t tell me how to waste my money.

    2. Mark Essel

      Right on Louis. If we can’t choose how to spend our earned money, is it really ours?

  8. LIAD

    so in effect your happy there being accredited investor regulations but just differ from him on the quantum whilst also wanting there to be an investment ceiling before they’re triggered

    1. fredwilson

      no. but i am realistic about what can be accomplished

  9. jchewitt

    I don’t mean to sound too harsh or cynical, Fred, but the reason this is in the bill is because Dodd and his cohorts wants a piece of this action.The question is: is it more rational to comply with this behavior, or to spark a brain drain?I learned a lot as a Senate intern about the hierarchy of values of your average politician. I’m unsure about your direct experience in politics, but I can understand why you might feel betrayed by this sort of legislation.Fred, do you know what I told all the people who called the senator’s office with some pet issue? As a teenager? “The Senator hears your concerns.” When a big packet full of signed documents landed in the office? In the trash. When your average citizen sends in a rambling letter begging for assistance?Passed around the office to mock.Do y’know who writes those heartfelt letters back to constituents – even major donors? Interns & staff! That impressive-looking signature? The staff keeps a stamp in their desk drawers. Some of them know how to forge it by rote.Look, there’s no conspiracy here. It’s just a completely natural consequence of the economic incentives in play. They spend more time on those that are major donors or that employ large sections of their constituencies.Fred, you’ve done a lot to enhance the reputation of VC, as I can tell.There’s no reason that you even have to remain in the US. I love the culture here, too, but I’m not so wedded to it to stick around through this sort of chicanery.

    1. Louis Marascio

      Leaving the US isn’t the answer. Why not rally a campaign against him and exercise what makes this country great?

    2. fredwilson

      i’m not sending them a letter. i am calling them and they will take my callbecause i have given them money. that’s how the system works. it is corruptand awful and i abhor it. but i know how it works.

      1. markslater

        i cant agree more. Its time some one leveraged the internet to flatten the political landscape and make the process truly 2 way. We are way beyond electing someone putting him on a horse with briefcase of our hopes and dreams and wheeling him of to washington in the hopes he would “do his best for us”.Why is it we could not vote directly on the healthcare bill? there are the tools and technology to make this happen? what? its not how our system of government works? well then change it – its broken – glaringly so. there is a gap of accountability to an elected mans constituency – the internet could fill it – and in doing so sweep away the oderous stench of corruption and special interest that now runs the show.

        1. Nathaniel

          Representative democracy is a good thing. I would NOT want a public vote on policy. Campaign finance reform is what we need – NOT public input on every single policy or piece of legislation. There are numerous pieces of legislation that were *good* for our country that would NEVER had a chance had we held a public vote. Other than that, I agree with you.

          1. Dave Pinsen

            We had campaign finance reform (remember McCain-Feingold?). That’s not what we need. What we need is to change the financial incentive structure for politicians. Instead of angling for lobbying jobs, board seats, or cushy sinecures at government sponsored entities when they retire, we need to pair that stuff back and instead give them an opportunity to earn significant variable deferred comp.Congressmen and Senators wield power out of all proportion to their official compensation. Anytime you have a disconnect like that, you are inviting corruption. Better to limit their ability to buck-rake in the private or non-elected government sector after the terms in office, and instead give them the chance to earn a fat bonus based on how the country has done in the wake of their policies. Base it on a combination of metrics: GDP growth, unemployment rate, debt as a percentage of GDP, etc. Measure it over 5 or 10 years since the end of the politicians’ terms, to smooth out cyclical effects and take into account the lag in the impact of policies. Have the bonuses pay out after a 5 or 10 years.

          2. markslater

            representative democracy has been found tho have gaping weaknesses associated with transparency and accountability. Tow things that internet can address. I agree that it would not make sense to go whole hog away from this, but we are in dire need of improvement in these two areas.

      2. jchewitt

        Thanks for the empathetic response. I hope it works out for you, and I wish you the best.Just from my anecdotal experience, it’s tough to gain an audience unless you control a substantial bloc of fund-raising power.I’m only suggesting it as a brinksmanship play to be used if necessary.This may sound silly to some of you, but the fact that a book like The Big Short could even be published gives me a tremendous hope for the future.If the system is to hold together, they’re going to need to figure out some sort of system of alternative taxation. I’d prefer a voluntary system, by my strong convictions, but primarily I just want to live in peace.The current tax system is set up to extract money more efficiently from geographically-bound, heavily-regulated corporations. How can that hold together in an era of companies that are increasingly tiny, in which outsourcing becomes trivial? The cost of collection will rise – perhaps exponentially.Milton Friedman developed income tax withholding to solve the fiscal problems of the post-war state. I strongly doubt that a similar system can function in the future. I know this is probably very tough for people in middle age or older to comprehend. You have a generation coming up that’s been trained in the use of these tools almost from birth.Why do kids spend so much time playing video games or yammering with one another online? It’s because the real world can be so stultifying and corrupt. We want meaningful, rewarding work. And if no one will provide access to it for us, we’ll make it for ourselves, in whatever country we choose to.

        1. $2437469

          Where would you move, jchewitt? I moved to New York from the Netherlands in 2003. I don’t want to go back, but probably won’t stay here. Mumbai? Australia?

      3. David Binetti

        It doesn’t have to work this way. The StartupVisa experience is one example. No PR, no Contributions, no Lobbyists. But there were thousands of *voters* who responded. Result? Bill pending before Congress — even though we were told it would be absolutely impossible without going through “the system”.

    3. JamieEi

      I’m glad that you’re trying not to sound too cyncial :)I sent emails to both of my Senators. Mock away interns!

    4. JLM

      Brilliant, real world. Well done! Thank you.

  10. JohnAtkinson

    You’re right Fred – it’s utter and complete nonsense.The government should be creating positive incentives for entrepreneurs and investors. Yet, it’s another case of misguided bureaucrats trying to protect people from themselves, and in turn, hurting innovation (and the economy).

  11. Tariq

    One of the things I really hate is how VCs is lumped with PE and HFs when it comes to financial legislation.I feel like with VCs role in helping create entirely new industries and the level of risk involved in the kinds of ventures they fund VCs should be held at a separate standard that offers more leniency/hands off.I think that one of the best things right now is how you are seeing an increase in angel investing, often by ordinary engineers who are choosing to invest in co-workers that are leaving to start new ventures… and now with this qualified investor rule, the Senate is potentially legislating to reduce that kind of activity.

    1. fredwilson

      exactly. who better to back a fledgling entrepreneur/developer than someonewho has built something with him/her and knows what they are capable of?

      1. Mark Essel

        Damn right Fred. Investing is about risk and trust. We trust the people we know closely to do anything and everything to succeed.

      2. John Sharp

        Re “who better to back a fledgling entrepreneur/developer than someone who has built something with him/her and knows what they are capable of?”That is the whole argument, right there. This legislation will affect small-scale seeding and bootstrapping of new businesses – it will reduce the entrepreneur’s ability to tap small amounts from their (friends, family, founder) sources, or, more likely, force them onto the wrong side of the law.Good luck fighting this Fred – as several posters have mentioned, it’s going to be tough to get their attention. Hopefully you can get Dodd on the phone and make him see reason.

    2. markslater

      i totally agree – unfortunately its hard to change the perception that VC’s are seen in the same asset class – when in reality they are a far cry away.

  12. Colin

    That Texas incubator wouldn’t happen to be Capital Factory?You can repeal this bill here:

    1. fredwilson

      it was the Austin Tech Incubator at UT

      1. JLM

        This operation is one hell of a visionary enterprise created in great measure by the late George Kozmetsky — co-founder of Teledyne and former UT Grad School of Business dean.IC2 (Institute for Creative Capitalism and sponsor of the incubator) is one of the reasons why the top 5% of American minds and entrepreneurs can prevail over their worldwide competition.I am particularly keen on the work that is being done on all kinds of energy related opportunities. A friend of mine runs that part of the operation and it is mind boggling the companies which are being incubated.

  13. Henry Blodget

    This is just nuts. Why on earth would they want to limit the type of people who can invest in startups. What idiot had that idea?

    1. fredwilson

      it’s been the law of the land for as long as i’ve been in VC Henry, so atleast since the early 80sit could go back to the ’33 act for as much as i know

    2. William Carleton

      An organization of state securities administrators, the NASAA, thinks existing accredited investor qualification thresholds are too low. This group is also behind the move to end federal preemption of offerings exempt under Rule 506 of Reg D, which is the simple tack Sen. Dodd took in his first version of the bill last November. But even NASAA thinks some stuff in Sen. Dodd’s renewed attack, like the up to 120 day pre-closing review period, are not right.

      1. wrenq

        Thanks I was wondering who would like to add this provision to Dodd’s bill. Do you think the state admins wanted this addition because they wanted to crush free enterprise or for more mundane reasons?

        1. William Carleton

          No, I don’t think the state regulators want to crush free enterprise. Those I’ve talked to are sincere and genuinely concerned about scam artists and ponzi scheme operators, some of whom have convictions for securities violations but still steal from unsophisticated investors via brokered “private placements.” They perceive that these bad actors use Reg D as a shield to escape up front merit review that would better enable them to spot and stop activity that is fraudulent on its face. Problem is, the solution suggested by the states is way, way overbroad. It hurts the startup financing ecosystem, which self-polices well, for good reasons (another subject!), and is not tainted with abuse. Better fix to help the states: let the states review deals that raise funds through broker-dealers. Those aren’t startup financings, and arguably those kinds of deals never really met Reg D requirements in the first place.

    3. andyswan

      The idiot that understood that POWER comes from the power to control people, which is 100% what the current crop of DC jerkoffs is all about (see healthcare as “step 1”)

      1. wren

        Andy you have to stop drinking while you blog comment. Did you have a good time out in Nevada with Sarah Palin today?

        1. andyswan

          Lame flame

  14. Harry DeMott

    Is there any reason why our government wouldn’t want to socialize the VC business and regulate it? They’re doing the same to every other part of the economy.Let’s see – you took out a loan at 95% of an inflated price and are now underwater on it – and the government wants to bail these folks out. You’ve saved money and want to invest it to hopefully generate a return greater than the coming hyperinflation – sorry you can’t – the government needs to make sure that you are more than qualified.

    1. fredwilson

      now, nowit’s not that badthis sums it up for me

      1. Harry DeMott

        This is what I get for sitting in a hedge fund day after day. We’re all hardened Libertarians – looking for out Ayn Randian utopia! Actually, your link makes a good point – but I think the government should probably decide what basic services it should provide (and you post provides quite a few essential services that make great sense and our government does pretty well) and leave it at that. Our current administration seems to want to expand that role regardless of public opinion – they think they just know better. I would love to just see a real shrinking of the federal government – but I’m not sure that will ever happen in my lifetime absent some sort of collapse (which would be extremely bad). All that said – the US is still the greatest place on earth to be a citizen with more freedoms and more opportunity – it just feels like on the margin those freedoms and opportunities continue to be curtailed – whether it be by the Republicans and their use of the Patriot Act or ther Democrats and their recent push on Health Care.

        1. fredwilson

          i’m a big fan of Obama. i think he’s not anywhere near a socialist. that’sjust what the right wingers are painting him as

          1. Harry DeMott

            Reasonable people can disagree. I do believe that when people elected him they thought they were getting a more moderate president than they have ultimately gotten. Certainly Harry Reid and Nancy Pelosi are socialists in fact – living the long held Democratic dream of bigger and bigger government. I wouldn’t mind if they could do it without bankrupting the country or mortgaging our countries future to make sure they got reelected. Perhaps if we put a 2 term limit on Congress we would have far less partisanship (for all the Democratic ills I see, the Republicans haven’t come up with anything other than obstructionism) and get a lot more done. I find it particularly ironic that we have just gone through a cataclysm in the economy based on over leverage in the system – and after everyone in the government and media demonizes wall street, the banks and anyone else they can (but never the voters who over leveraged themselves – remember we live in a society of non-accountability) they turn around and add more leverage to the system than at any other time in history – and explain that it will reduce the decifict sometime way out in the future even though it will cost more than $1 trillion. To bring this all back to the point of your post – in order to pay for all of this – they should be encouraging business formation more strongly than at any other time in history – making it easier to start ventures – whether through a greater relaxation of angel funding – or through expanded start-up Visas. Heck – you can only tax the top 1% for so long. As Abe Lincoln said: ” You can’t make a weak man strong by making a strong man weak.”

          2. fredwilson

            i’ve spent a fair amount of time with is tech team and they all get ittotally and completelyobama is a complicated man, a politician first and foremost, and a damn goodonelet’s judge him when his eight years are over

          3. Harry DeMott

            Fred: I know you can count. I think the president get’s 4 years – then needs to get re-elected!Actually, no matter what you think of him, if the election were held today – he would get the additional 4 – because the Republicans have nothing right now – as far left as I think the democrats are – the Republicans have gone that far to the right. Which is no good to most people either.If you are right about the tech team – I hope they can get it through Congress.

          4. fredwilson

            that is a predictioni am sure you got that

          5. JLM

            People who failed to divine the governance philosophy of Barack Obama were stupid. His very limited track record was clear.I am confounded by folks today who hear his earlier utterances and are surprised.This guy is one of the world’s biggest liars and the media have given him a free pass. When his previous pronouncements are compared to his current actions, there is a meaningful gap in HIS words.

          6. ShanaC

            JLM, may I remind you we are part of the media machine….

          7. Tim

            Do you really believe Obama wouldn’t like a European style economy and government? I wouldn’t call him a communist, but really he has said so much that it is easy to see he really like the European model.I am not calling him evil, I just think his direction for America is to follow in Europes foot steps.

          8. Harry DeMott

            ExactlyAgain, to try and bring the commentary back to the purpose of the post – or even the blog as a whole: the US has been the greatest – most innovative place in the world for a long time – and there’s a reason why so many of the huge world changing technologies have been dreamed up, financed and brought to the market right here. Where there is a more “statist” system, little mobility and little incentive to innovate – you don’t get a whole lot of progress. If you understand peoples incentives you will likely understand their actions. Just my $0.02, but we are removing incentives right now in the US. Not a good trend.

          9. JLM

            America was founded by guys who specifically did not want to follow a European model of monarchy and faux democracy. That is why we are the longest lasting significant democracy in the world.We have been blessed with enormous benefits — freedom being my personal favorite — and have delivered unto our people the highest standard of living in the world.Why would we run the playbook of the guys in the bottom half of the league?

          10. JLM

            I regret when your blog wonders into politics because it dilutes the comity of an otherwise very congenial group of folks. Politics, religion and sex are distractions from the business focus of what is an extraordinary dialogue.It does however expose how completely different seemingly compatible folks are once a bit of political difference and perhaps geography are injected into the discussion.Obama was delivered to the White House, the result of a “perfect storm” of an unpopular sitting President, a horrible opponent and a brilliant campaign which set the gold standard for fundraising, communication and use of the social media thereby leveraging a decisive fundraising advantage and an almost cult like appeal to a cross section of ill informed and typically unengaged voters. The camera loves the guy and he is perhaps the best speaker ever in American politics.Obama was swept into office by this perfect storm.He is however the most woefully unprepared and idealogically immature President in the last 100 years. He is completely devoid of any executive or leadership experience while sitting in the Oval Office which demands an executive capable of framing and making decisions while managing an enormous staff dealing with complex issues during some very trying times.Contrary to what may seem to be true, he is without any real social skills or perspective to the point that his naive thrashing about results in some of the most troublesome personal behavior — gifting the English Queen with a copy of his speeches, refusing to dine w/ our closest Middle East ally, decrying the performance of a Boston beat cop without any information, bowing to tyrants. The list goes on.Obama is a mean spirited vindictive Chicago thug — who has surrounded himself with folks cast in a similar mode — whose personal utterances cannot be trusted, who is making war upon the successful, redistributing the accumulated wealth of the Nation, getting very close to bankrupting the American economy and nudging the country into an economic danger zone from which we will take decades to recover.Whether he is a socialist is completely irrelevant and whether that is an opinion held by the “right wing” is equally irrelevant. These are contrivances created by the “left wing” for equally dopey reasons.What Obama is is a naif, a fakir and a poseur.This from a guy who has provided health care, dental, vision, life and has funded a meaningful number of college scholarships. I was “liberal” on these issues long before Obama was a gleam in his Daddy’s eye.Luckily, Obama has just about destroyed the Democrat party and the country is likely to lurch in the opposite direction — for whom I have no particularly greater affection.I just want a competent guy running the show — Dwight David Eisenhower kept America out of war, balanced every budget, initiated the IH system and built the American nuclear arsenal. That guy was competent.Sorry for the rant.

          11. fredwilson

            we disagree on this one JLMi think he’ll go down as a great two term presidenthe’s already saved the country from an economic disaster, got the economyback on track, addressed the healthcare issue, and he’s only been in officea bit over a yearhis team is terrifiche is competent, hires well, and is doing a great jobif he was the CEO of one of our companies, i’d be thrilled with the job he’sdoing

          12. Jack

            How is the economy back on track? Unemployment rates are still very high, foreclosures are still occurring at record rates, commercial real estate is tanking.Several large businesses (Verizon, Caterpillar, Medtronic) claim the healthcare bill will force them to layoff thousands of workers.According to today’s Wall St. Journal, personal income declined in 2009.It there is a turnaround, I don’t see it yet.

          13. fredwilson

            GDP has been growing for several quartersunemployment is trending down

          14. Tereza

            I do not see Corporates re-creating the jobs I care about or would want. The corporate social contract, which was breaking, has totally snapped.They have cut deeply, past the muscle, into the bone. I see this, repeatedly, firsthand: there is a layer of fat cats up on top, a lot of really junior/admin people at the bottom and no gears in between to get anything done that’s not also-ran. You need some good, smart, hustling people in the middle to move the mini-mountains. I see the few people who are still on the inside, suffering deeply because they don’t have the resources to do what their fat cats above are yelling at them to do (while they go off and play golf).I also see a whole slew of highly talented Gen Xers (35-45) totally displaced by the system. The only place people with good backgrounds who want to do good work and make a good living — is to create them themselves. That means startups. Some may be lifestyle businesses, some may be venture-grade. But their only chance is to make their jobs, themselves. And they need $25k increments from friends to do it.I have not seen a single signal that “good jobs”, as I define them, are coming back to conventional places.So screw it — let’s kill this Dodd language and create our own jobs.

          15. JLM

            Fred, you know I like to champion the underdog in any fight. But you are stretching the bounds of credulity, my friend. We disagree completely on the facts.GDP has gone up solely because the government has spent a big chunk of a trillion dollars in the economy. Nothing wrong with that but it is the difference between hunting pheasant in the wild and a guy throwing them into the air for you to shoot.GDP, absent government interference — a policy I fully support though I would have liked them to aim before they shot but I may be a bit picky about such things — is continuing to decline.The unemployment figures have been fudged even by government admission as they have now admitted to extracting 2.6MM people who are no longer “looking for a job”.Add reported unemployment, underemployment (part time workers seeking employment), folks who have given up looking for work (sitting on the couch collecting unemployment benefits) and new college/high school grads and we are headed for the danger zone.This is just simple math. And I fervently wish it were not so.

          16. fredwilson

            all number and all politicians lie no matter what party they are fromat the end of the day this is a religious debateyou are a republicani am notthat explains 99.99999% of this discussion

          17. JLM

            Actually I am an independent political thinker who refuses to allow any political party to stand for my governing philosophy. I do not wear the brand of any political party and feel free to agree or disagree with both parties simultaneously.I thought Bush was a great governor of Texas — hell, he got the Democratic Lt Gov to support him and donate to his Presidential campaign! His financial stewardship as President was horrendous. I can live with both thoughts and the attendant dissonance simultaneously.I thought that John McCain — whose life story I respect but who I do not like personally — was a flawed candidate and should have conceded the election in about August.I think that Barack Obama ran the most brilliant campaign in American history while believing him woefully inexperienced to have run for the office. But he won fair and square and he is MY President even if I did not vote for him.I actually like much of what Barack Obama says he stands for and have put it into action long before he was even in politics. I have provided health insurance (health, vision, dental, life and wellness) to my employees for over 30 years. I have funded scholarships for folks who demonstrate need and who serve the Nation thereafter with my own money in meaningful amounts.My life and my personal beliefs are quite “liberal” by the standards of modern American social politics. I am quite conservative as it relates to foreign affairs and financial matters.I suspect that — other than the silly habit of bowing to tyrants — Obama’s foreign policy and mine are quite close. Hell, he’s basically embraced the Bush foreign and terrorism policy.Even the failures of the Obama policy — Gitmo and trying KSM in NYC — have righted themselves in a manner with which I agree.When my personal philosophy matches that of a particular candidate, I vote for him and give him money. I could care less whether he is an R or a D.If you and I disagree, it is on the data and its portent. I refuse to allow you or any other person to diminish my political philosophy to a single dimension defined by a “party”. Life is more complex than that.Conversely, I would never suggest that your politics are single dimensional and fairly defined as being “knee jerk” Democrat.

          18. fredwilson

            well your rhetoric is certainly very republican

          19. JLM

            I am arguably a bit right of center but have supported policies and taken definitive actions which are agruably left of center.In the center there is a bit less name calling and a bit less idealogy. I could care less what is going on at the extremes.I think the country is now solidly right of center. The next election will reveal the truth or accuracy of this statement. The perfect storm has abated.

          20. JLM

            Please, Fred, don’t bullshit a bullshitter.If you had sat down w/ your partners and said “we are going all in” on a guy who had not practically served even a year as a US Senator, they would be looking for the lobotome scars.”His” team is terrific?The best member of his team is a Republican hold over at Defense. His Treas Sec was the President of the NY Fed and failed to keep Wall Street out of the ditch, apparently cannot figure out his tax liability and can’t master Turbo Tax. Van Jones? Jennings, the education czar?As a CEO, he has explosively grown debt while dramatically reducing cash flow all while destroying the value of the Democrat brand at the ballot box (NJ, VA, Mass) with more to come in November.And this performance makes your leg tingle? LOLCome on, Fred, there is nothing wrong with saying you like the guy. Or that you support him and wish him well. Hell, I admit to liking the guy on a personal basis and I love his life story. Before he got traction, I spent a couple of hours with him one on one. He is a likeable guy.To suggest that he will be a great two term President based upon the short track record and evidence thus far is to betray a reliance upon entrails and chicken bones. You are deeply into voodoo, my friend.If he were a stock, I would be shorting him w/ my kid’s trust fund money.Barack Obama is a naif, a poseur, a fakir.

          21. fredwilson

            we back first time CEOs all the timei’d back him in a heartbeat

          22. JLM

            Operative phrase “going all in” — I think not.One deal to do. Do you go w/ the serial entrepreneur or the newby?

          23. fredwilson

            both. that is our strategyfunny thing. we’ve made more, a lot more, with first timersbut we have a better batting average with serial entrepreneursthat’s why we do both

          24. JLM

            Not answering the question, answers the question.

          25. Harry DeMott

            I’m kind of enjoying the political rants today. As you say, interesting dialogues from a lot of people who come here every day for a shared interest in something different.I think you hit a few great points here.The founding fathers – who all politicians love to call upon – would probably be spinning in their graves like rotisserie chickens – if they could see the state of affairs today. Those guys were businessmen, farmers, and soldiers who put aside their normal lives to come together to has out a common problem – then went back to work leaving a small functioning government. I recently read that only 8% of cabinet members and senior advisers to Obama have ever held a job outside of government. Government shouldn’t be a job unto itself – if you want that – move to France.I too have little love for either side – but realistically understanding that there is little hope for any real meaningful change anytime soon – the best I can hope for is for them not to screw up a great system and not bankrupt the country.

      2. Jacob Halsey

        Maybe it is “that bad” or heading that way.Washington Post:“The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.”If the federal government can alter the terms of a business contract at will for mortgage lenders, why should it be different for any other industry?And since we’re “spreading the wealth around”, why shouldn’t a startup with a decent exit not be a big target?

  15. ErikSchwartz

    I find the additional paperwork and required time delays much more egregious in a practical sense than the change in accreditation requirements. More paperwork to file with the SEC means more legal costs for the start up to pay at closing (in addition to a 4 month delay in getting funds).

  16. paramendra

    I’d be really curious to know how those provisions ended up there in the first place.

    1. Corey Podolsky

      I am trying to understand this as well. Someone must have lobbied to include the provisions, so someone must be gaining.

    2. e_irene

      from:…Who would want to kill Reg D? For all intents and purposes, state “blue sky” registration and review of seed financings for startup tech companies ended in 1996, when the National Securities Markets Improvement Act preempted state authority over offerings meeting the criteria for federal exemption under Rule 506 of Regulation D. State securities administrators, speaking through an organization called NASAA, have long sought to repeal this federal preemption to restore their former authority.Also see TechFlash article:

  17. Dan Ramsden

    Fred, I could be wrong, but I think the issue is not that certain individuals who don’t meet a certain standard can’t invest in start-ups, but that raising money from a certain number of such individuals makes the capital raise similar to a public offering, and therefore would need to be registered as such. As long as an issuer doesn’t bump up against that limit, there should not be an issue. Am I confusing my securities laws?

    1. fredwilson

      i’ll let the lawyers answer that question dan

      1. William Carleton

        Dan, Fred, all: what’s being attacked here is Rule 506 under Reg D. You’re right; currently, issuers can sell to up to 35 non-accredited investors in reliance on Rule 506, still be exempt from registration. As a practical matter, though, startups don’t do this. Most lawyers, myself included, won’t participate if the offering extends to non-accredited investors. Part of the reason for this is that the information requirements go way up if you include non-accredited investors.All that by way of background. The attack in Sen. Dodd’s bill has nothing to do with the 35 non-accredited permissiveness. In fact, I think you could eliminate that option in the rule (as I said, the legit ecosystem doesn’t use it anyway).Instead, the attack is three pronged:one, stop startups and other private companies from closing on financings until the SEC or a state regulatory authority have reviewed a regulatory filing;two, end federal preemption of state authority over smaller financings (exact size and scope to be determined by SEC rulemaking), even if they are “all accredited” and involve zero non-accredited investors; andthree, change the existing thresholds for “accredited investors” so that most existing angel investors can no longer participate in the private financing of startups and other private businesses.

    2. rimalovski

      I’m not a lawyer, but I believe there is a limit on the number of private investors you can have in such a financing before you start to look like a public offering and thus trip over a whole other set of rules and regs. According to VCExperts ( the threshold for the # of non-accredited (individual) investors allowed is 35. That being said, consult your attorney.

      1. Dan Ramsden

        Thanks Frank, that’s what I thought. Because if this is the case – subject to legal confirmation – then the issue may not be that devastating. I’m not saying this as either pro or con the Dodd bill, but if what is proposed is that you can’t have more than 35 investors who make less than $450k, without having to register as an IPO, I’m not sure that this will impact very many angel rounds anyway. I mean, practically speaking.

      2. Satish Mummareddy

        Thanks for digging up that nugget. 🙂

  18. Cate Long

    Well… don’t assume that members of Congress or their staff completely understand the issues they are writing law about… they don’t and that is why lobbyists are so powerful.Every one should definitely contact Senator Dodd’s office and their own reps if they serve on the Senate Banking Committee or House Financial Services Committee.Here is some analysis of the draft language by K&L Gates:…More on the financial reform at Riski, the open source platform for financial markets reform…BTW: If anyone would like to author the content for this issue please let me know… we use the wikimedia platform so it’s very easy!

    1. William Carleton

      Thanks for the KLGate link. Fyi there is also a site with info and links that Joe Wallin and I curate,, and a petition that has been signed in the past 24 hours or so by Brad Feld, Chris Sacca, Chris Dixon and more than 200 others:

  19. kidmercury

    lol, i’m glad. not because this bill is good (of course it’s not) but because it is a by product of people being irresponsible and ignorant, foolishly thinking it is in their best interest to ignore things like the need for federal reserve/banking/monetary policy reform (notice how this was a part of a BANKING bill???? that gives more power to the federal reserve???? hahahaha), ignoring that obama was paid for by bankers, as well as the bazillion other scams related to obama, aka barry soetoro. but hey, federal reserve reform is not “exciting.” at least not as exciting as carbon taxes. hahahahhahaokay, since federal reserve reform is not “exciting,” here are the consequences. enjoy!

  20. Anonymous Coward

    Perhaps you should call it the DUD banking bill

  21. Morgan Warstler

    “THEY CAME FIRST for the Communists,and I didn’t speak up because I wasn’t a Communist.THEN THEY CAME for the Jews,and I didn’t speak up because I wasn’t a Jew.THEN THEY CAME for the trade unionists,and I didn’t speak up because I wasn’t a trade unionist.THEN THEY CAME for the Catholics,and I didn’t speak up because I was a Protestant.THEN THEY CAME for meand by that time no one was left to speak up.”Of course we need government, but now this is where we finally rise up? OK, I’m calling, I’m calling…The VC industry should be pushing legislation that spawns GOV2.0 – towards a full self-serve web interface for all aspects of government. The gorgeous efficiency gains of the aughts that slimmed the ranks of corporate middle management should be pointed directly at Public Employees.This effort could easily cut the US debt by half, without making any cuts to the actual social services. Henry are you listening out there?

    1. kidmercury

      i agree largely with what you are saying, though i don’t think gov 2.0, or a web-based solution, is the only solution (certainly that would be awesome). but if we have gov 2.0 with the same willfully ignorant population, nothing will change. ultimately it is people that fell for bush, and people that fell for obama. until the american people realize how we’ve gotten scammed, i don’t think we’ve learned the lesson, and will be doomed to repeat the same mistake, even with a new technology format.

      1. markslater

        at least flatten the landscape so there is transparency and accountability – this is easily done with Gov 2.0 – do you think for a moment that any of these idiots are remotely accountable to their constituents once the climb on that horse and head to washington? ask any one who has worked for an elected rep in DC.The system places the trust of the people in the elected representative. well that trust has been grossly betrayed. Its time it was changed – we have the tools to bring the issues directly to the populous.

        1. kidmercury

          The internet was supposed to revolutionize news distribution, so that people can make more informed voting decisions. 9/11 truth is the ultimate example: the internet blows the truth wide open on that matter, but most people ignored it, and decided to vote for barry sueharto instead (those who live in awareness of 9/11 truth did not vote for barry). So what difference does it make? Ignorance is still the ultimate weapon, the true source of tyranny.The good news is that the next generation, having grown up on the web and having experienced the direct consequences of the ignorance of their ancestors, will thus know the price of ignorance very well, and will choose truth instead. At least I hope so!

          1. markslater

            i agree – the era of ignorance (manifesting itself in a representitive democracy) will come to an end in my lifetime

  22. Mark Essel

    Virtues die a little with each concession to corruption, but some things are more important than our virtue.

  23. e_irene

    Hi Fred,Would it be much trouble for you to amend your post to include the section numbers of the relevant provisions? I think it would be helpful for those planning on contacting their senators and reps about this issue. As it is, the bill is 1,336 pages long with 1,108 sections.The section numbers in question are Sec. 412 for accredited investors and Sec. 926 for federal pre-emption or Reg D.Link to pdf of bill: to TechFlash article with more info on possible influences: much!~

    1. fredwilson

      just did that. thanks for the suggestion

      1. e_irene

        you’re welcome & thank you!

  24. Tereza

    Yikes this is practically inhumane. Like cutting off oxygen from a newborn baby.Fred thanks for starting the conversation.Seriously, if this goes through, I, and people like me, are totally f*cked.

    1. Tereza

      I am incensed. Just wrote to Schumer and Gillibrand.Folks, please write in. Wish I saved my letter so people can cut & paste, but it’s gone in the ether.One of the few advantages to being a 40 y.o. entrepreneur today is that you actually know random people who could throw $25k into the hat without much pain. Dodd’s bill completely cuts us off at the knees.I generally detest getting pulled into politics. But this is simply moronic.

  25. Josef

    “I have no idea why either of these provisions ended up in a bill designed to regulate the banking industry.”I have an idea…b/c government is designed to protect those with $.

  26. jeremystein

    after working on the sell side, i completely understand why there are accredited investor requirements. they are designed to protect both sides. hedge funds, pe funds, analysts, etc, can’t work with non accredited investors because of suitability. there are certainly situations where non accredited investors don’t understand the product. hell, i grew up around finance, am a finance major, have studied complex instruments and i dont even understand how some work. its a lawsuit waiting to happen.the problem that ive seen in finance is that many people think in terms of %. its clearly important for diversification, portfolio weightings, optimizing returns, etc. finance is a business of scale, so you are often dealing with large sums of money. if you hang out in finance long enough, you hear people casually mention these large sums. im not sure some people are fully able to rationalize just how much money they are dealing with. this is largely due to the percentage mentality, but also because many investment vehicles are simply trading paper in a secondary market.the startup world is refreshing. people still mention large sums of money casually but there doesnt seem to be any de-sensitivity to the value of money. this is because as an investor you can have a direct impact on the company to help it, and its employees grow. an investor gets to understand the inputs first hand and see how it directly impacts someone elses life. you cant invest $1m in a private company and set a 3% stop loss. its this reason that i think people are better able to understand risk in a venture deal.lets not lose sight of the fact that $250k/yr/$1mm is still a LOT of money. (a $25k investment is still a lot of money– that goes a long way in the physical world). i cant understand why these limits are being increased. if you are electing to invest directly in a company without the assistance of a money/fund manager, laws of suitability should not apply.

    1. ShanaC

      That is really true, I was talking with someone really young about his dream of buying a building, and we were talking about how hard it is to get the starter money to get the mortgage. Thinking back on it, if he had that kind of money, he would be accredited.The problem is that different kinds of asset classes have different start needs. Venture probably has a lower need for starter capital, and probably a very different learning curve, than say investing in a hedge fund as a private individual. And the same person can do both, and it would be very difficult to write a bill with different kinds of accredited investors. Plus you can’t forget inflation.So how do you write a bill that protects everyone on differently learning curves with different information to process fairly? You can’t. It’s a crapshot number.You might be right about trying to change around money manager rules, instead of accredited investor ones though.

      1. Destruction

        These clauses are not designed with investor protection in mind…

        1. ShanaC

          That’s a very different issue. We know that’s the reason behind this. It’s more logical to structure the bill as a “truth in investing” act than limit investors, though this might scare a lot of people off.

      2. jeremystein

        the point im trying to make is that it is an easier to understand therisks.if someone asked me for a sizable loan, my first thought would be “am igoing to get this money back, and if so, how long will it take?” i thinkmost people would have that same is much different than trading paper because my investment is actuallybeing spent. if purchase a stock, im bearing risks such as bankruptcy, butif that scenario doesn’t happen i can significantly limit my downside.

        1. ShanaC

          I’m not disagreeing with you- and it probably why they want to raise thelimits. What really is needed is a “Truth in investing act”

  27. Rick

    Personally, I think this is just a negotiating point, and won’t be left in the final bill. It is included to distract from the more pertinent measures that they really want to get passed. I’ve noticed no one really seems to be talking about them as much, so maybe its working.

    1. Tereza

      I hope you’re right, Rick. I’m certainly distracted.

  28. cfrerebeau

    I don’t think this rule will be a barrier for small invesments from friends, family and fools…Qutoing the Indian startup blog: “The rule 504 of the of federal securities laws allows a business to sell up to $1 Million in securities during a 12 month period to an unlimited number of non-accredited investors. Additionally, Rule 504 does not require the issuer to provide any specific disclosure to the offerees, regardless of whether they are accredited (but keep in mind the anti-fraud requirements).”The limit of 35 non-accredited investors come up when selling $5 millions worth of securities over 12 months. So accredited investors are really required by law for significant deals. Which seems fine. I won’t ask my brother to be part of a $5+ millions deal if he is not an accredited investor.Let me know if I am missing something, and you should still verify the details of the federal securities laws with a lawyer.Full blog post…

  29. K H

    I think the most ridiculous part about this, is that costs, especially initially, of a start up are at historical lows.Entrepreneurs have become more efficient and greatly eliminated start up costs, thus reducing money required from investors. Why then, are we requiring people to be much richer to invest? If people could invest with $1M Net Worth in the past, when investing required a larger up front cost, why are we increasing it to $2.3M NW, when investing can be done for cheaper?

  30. Toby

    Here is the email I sent to my Senators, if anyone needs a template to get over the hump in terms of outreach. For what that’s worth of course.Subject: Please remove the “anti-start-up” provisions in the “Dodd banking bill”Dear Senator Schumer:I run a [xyz] and write to ask that you work to remove what Union Square Ventures Partner Fred Wilson (correctly in my view) terms as the “anti-start-up provisions” in the Senator Dodd’s banking reform bill that is currently making its way through committee.… (full text of this post pasted in below)I have no idea how these provisions made their way into a banking reform bill, or what their rationale might be, but based on personal and professional experience — I have been working with early-stage companies from NYC, the SF Bay Area, and elsewhere for the past [x] years — I can attest that they will be materially harmful to the start-up economy in NYC and elsewhere.As Mr. Wilson asks in his post, “why does someone have to be a millionaire to invest in a friend’s start-up?” This is (as far as I can tell) nonsensical, regressive, bad for entrepreneurs, and bad for the economy.I am happy to discuss my views further with you or your staffs, if you would find that useful. And if there is something I’m missing here in terms of some valid rationale behind these provisions, I am all ears.Thank you in advance for your attention to this matter, and as your constituent please know that I appreciate the work that you and your staffs do for New York and for the country.Best,[xyz]

    1. fredwilson

      awesomeso when i get the senator on the phone, hopefully he’ll have some idea ofwhy i am calling!

      1. Toby

        Yes, I’m sure he will have gotten the memo!I expect your call (plus this post) will do the trick.After Obama ’08 and subsequent OFA efforts I expect the threshold for email on any one issue getting any attention at all is 1k, maybe even 10k…

        1. fredwilson

          my wife and my political donations are available onlineas is everyone’s

          1. Toby

            To be clear I meant number of incoming emails to get on a politician’s radar — and that I doubt my email did much good — and I was not referring to $ you or anyone else may or may not have donated.

    2. mfeinstein

      I sent similar emails to my US Senators, Brown and Kerry, Senator Dodd, and the House Financial Services Committee, headed by Barney Frank. The House will be dealing with this bill eventually, too.

    3. Pete

      Thanks for the push, Toby, your template got me going. Here’s the letter to my Senator… Dodd.Dear Senator Dodd:I am a technology industry executive living in your state of Connecticut, and I write to ask that you remove what Union Square Ventures Partner Fred Wilson (correctly in my view) terms as the “anti-start-up provisions” in your banking reform bill:…The bill, as it has been reported, requires SEC approval for “angel” investments, and increases state oversight of angel investors in general. The bill also raises the bar significantly for an individual to qualify for accredited investor status, and thus be permitted to make these investments.Angel investments are the fuel of America’s technology industry, which is driven by start-up companies. Your proposed legislation would effectively kill off this early stage investment activity. I don’t think it is your intention to stifle the growth of our technology industry, in a bill aimed at regulating large financial players.Individuals with over $1 million in net worth or over $250,000 in annual income, are certainly capable of making what are effectively personal investment decisions. There is no need to raise the bar on this definition of accredited investor, or bring in regulators to protect their interests. And unlike credit default swaps against pools of bad mortgage loans, early stage investments in start-ups would have zero impact on the markets should they go south.What’s the worst-case scenario of an angel investment gone bad? Maybe a few extra jobs are created for a year or so. I can live with that risk here in Connecticut.Thank you in advance for your attention to this matter.

  31. taylorwc

    Totally agree that these sections of the bill would wreak havoc on seed level deals (especially in flyover states, like where I live–not a lot of VC money locally).The Angel Capital Association and NVCA have a letter that is of great use for contacting legislators–detailing the issues:http://www.angelcapitalasso…Hopefully these portions get taken out.

  32. youngentrepreneur1

    We’re the entrepreneurs here… let’s create a website entrepreneursagainstdoddbil… or something that cranks up the volume in opposition.Maybe we can get a petition started – if we can get people to sign it, especially entrepreneurs like Gates, Jobs, etc.,

  33. alexanderjarvis

    Wow this is disturbing. I have a fair amount of experience in asset management garnered prior to going native so can speak on how intrusive the regulations are with alt investments (read hedge funds and private equity). What I am really concerned with (other than the reduction in the number of doctor and lawyer type angels to fund small businesses) is what they will do with regard to promotion/advertising?i remember a large HF i worked for could not but a plaque outside their office as that would be characterised as promotion to the general public! Will they make it harder to even find investors? Admittedly that is for companies seeking investment to generate returns…wait are they going to regulate startups!?

  34. Destruction

    Successful entrepreneurs and their endeavors create wealth for individuals allowing them to rise up and out of lower/middle class. This administrations goal is to prevent upward mobility, and increase government dependence.

    1. fredwilson

      not truethis bill was not drafted by the administrationit was drafted by Dodd and his team

      1. JLM

        You raise a very, very, very interesting question — who the hell is drafting this type of legislation today?The days when Congressional staffs were drafting bills for their own Senators/Representatives has come and gone.Most bills today are being drafted by allied lobbyists representing their retainers’ interests or think tanks.Who do you think drafted the 2700 page monstrosity which is healthcare?More importantly — who do you really think read it and worse, who do you really think understands it?

        1. Tereza

          From everything i hear, on both sides of the aisle, legislation indeed is cut-and-paste by lobbyists and indeed barely gets read, and the staffing isn’t there to read it even if they wanted to.

        2. Aviah Laor

          The learning of this people is very defective …and as to ideas, entities, abstractions, and transcendentals, I could never drive the least conception into their heads.No law in that country must exceed in words the number of letters in their alphabet, which consists only of two and twenty. But indeed few of them extend even to that length. They are expressed in the most plain and simple terms, wherein those people are not mercurial enough to discover above one interpretation: and to write a comment upon any law, is a capital crime.(Guliver travels, J. Swift)

      2. William Carleton

        Fred, I agree. I doubt the President even knows the stuff is in there. It has not been even the detailed summaries of the legislation that the committee staff have put out.

  35. Alan

    This is who you voted for. Regulation after regulation. Just because you failed to understand the people you voted for doesn’t give you the right to feel upset about them… you should be upset with yourself being fooled. The Democratic party is led by radical leftists for whom freedom and small business are to be controlled.Perhaps you will vote differently in the future.

    1. fredwilson

      i didn’t vote for Doddand you are wrong about the leader of the democratic party, who is PresidentObama

      1. JimB

        Fred – I agree with you that this is not about the Democratic Party. It is about a Senator putting in provisions in a Banking Reform Bill that will adversely effect the ability of startups to receive early stage funding to help them get started. Accredited investor criteria has no connection to banking reform in the real world. I must be important in Dodd Land.What is really stupid is anyone doing stupid things that will adversely effect one of the primary economic development engines, new business startups who will be a primary supplier of new jobs at a time when everyone knows how be the job scene is.Connecticut politics is changing the state from the Nutmeg State to the Nut State.

  36. MattCope

    Thanks for the news – this is madness.Just emailed my senator.

  37. ShanaC

    i do think the bill may be a bad idea. It will make Angel investing much harder to raise. Then again, I want to see a wider spread of funds across the asset class, and for that you do need tighter regulations.I don’t want everyone in Angel land. And that is a problem. How do you write a bill that protects the company, protects the Angels, and protects the asset class? You can’t. Bleh.

  38. Scott Trudeau

    A good friend of mine ran into the current regulations when attempting to raise money to start brew pub in Wisconsin. He needed to raise somewhere south of $1m and had a large number of people who, having followed his progress as a brewer, and his careful planning around his business (and tasted his amazing beer) would have happily “invested” in the sub $25k range just to see the project get on its legs, even if the returns on that investment were non-existent; but setting himself up legally to take investments that small was essentially impossible; so frustrating to leave six figures of potential investment on the table due to the red tape!

  39. Richard Koffler

    >>I have no idea why either of these provisions ended up in a bill designed to regulate the banking industry.<<I think the answer is clear: This administration will not stop until it has intruded, micromanaged and regulated everything. We are no longer a country of creating wealth, but a Nanny, income-redistributing State. We’re becoming France without the good French bread….

    1. fredwilson

      i’ll say it againthe administration did not draft this billchris dodd did

      1. Jack

        I think there is a good chance that Obama signs this, even with the provisions being discussed now. His actions so far have been consistent with his remarks of spreading wealth around. And you VC folks are wealthy 🙂

  40. bobwyman

    Fred asked that I copy this from Buzz to here…I think you may be too harsh here. The $1 million minimum has been in place for a very long time and so it is not surprising that one would try to boost it now to reflect inflation and then index it so that such boosts are automatic in the future. One might argue that doing so would be unwise, but that doesn’t mean it is “nonsense.”I really like your suggestion for allowing limited participation for non-qualified investors as long as that participation is limited to reduce the downside risk. I’m sure that there would be many arguments about whether $25K is the right level. Perhaps it would make sense to do something like link the permitted investment level to a percentage of income. One nice side effect of doing so is that it would result in a need to report the investment on IRS forms close to when they are made (not liquidated) and thus could generate useful statistics that would give us more visibility into this segment of the economy. But there are other questions… * Would it be reasonable for a non-qualified investor to make such investments using 401k or retirement funds? (Many would argue that the risk levels would be too high.) * For someone with net worth less than $1million, should the investment limit be per-investment only with no limit on the number of such investments? Or, should there be some aggregate value to prevent someone mortgaging the house and making dozens of individual $25K investments? Perhaps, the limits should be established on a yearly-basis? (i.e. $25K per year)You’ve got the seed of an interesting proposal, but I think there are many more details to be covered.

    1. fredwilson

      thanks for doing that Bob. i am certain that all the participants in thisdiscussion will benefit from seeing your opinion

    2. andyswan

      The arrogance that it takes to “come up with” THE number that is suitable for other people to invest THEIR money is blinding.I can’t even believe sane people have these discussions. Exactly what are the limits of your ability to tell people how they should live, spend, produce and invest? Does your planning know no bounds?

      1. bobwyman

        Long experience has proven that some, hopefully minimal, level of regulation is required in order to protect a viable market and avoid excessive exploitation of unsophisticated market players. In fact, it is clear that one cannot maintain a capitalist system without some level of market regulation…Today, the law says that if you’re not a “qualified investor” that you can invest *nothing* in a variety of highly risky instruments. Fred’s proposal suggests a softening of the restriction that would seem to provide people with more opportunities to make their own choices while still preserving the state’s legitimate ability to limit the impact of mistakes, charlatans and frauds. As such, I would think that such a proposal would be welcomed by anyone who values individual choice.

        1. andyswan

          And yet it’s those same “unsophisticated players” that we are currentlysubsidizing home purchases for.Forget the “system”….it can work itself out as often as it needs.To me, this isn’t a policy issue, it’s a moral one. Who are YOU (or anysupporter, really), to say what another man can or cannot legitimately dowith the money he earns? To claim that the amount of money he has is arock-solid indication of his sophistication?Why is he allowed to vote if he is so unsophisticated?Why is he allowed to purchase a car, or a home, a stock or a baseball cardwithout your approval?IIt’s an arrogant stand that brazenly defies his liberty and pursuit ofhappiness, in the name of protecting him.I reject it, no matter what bumps in the “system” doing so may produce.

          1. bobwyman

            Andy, It seems that you are essentially arguing that all regulation is bad. That puts you in the camp of anarchists. Given that, I would suggest that our viewpoints are probably so completely distinct that we should just agree to disagree.

          2. andyswan

            That’s silly.  I’m all for laws that punish scammers, fraud and other crimes.  I’m against regulations that suppress the rights of an individual based on his or her pocketbook.Call me old fashioned….i just don’t think it’s any of my business, or yours.

          3. JLM

            Almost without exception, what we need more of is law ENFORCEMENT not new laws.To state the obvious, the bad guys are not going to obey the new laws any more than they obeyed the old laws.This is why I have championed for some considerable time, public beheadings for financial scammers on the steps of the NYSE televised on both MSNBC and Fox. This would only be done after due process, mind you.It is also why I have championed dueling as a dispute resolution technique in any financial transaction with an aggregate value in excess of $50K.

          4. bobwyman

            Andy, I know you’ll think this a “distinction without a difference” but you should recognize that there is no law against any individual investing in a highly speculative enterprise. The law only restricts from whom operators of such speculative ventures are allowed to solicit or receive funds. The logic here is somewhat like that behind “fiduciary responsibility.” The assumption is that for you to solicit funds you will inevitably present your enterprise as offering reasonable prospects of returns. But, when you’ve got an inherently risky venture, suggesting reasonable prospects means that you are inherently bordering on being a “scammer, fraud”, etc… The intent of the law is to limit the potential damage of your scamming by ensuring that you can only suck in those who can afford to lose all they invest or who are presumably sophisticated enough to discount your blue-sky promises. The alternatives would be to either restrict all marketing of risky businesses or allow blue-sky operators an unrestricted ability to pray on widows, orphans and other vulnerable folk… Both of those alternatives would be much worse than what we’ve got.

          5. andyswan

            So you’re telling me that if I pass a law forbidding anyone from accepting your child’s college application, that I am not in fact denying your child the opportunity to go to college?A transaction is a two-way agreement. Tying either party’s hands is the same as tying the other’s.Again, your argument boils down to the fact that you think that you are better suited to tell me what I can or cannot do with the money I have earned. It is an arrogant confiscation of another man’s liberty and pursuit of happiness.

          6. bobwyman

            Andy, Almost *every* action of government has unintended consequences and virtually every action of government can be considered evidence of someone’s “arrogance” if only because the very thought that government action is necessary implies that people can’t be left to work things out on their own. It is the nature of the system. Governing is not an easy and often contradictory — we ensure freedom by limiting it…But, if we are to have a capitalist system we must have a regulated market. So, what we need to do is work to have the right regulation (sometimes more, sometimes less) — not simply discard all regulation. Discarding all regulation would simply lead to monopoly or oligarchy and thus replace regulation by an elected government with regulation by unelected monopolists.

          7. JLM

            Could you please send me the street address for the “camp of anarchists”?I am just now considering moving. Thanks.

          8. andyswan

            I hear the deal-flow is booming there.

          9. Aviah Laor

            So if the same person is going to open a restaurant, invest his money and take a loan, you are going to regulate it as well? After all, he may be wrong to open a Chinese restaurant in that location?

          10. bobwyman

            Aviah, No, we typically don’t restrict your ability to fool or scam yourself. You are allowed to invest in your own company even if you aren’t allowed to take money from folk who are just as poor or stupid as you are. If you want to open an ice cream shop in Alaska, you might be an idiot, but nobody will try to stop you. On the other hand, the government does try to make it difficult for *other* folk to scam you.Note: I’ve done the “start=up thing” several times myself and can assure you that I am quite happy that I had a ready excuse to deny various friends and acquaintances the “opportunity” to lose it all with me…

          11. Aviah Laor

            Sorry, this sounds even less reasonable. If somebody wants to invest in the Alaska ice cream shop with me he can do it as a partner but not via stocks? If I say 20% ROI guaranteed on Alaska ice cream it’s a scam, but if i say “it’s risky, but i believe we can have some nice profits” than it’s up to the other guys to decide.And how on earth people are going to make some gains on their money? Interest rates are almost none. Financial markets? crazy complex derivatives? These markets rip off the public hundred folds than these small investments (actually twice, once when the bubble bursts, and than again on national debt).

          12. bobwyman

            Aviah, Interest rates are low because the government is trying to recover from the consequences of allowing an unregulated market to run loose and take advantage of the unsophisticated masses (and a large measure of fools — of whatever level of wealth or imputed “sophistication”). In time, interest rates will rise again to historical norms. (Causing new problems…) Surely, you wouldn’t suggest that we craft long-term policies based on what is clearly a temporary situation…The reality is that the existing controls on investment with hedge funds, unregistered or illiquid securities, etc. were not created in a vacuum. They were, in fact, a response to harsh experience that showed that a completely unregulated market resulted in what were perceived to be unacceptable consequences. We may argue over whether or not the proper policy decisions were made, but we should accept that they were made in response to real problems. “Widows, orphans and fools” were being robbed… What would have been a better way to control the problem?Fred proposes a relaxation of the traditional limits which would permit non-qualified investors to participate. Personally, I find Fred’s proposal quite interesting, although I think it needs fleshing out. Do you have a better proposal that still provides reasonable protections?

          13. Aviah Laor

            i think the rates are here to stay… (watch the Euro, finally they learned the trick too)The best protection is simple – don’t invest in something you don’t understand.But for regulation, i would go to the decision process and not the final decision which is really a human right. Maybe protection should be some kind of warning:You have to go to a lawyer and sign a paper that you have been warned:1. General investment risks2. The lawyer have to show you some general statistic about the risk rates in the industry you are investing in and explain it.3. You have to bring documents that show your accurate financial worth. Just to make sure YOU know it.4. You have to get there without the person you are investing in5. Final investment must make the investing at least 30 days after this sign-up.6. It should cost you x$So regulation make sure you considered the consequence; you got the c., up to you to use it.(p.s. any meeting with a lawyer is a 90% killing of any deal, so unless the investor is really convinced it will work :D)

          14. bobwyman

            Aviah, I hope you’re wrong about interest rates. If they don’t go up we’re all screwed in so many ways it is hard to imagine them all..!Perhaps your “Decision Process” rules might be effective in handling at least part of the problem — We’d at least be forcing the fools and the unsophisticated folk to take a hard look at what they were doing. I’m worried, however, about the “Widows and Orphans” who often will do anything they are told or who have others who exercise power of attorney. It is a hard problem to solve… But, I see value in your suggestion.

          15. Aviah Laor

            well, they can read Dickens 😀

    3. steveplace

      I think you may be too harsh here. The $1 million minimum has been in place for a very long time Yup. Was passed back in 1933– investing conditions have drastically changed since then with respect to communication and transparency, despite all the OTC-CDS-maddoff voodoo. and so it is not surprising that one would try to boost it now to reflect inflation and then index it so that such boosts are automatic in the future. You’re assuming that there was no economic growth due to the lack of an inflation peg. I would argue that a fixed amount ended up being a “feature,” allowing more investors in, spurring growth.One might argue that doing so would be unwise, but that doesn’t mean it is ‘nonsense.’If my hypothesis is correct, then it would be nonsense. I’ve yet to look at this though.

      1. bobwyman

        Steve, “Proof” that inflation’s erosion of the $1 million limit’s impact had resulted in economic growth does not necessarily imply that raising the limit would be “nonsense.”Government is constantly faced with needing to simultaneously optimize along multiple factors. Thus, we shouldn’t be surprised if, from time to time, we take actions that retard “economic growth” in order to reduce exploitation and/or bankrupting of unsophisticated investors. Ideally, we could do both at the same time but that ideal is rarely achieved. Thus, even if increasing the limit may reduce economic growth, we should accept that someone proposing to do so might have quite rational and sensible reasons for doing so. You might disagree with the proposal, but I think you should still recognize that it isn’t necessarily “nonsense.”

        1. steveplace

          I think you anchored too hard on that final point of “nonsense,” and I’lltry to pivot. You state that raising the limit of “accreditation” will helpreduce exploitation and/or bankruptcy. I’ll counter with 2 points: havingmoney doesn’t mean you’re good with it, and some price limit hasn’t stoppedexploitation (see Bernie).Getting screwed over sucks, and we should try and work out ways to mitigatethis risk– but I don’t think this is the most effective tactic.

          1. bobwyman

            Steve, The whole point of my original response to Fred dealt with the word “nonsense” that he used in his base post. It really bugs me to see words like that used in these discussions since it results in a debasement of the entire discourse. These days, we seem to have lost the ability to disagree with people without questioning their ancestry, their mental capacity or their morals. We’ve forgotten that sometimes people are simply “wrong” or propose things that are “non-optimal.”Actually, I strongly disagree with the idea that having some specific net worth makes you “sophisticated.” This is especially the case since I’m in the technology business and I’m very well aware that some of the biggest “winners” in this space became winners as a result of pure dumb luck. Nonetheless, I am aware that many others believe that acquisition of wealth implies sophistication. I would call these folk “wrong” rather than insulting them by suggesting that what they think is “nonsense.” But, even if folk are wrong about the sophistication business, it is still very much the case that the more you’ve got, the more you can afford to lose. So, while I’m generally worried about folk of normal means being scammed, I don’t worry too much about some rich folk getting a close shave…Yes, I agree that no limit will be able to stop all exploitation. But, I don’t find that fact very compelling. Government is often forced to accept imperfect solutions. The useful question here is not whether *all* exploitation can be stopped but rather if limits are able to stop enough exploitation to make them worth adopting.You say: “I don’t think this is the most effective tactic.” Great! Please do propose something more effective!

  41. David DeBeck

    How is this good for the economy and the consumer? Dodd must be insane

  42. Kevin

    The idea that you have to have a certain level of wealth to invest is absurd and insulting in so many ways. If someone wants to invest their money in something that’s their right – or it should be. Sure, there’s risk — there’s also far more upside than is available in many other investments. The idea that only the wealthy should have access to those opportunities is sad.

    1. fredwilson

      i agree with you and i am going to make that point to the senators that iget on the phonehowever, there are so many scam artists working in the world of finance thatthere is a role for government protectionit’s a fine line you have to walkmy opinion is for a small amount, my suggestion was $25k but i just pulledthat out of thin air, there should be no regulation/protection

      1. Kevin

        I’m sure you’re right about the scam artists. I don’t know firsthand thankfully.It seems that the regulation perhaps should be geared towards the scam artists and stopping them more than from stopping an investor.I don’t buy the “sophicstication” argument made around wealthy investors vs. the rest of the world. They’re not necessarily more sophisticated. They may actually be far less.Good luck.

        1. fredwilson

          totally agree

        2. ErikSchwartz

          I agree that the rich are not necessarily more sophisticated or a better judge of the quality of an investment than people of lesser means. But, if a person with a net worth of $1M gets scammed out of $10K it does not materially effect their future. If a person with a net worth of $50K gets scammed out of $10K it can be devastating.

  43. Charles Birnbaum

    These two provisions in this bill are a perfect example of why it is so difficult for a rational U.S. citizen to feel completely connected to either political party. I was and continue to be a huge advocate for healthcare reform and feel that any change that brought coverage to more Americans was a positive one, even if flawed. However, if Democrats continue to wade too deeply into what works well in our economy they will fuel the conservative fire and preclude Obama from bringing more positive changes in areas where we need them. Very disappointing Mr. Dodd.

  44. chrissheehan

    You nailed it Fred.

  45. Dave Broadwin

    No one who works with start-ups wants to see this bill pass in its current form. I want to preface this by saying that the world has changed a lot (really a lot) since the early 1980s. OK, here is one slice of historical perspective: If I am not mistaken, Regulation D (where the accredited investor definition first appeared) was adopted in the early 1980s (I actually think it might have been 1982 or 1983 — but precision doesn’t matter for this comment.) $1mm was a lot more then than it is today. BTW S-3 (short form registration) was adopted around the same time and was to be availble to larger well established issuers with the massive market cap of $75 million. Now with inflation and all, those numbers look puny today compared to then. But there have been other compensating changes, like vastly better access to information. All in, let’s not fix what ain’t broke.

  46. Matthew Taylor

    The flipside of the coin here is this kind of viral disdain for the Dodd Bill may be what energizes VC’s to get more into the game – no pun intended.Remember this year’s motto: “Syndicate Sexy (ventures)”

  47. Bakespace

    I totally agree about eliminating the need to be an accredited investor for under 25K.As a startup that has raised a F&F round I have to say what really upsets me and makes me very nervous is the 120 day waiting period if this bill goes through. Right now I can put a call for funding and start the process of accepting checks almost immediately as I raise a round. Those funds are super important to startups because by the time you get the cash you’re mostly running on fumes. Having that first cash infusion (even if it’s 10K) while you’re waiting for the other investors to make up their minds is the difference between having a company and not. I don’t know any company that early in the game that have the luxury of waiting 4 months until the government tells them it’s ok to cash a check.So regardless if someone has to be worth 2M not instead of 1M to be considered an accredited investor, if the startup can’t spend the money now, what’s the point?

  48. Aviah Laor

    Can’t get it. It’s a human rights issue – the right to take opportunity and have a progress in life.What about buying an apartment as an investment? taking a loan to open a pizza shop? Or even taking another job? They are all risky, and still nobody is going to regulate those.If you understand the risk and still want to take a shot to become really rich, why not? there is no other route possible in the range of the typical start-up “kick-off” investments. This bill says that only the rich will get this opportunity.Ah, and it opens the road to “under the table” agreements instead of formal securities, which is even worth.

  49. Michael F. Martin

    The combination of an accredited investor requirement and social security is kind of incongruous, no?

  50. Michael F. Martin

    I hope everybody here also saw Tom Perkins on carried interest.…I actually disagree with his conclusion, but find his reasoning compelling as a basis for other conclusions!

    1. fredwilson

      his editorial is similiar to chris dixon’s post from yesterday…and Kleiner Perkins did help set up the venture partnership structure we all use today. they should be very proud of what they helped to build.that said, taxation of carried interest should not be lumped into this debate. that simply a matter of tax policy. is a carried interest a fee or a capital gain? it’s hard to argue that it is not a fee for managing other’s capital.

  51. David Binetti

    If you already supported StartupVisa through 2gov then just write a Tweet opposing the Angel Provision of the Dodd bill mentioning @2gov and it will get to your Senator automatically. I also set up a new 2gov site for this issue here:

  52. Glenn Gutierrez

    Hey Fred. Thanks for the update. After this comment I’ll be emailing and writing a letter to my reps.

  53. Dave Pinsen

    By the way: wouldn’t it have been better for Dodd and Frank to give up their chairmanships in the wake of the financial crisis? Why should the folks who did such a poor job of oversight before the disaster be the ones trusted with fixing the system?

  54. Taikan

    First, it should be noted that the accredited investor limitation does not apply to someone who makes a loan, rather than an equity investment. Second, it should be noted that the accredited investor limitation does not necessarily prevent someone who is not an “accredited investor” from providing equity funding for a friend. Federal securities laws allow a corporation to sell its stock as many as 35 investors without the need for registration of that stock with the SEC. However, sales of the stock to “accredited investors” are not counted towards that 35 investor limit. So, generally speaking, even if you don’t meet the definition of an “accredited investor” and you want to invest in the new corporation your neighbor has started, you can still do so, and he can sell you the stock, as long as your neighbor doesn’t sell the corporation’s stock to more than 34 other non-accredited investors like you.

    1. fredwilson

      i’d love to see a venture lawyer address this comment because i am sure you are right but most lawyers don’t like to do it that way

  55. gbrandonthomas

    FYI, from a friend who works on one of the House committees working on the bill:”I cannot speak to the Senate bill, but the House bill expressly exempts Venture Capital. The provisions in question concerns hedge funds by requiring them to register with the SEC and can be subject to capital and leverage rules if they the hedge funds can cause a systemic problem in the finanical markets (Long Term Capital Management is an example).This is from our summary: Loopholes exploited by private funds in the past are closed by eliminating the private adviser exemption and limiting other exemptions for foreign private fund advisers and intrastate advisers. Venture capital companies are exempt from registration although reports and recordkeeping are mandated by the SEC to continue to monitor business activities and how they may contribute to systemic risk. Small Business Investment Companies (SBIC) are exempt.”Some hope, I suppose…

    1. fredwilson

      that’s great. if it stays in the senate bill, it will likely come out in the negotiation with the house

  56. Peter Fleckenstein

    Fred, outstanding post. Rep Dingell, although talking about passage of ObamaCare, stated perfectly what our Congress is all about in anything they do. It’s about controlling We the People: We control you

  57. mapteam

    We agree that we need to eliminate all accredited investor requirements for small investments of up to $25k. Why does someone have to be a millionaire to invest in a friend’s startup? Good Question since we can all gamble any amount at a casino and not be a millionare. I understand that we don’t want someone mortgaging their home, or betting their entire life’s savings on a startup. But for a small amount, like $25k, we should not be regulating angel investing. And we think there should be a private stock exchange for those small investments, where great ideas can be discovered and everone with investment capital can invest.Read more at http://www.fundingroadmap.c

  58. dweisburd

    Fred,Big fan of your blog. What will it take for you to see that Democrats are systematically destroying our economy? Yes, the Republican party has “gone right” but what they think about evolution doesn’t effect every day life. What does effect us is constant government regulations and taxations my friend.

    1. fredwilson

      i’d skip out on the democratic party in a nanosecond if there were a real alternative. i’d like to see a far center party that is a real force.i’d personally rather live in a world that is more regulated financially than socially. so i’m left of center.

  59. Stephen

    It always blew my mind that politicians felt the need to regulate angel investors and venture capitalists. From a purely economic standpoint, it’s an absurd idea. From a moral standpoint, it is an even more absurd idea. From an American standpoint, it’s embarrassing. I agree there should be no limit.

  60. Prokofy

    The first point seems like something any true liberal could get behind, as it is about democratizing investment and democratic choice in capitalism, and I’m all for that.Recently I went to Sharepost to see if I could by this secondary stock that Linden Lab and Facebook and other employees have, shy of being an IPO. I don’t know if this really is a proper valuation of a company, it seems to me there could be a lot of factors fluffing it, and I don’t know if it really is a pre-IPO of sorts. But still, it should be open to the public, no? Or it inflates the value of insider stock so that an IPO is misled.But come to find out, I’d have to be a “qualified investor” and earn $200,000 a year – which I will not see ever in my lifetime.As for the second item, studying it, I still fail to understand it. I can’t understand whether it is proper as it belongs to the realm of state’s rights, which I think are a good thing and about federal overreach, or what the deal is.

  61. Binny Mathews

    Great work Fred. Thanks for being proactive about this. Will definitely help a startup like ours based out of India and trying to raise some cash in the US.

  62. DomainDiva

    WOW we are going for round three right now. Our angel for the first two rounds has nowhere near the worth Dodds’ bill is calling for. Of course, if you limit the little guy, the big guys have all the monopolies. Way to go for free enterprise.I wonder what would happen if all the creative people took their little angel money and went to a country like Iceland and developed and sold their products on the world market? With technology and the internet it would be easy to do. Iceland would love to have us, so would a lot of other countries as well.

  63. Peter Fleckenstein

    Here’s some more proof Fred that you & others will be controlled.…My only question to you and other VC & angel investors is this:Have you received your subpoena to testify before Waxman yet?

    1. fredwilson

      i haven’t

  64. aregularjoe

    Seems like the riskiest thing people do these days is pay taxes that support those gov’t kooks. I’m not against taxes, we need them to support infrastructure and to pay for emergency services (police/fire/ambulance) but with a gov’t full of incompetents who couldn’t run a company but think they should run a country….. risky business.

  65. klarsonent

    I couldn’t agree more with your statement, “In fact, what we need is to eliminate all accredited investor requirements for small investments of up to $25k. Why does someone have to be a millionaire to invest in a friend’s startup?” This will only hurt the economy for the many small “Mom and Pop” businesses.

  66. Raakesh Makanji

    A petition was started for repealing the Reg D portion. The link can be found below…

    1. fredwilson


  67. Alex Stoian

    If the Dodd bill passes, a number of US startups together with their so called ‘unsophisticated’ backers could choose to incorporate overseas in friendlier jurisdictions, while maintaining operations within the US. This overseas incorporation would then be the typical unexpected bad consequence of bad regulation.SOX comes to mind. Post SOX, US companies in a position to choose listed on non-US stock exchanges exactly because of SOX. Also, foreign entities chose not to list in US due to SOX.And SOX was supposed to prevent mispricing risk, which is exactly what happened with sub-prime derivatives while SOX was in full effect.”The new laws and regulations have neither prevented frauds nor instituted fairness. But they have managed to kill the creation of new public companies in the U.S., cripple the venture capital business, and damage entrepreneurship.”Wall Street Journal on SOX, Dec. 21st, 2008.The regulatory framework is part of the competitive advantage a country offers, to it’s constituents and to foreigners. If SOX did this, will Dodd do better?A solid number of VC firms and influent angel organizations can incorporate their startups overseas. Many have overseas presence. It will not be as much of a hassle as it may seem like, especially taking into account that international early stage investments tend to be more and more common, including for angels, and operations will still be kept in US.As for the ‘love’ money, who knows, maybe a fraction of it will choose to back cos. incorporated overseas by family members or friends. If this will allow maintaining some ownership into the desired hands, very important for family money, people could choose this route if they are not allowed to co-invest with family and friends within their own country.We operate, an online hub connecting entrepreneurs, angel investors & VCs, and we see solid US and international interest for both local and international early stage investments and funding, even though we have just launched.On, members can create profiles, post funding request ads, search for early stage investments locally or internationally, contact other members and more. It’s free and easy to use.Investors, entrepreneurs and supporters are very welcome to join and create profiles. We have a limited promotion and accounts being created within a certain limit will be free for life..Go have a look!Best regards,Alex StoianFounder”Connecting entrepreneurs with investors”

  68. Aruni S. Gunasegaram

    I agree re: your comments on the banking bill. On another note, was the incubator in Texas that your dad sent you the article about The Austin Technology Incubator? I am the Director of Operations there and we were mentioned in a recent Time article. Here’s a link to a blog post we did about Austin being a leader in entrepreneurship and job growth… where we mention some of the Austin highlights from that article.Aruni

    1. fredwilson

      Yup. Its your incubator my dad mentioned to me

  69. inspired2b

    What is the benefit to raising the requirements?

  70. inspired2b

    What is the benefit of raising the requirement levels? Will this help the government in any way? I understand that it is bad for small business but who is it good for and why?

  71. gradhakrishnan

    Thanks for the great post! We are a start up accelerator in Austin, TX and definitely help with job creation in the state. Your post prompted me to share my thoughts on this subject in a blog post. http://www.techranchaustin….

  72. QQMOAR

    This bill confirms I am non-partisan.First, Dodd is the last person who should be opening his mouth about anything to do with investing – can you say “Freddie Mac and Fannie Mae?”Second, the lunacy of half-baked so-called “VC’s” over this issue is unreasonable. So, instead of being worth $1M, you would have to be worth $2.3M? Wow. This mentailty demonstrates everything currently wrong in the investment world. Learn how to invest and you will get to taht gold number very quickly. Oh, that’s right. You want everyone else to do the work to make you richer. Good lord!Here’s yet another way to look at this: $1M will draw off about $30k/yr. Maybe YOU think that qualifies someone to claim the status of “Venture Capitalist” but I don’t. Around here $30k/yr is less than average. It means you have a job.The qualifiers need to be raised to respectible levels. I suggest one hundred times a Congressman’s annual salary.

  73. Harry DeMott

    Couldn’t agree more. Neither side is any good in this conversation. Bush was a disaster. I figure no one needs a tax break – and everybody should be put on even footing.

  74. JLM

    Republicans — bad.Democrats — good.It is this kind of deep intellectual reasoning that enables the Nation to grapple with and solve the issues of our times.In our President, we do not elect a party, we elect a MAN.In our legislative system, the Congress makes the laws.The most important legislation initiatives of the past century — Social Security, Medicare/Medicaid, Civil Rights Act, Interstate Highway system — were passed with substantial bi-partisan support. We go to war with bi-partisan support.The best Presidents of the last century have brought singular talents to the office. My favorite is Eisenhower for having kept America out of war, having balanced 8 consecutive budgets, having initiated the Interstate Highway system, having built the American nuclear arsenal and having called “bullshit” on the military-industrial complex.I truly could give a shit less whether he was an R or a D.

  75. e_irene

    He’s on the Banking Committee. It could be that he was among the 10 dissenting votes (13-10). Haven’t checked.

  76. Harry DeMott

    Taxes and subsidies are totally crazy. It would not surprise you to find that I am not a huge fan of the progressive tax rate as implemented under current system – and not because it costs me more. I would much rather see a low flat tax (I figure the government provides services equally to all citizens) and then have a much more progressive VAT tax – so those who want to live opulently will pay heavily for that privilege. It works that way locally through higher real estate taxes for mansions – why shouldn’t I pay a lot more if I want to consume heavily in other ways. Then free up capital to invest in life changing investments

  77. JLM

    “I like progressive taxation” LOLCould I send my tax bill over to you to feed your love interest? Please! Pretty please?Progressive taxation, like chemotherapy, has to be dosed correctly to keep from killing the taxpayer. We are at the lethal dose rate already. We are killing the American job creation mechanism by making war on the successful.Under the current regime and with the results of recent and contemplated legislation, the top earners in the US will have an effective tax rate of well over 60% on earned income and drifting toward 70%.You do the math — Federal income taxes, state income taxes, city income taxes, payroll taxes (now to be applicable to capital gains and dividend income), excise taxes (gas, phone, travel), property taxes and sales taxes.To add insult to injury, the formation of capital — the driver of job creation in America — is to be taxed at a rate approaching 30%. These idiots don’t realize that people will simply borrow against their assets rather than selling them and capital gains tax revenue will plummet.Oh, yeah, forgot to mention — estate taxes, the final tax on a life’s work and the product of after tax dollars — will return to 55%.So, color me as a chap who is not as enamoured of progressive taxes as others.

  78. Louis Marascio

    The legislature doesn’t protect me from the gas station guy stealing my money. They don’t protect me from the car salesman from selling me a crappy car. That’s the police are for.

  79. Louis Marascio

    Why doesn’t the US government review every real estate transaction to ensure someone isn’t buying swamp land in Louisiana? This is selective nanny-state politics applied where most politically advantageous, and it’s unfortunate.

  80. Louis Marascio

    And to be clear, while I have a serious libertarian bent I am not an ideologue. I am all for the government establishing fair reporting and disclosure requirements to ensure that people are enabled to make fully informed decisions. I don’t believe that the government should try to make those decisions, en masse, for large segments of the population.

  81. e_irene

    Yeah, it looks like the vote split down party lines.

  82. JLM

    You need to get out a bit more.13 Democrats10 RepublicansSchumer voted yes at the committee.

  83. Louis Marascio

    Laws are great. Limits based on arbitrary thresholds of net worth and other criteria are unfortunate. Why not have an Accredited Home Buyer law stating that you can’t purchase a house unless you’ve had $150k in annual salary for 10 years and a credit score of 700? We don’t have such a law because it creates artificial barriers to capitalistic innovation. One might be eager to suggest that such a law would have saved us from the most recent crisis; however, any suggestion to that effect should include an analysis of the historical impacts on the economy had such a law been in place.

  84. Mark Essel

    I understand the spirit of law, the ethical protecting the ethical. I also have a good understanding of it’s enforcement by everyday folks, and the arbitration systems which determine guilt, as well as financial damages. How much personal freedom do we have to sacrifice in order to be safe?Ironically, I have rarely felt safe due to the law. Simply because transgressors respect it as much as toilet paper. In fact the more sinister the unethical, the more likely they’ll have the law on their side to cause me grief. The law is supposed to deter would be criminals by making it clear if they break it, they will be punished.There’s got to be some interesting areas of research with game theory, and the social decision to perform criminal acts of varying degrees.

  85. fredwilson

    schumer is first on my list to call

  86. e_irene

    Ha! If you only knew… Anyway, I can hope, can’t I? That I fell asleep and woke up in some alternate universe where things make a different kind of sense.

  87. JLM

    Just curious — which would you prefer:Obama year 2Bush year 2There is much to criticize in the Bush administration but as the designers of the Titanic said: “Only results count.”

  88. fredwilson

    republicans are obstinate nay sayers who don’t have a plan to take thiscountry forwardall they know how to do is say no and call the democrats socialists or worsethe republican party needs a new game planit has been destroyed by the conservative christian wingthe old republican party, of your man eisenhower, is long goneGWB senior was its last edificationwhat we have now is a jokesarah palin would be a great standard bearer for the new republican party

  89. Tereza

    That’s a really interesting question.But alas i will not let you pull me into politics here.If I had to violate one of JLM’s rules of polite conversation, I’d rather apply my Red Card social violation toward sex.Way more interesting, and there’s more money in it.<that was=”” a=”” joke,=”” people!=””>

  90. Iggy

    JLM,You mean Bush – 1 year in the office after 8 yrs of a Democratic President vs. Obama 1 year in the office after 8 yrs of a Republican President? I’ll take the one after 8 yrs of a Democrat (and no, I am NOT a Democrat! I am Independent.)Bush came to the office when we had a budget surplus and several years of expansion, Obama came to White House inheriting gigantic deficit, the worst crisis since the Great Depression and two hopeless wars.

  91. Tereza

    You can tell Schumer you’re following up on that email he got from Tereza.LOL.

  92. JLM

    Gee, I didn’t know that Pennsylvania was exempt from Federal taxes. Maybe I should move there. LOL

  93. JLM

    In the recent healthcare legislation, the Congress failed to hold committee hearings, failed to refer the legislation to its own subcommittees and limited floor debate. The bill itself was not widely disseminated with Republicans receiving the bill only after it had been otherwise agreed to.The President’s Healthcare Forum was a sham. A TV event at which he lorded over the proceedings and from which not a single change was made. Not one!The Congress failed to even identify who had drafted the various bills. Who drafted the 2700 page Senate bill? Who?The Republicans received the Senate bill only after the Democratic Senate caucus had deliberated, amended and approved the legislation.To suggest that in the face of such a power play that the Republicans were obstinate or naysayers or failed to advance amendments is to simply admit ignorance as to the basic facts.The Democrats did not engage with the Republicans in any useful or meaningful manner.Compare that conduct with the large bi-partisan support for Social Security, Medicare/Medicaid and Civil Rights.This is the Chicago School at its worst. You cannot decry bi-partisanship when no attempt is made to create any bi-partisanship.

  94. ShanaC

    No Sarah, her fans are too rabid. I’m scared of her.

  95. fredwilson

    politics my friendthere is no way the republicans were going to sign onto anything he putforwardtheir mission, their only mission, is to destroy Obama

  96. JLM

    You should read the Caro books on LBJ and see how he passed the Civil Rights Act of 1964. He had the requisite legislative experience and he possessed the leadership skills to champion the “right” type of legislation while building a consensus to get it to the floor of the Senate within the rules.He got huge bi-partisan support not including his Old South Democrats who filibustered the bill.Obama’s undoing will not be the Republicans, it will be Nancy Pelosi and Harry Reid. He is carrying their water rather than the other way around.Had Obama called in the Ds and Rs in his first month and said: “Give me your 3 best healthcare ideas” and had added 3 of his own while following all of his campaign promises re transparency and filing the bill for public scrutiny, we would have had a small ball healthcare bill passed quickly which would have included the most important elements and bi-partisanship might have gotten a bit of traction.How dopey is it to say that you tried to be bi-partisan by inviting some Republicans over to see the Super Bowl?

  97. JLM

    “You do the math — Federal income taxes, state income taxes, city income taxes, payroll taxes (now to be applicable to capital gains and dividend income), excise taxes (gas, phone, travel), property taxes and sales taxes.”Of course, that is not what I said. Above, is what I said. Does it not add up to over 60%? All of the above come out of your earned income.

  98. Mark Essel

    Heyo Charlie, including sales tax I’m paying about 50% (I’m sure there are taxes I’m missing). Income ~28, state ~8, real estate ~8%, sales ~8, what am I missing?

  99. fredwilson

    and in the process he destroyed the democratic party for a generation

  100. JLM

    Suggesting in the process that he was in fact a leader, a patriot, a statesman and not a party hack. Civil rights legislation was the right thing to do and LBJ was the driving force that got it done.A pox on the house of all Southern racists and bigots. Then and now.As Sam Houston said: “Do the right thing and suffer the consequences.”Doing the right thing in the face of adversity while esconced in the Oval Office is exactly why every sitting President is OUR or MY President.

  101. fredwilson

    Obama showed the same courage in getting healthcare passed

  102. JLM

    I agree completely. He was, in fact, courageous. And, he may have decimated the Democrat party for another generation. We shall see.What he failed to do was fashion the bi-partisan support that FDR and LBJ did in passing SS, Medicare/Medicaid and Civil Rights.I suspect that is attributable to his Chicago machine training, his inexperience and perhaps too, his lack of real courage.What he failed to do also was to provide an enviable exemplar of process. He made an ugly process look even more coyote ugly, if that were possible.Obama has the courage of a second story man or a Times Square pickpocket.

  103. JLM

    Huh? This is simply not true.All kinds of House and Senate committees failed to hold hearings on multiple pieces of legislation. This legislation was never referred to a single subcommittee.The House and Senate both sat as a “committee of the whole” because the drafts of the pertinent bills were not made available to the committees (and by inference the Republicans).Debate times were set at bare minimums time and again.These are all matters which can be found in the Congressional Record.This is a perfectly legitimate legislative protocol allowed by the rules. It does however have consequences. One of which is the evaporation of any semblance of comity or bi-partisanship.There are 24 medical professionals in the Congress of which 16 are doctors. Of these 16 doctors, 11 are Republicans and 5 are Democrats. Of the 5 Democrats, 3 voted against the health care bill at some time or another. All Republican docs voted against the bill.For the Congress to have missed the opportunity to have that legislation touched by these medical professionals is simply regrettable.How does tort reform not make it into a bill which purports to address health care costs?

  104. JLM

    Fed inc tax rate — 39.6%Fed HC surtax rate — 5.84%Payroll tax rate — 7.5% SS + 4.7% futa/suta/medicare + proposed 2% HC surtaxState income — plug in your state 0-12%Property taxes — 1-2% of value annually which approximates 4-8% of income if your home value is 3-4 times your incomeSales tax — 6-9% of spendingWhere are we so far?Bingo! We are in excess of 60%!

  105. andyswan

    Charlie, I’d say the math has been shown. Our most productive are working into August purely for the State each year.The question I have for you: What is the absolute limit of a person’s earnings that you believe the State should be allowed to confiscate?

  106. ShanaC

    Oh the joy of legal theory- it only works if we all sort of agree this is the law and that judges sort of also make law. I think. Very complex. You talk of the gunman theory in a way- the law compels you- but in no way makes you safe.Therein lies the problem, what stops you from changing the situation at all?

  107. ShanaC

    Let’s move into rock n roll, has anyone seen a concert they have liked people?

  108. Tereza

    er, never get out these days except for work-related events. But I sure am enjoying my downloaded re-runs of Glee!

  109. JLM

    Sarah, or Saracudda as I like to refer to her, is coming to Austin, TX on 29 April to speak at the Austin Convention Center — I only mention that because it is a huge venue. She is speaking on behalf of Heroic Media part of the Majella Project.I have offered to host a dinner or lunch for her before or after the event.My son who worked for McCain says she is a knockout. I admit to having a weak spot for hot point guards and gals who can field dress a moose. That field dressing sounds so damn sexy. And who doesn’t love a girl who can really handle a rifle and a fishing rod?Wish me luck on getting the nod. Damn, my leg is tingling! LOL

  110. Tereza

    JLM — Red Card Violation for you! And you wrote the rules yourself.I dare you to jam more politics, religion and sex into a single comment.Great read nonetheless, even though I abhor The Saracuda.I’m rooting for you to host that event. Just please promise to report back to us the words scribbled on her hand.Incidentally there is a young man who also worked for McCain at the center of it all; his dad is a former boss of mine. Guessing the two boys may have worked together. Last name Means.Anyway, gotta run. My death panel’s in 30 minutes and I don’t want to be late.

  111. fredwilson

    read Game Change JLMthe parts about Palin are enlighteningshe’s a prima donna of the highest caliberi hope the republicans nominate her next time but i can’t imagine she can make it through a primary fight

  112. ShanaC

    I agree about the red card. Though have fun at the event. It is just not for me…

  113. Tereza

    I agree with you on the capital gains.

  114. Tereza

    But even when you invest in a friend’s business, if there are multiple investors in that round (at a small $ amt each) isn’t an LLC created for these F&F investors, and effectively bumps it up into the “accredited investor” category? It seems it shouldn’t be so casual if you want to do it correctly and with transparency, no matter what the amount.I thought that was how it’s done. Though I haven’t done one myself before.So someone who’s more knowledgable please step in and validate or refute what I’m saying here….thanks!

  115. JLM

    Read Game Change when it first came out — interesting tome and I am sure truthful observations from the perspective of the observer but I am very skeptical of the political Bob Woodward-esque unsourced political docu-drama style of contemporary literature which attempts to pose as history.Having said that I am sure that Sarah Palin is a demanding person by virtue of nothing else other than her track record. One doesn’t achieve what she has achieved in politics and in life in the male dominated Alaska Republican firmament without having some pretty substantial balls and shaping events to her liking. That doesn’t happen by accident.We grade women a bit harshly on such matters in our society. We laud certain characteristics amongst our male brethren and decry the same virtues amongst our women. A chick who was a state champ point guard and who can field dress a moose is probably going to be pretty damn assertive wandering into being a bit bitchy and certainly earning a label of being a prima donna.Me, I like the kind of women who can maintain their femininity while besting the boys at whatever game they choose to play. Getting the odd elbow in the neck is just part of the charm.I think Saracuda is a phenom — whether she is good for the Republicans is between her and those Republicans.I do know this though — I would not want to be a Democrat candidate for anything if Saracuda were showing up in my District to campaign for my opponent. On that front, the ‘Cuda is going to even some old scores and then some.She is a “modern” candidate in that the camera loves her and she is only getting better at everything she does.

  116. JLM

    “I like progressive taxes””You don’t like taxes. Great. Neither do I.”OK, so which Charlie is writing today? LOLLet’s compare notes again about a year from now when all of theory of healthcare is transformed into its grotesque reality, when it has throttled lots of jobs and when the cost and quality of healthcare is apparent.Regardless of how one gets to AGI (adjusted gross income), the tax rates are what they are. I could care less as to the tax rate on anything but the highest marginal rate. That is where the tax burden is really felt.You are correct that I used the rate announced by the Obama administration at 39.6% rather than the current 36% — my bad but it does not change the result.Tax shelters? Deductions? These are all applied prior to calculating AGI and you may want to consider the AMT also with a top rate of 36%.Fair play that I live in very, very expensive house. Considerably more than you noted. It is part of my asset protection plan. I happen to like real estate as an iinvestment asset class and own four of them (ouch). Nonetheless, the tax burden is what it is. These are real taxes and I have to pay them.One has to conclude that your personal politics preclude your seeing the truth of the current level of taxation.High levels of taxation dampen entrepreneurial zeal in America which translates to lower rates of job creation and right now the thing we need the most is job creation.

  117. JLM

    We are getting quite narrow here — the stepping of the replies to the right.The math clearly shows a burden in excess of 60%, you are just being obstinate.I suspect that we also disagree upon the use of taxes. For 30 years I have provided my employees with health, dental, vision, life insurance and a wellness program. I did not need BHO to guide me on this.When I have gone to the pay window, I have endowed scholarships targeted for worthy needy persons who agree to serve the Nation thereafter.I have created companies, employed literally thousands of workers, paid for college educations, reimbursed employees who got MBAs.I have acted upon the liberal instincts that most liberals simply talk about.Tax rates are too high and are a drag on entrepreneurial vigor and social change.

  118. kidmercury

    have you people learned nothing from your good buddy kid mercury over these past few years. there’s a little somethin’ somethin’ called the inflation tax. increase the money supply, create incentives to put this money in housing and stocks….result? bubbles! paid for with inflation! hooray!and, my boy bart did some modeling on this subject:…and don’t forget what my boy ron paul says about income tax:

  119. JLM

    As it relates to the country’s financial position, the party who holds the White House is almost irrelevant. Under our system Congress appropriates. The reason Clinton “delivered” a better financial performance was because of the Republican Congress. Give credit where credit is due.You may remember that Clinton first met the lovely intern Monica Lewinsky when Newton G shut down the gov’t. Billy was bored and the rest is history — a sordid trailer park trash kind of history to be sure, but history nonetheless.We will look back w/ fondness on the last Bush deficit of $500B. The recent recession is only the 4th most severe in US history and I thought Obama had doubled down on A’stan — am I wrong?Of course, we are likely to get a Republican Congress in November, so there is “hope” for a bit of “change”?

  120. Tereza

    Nobody judges women more harshly then other women.So step aside.I don’t care if Caribou Barbie is a bitch. So was Hilary, and that didn’t bother me.My issue with her is she’s intellectually lazy and wields her looks, charisma and prayer to get herself out of every pickle. Exceptionally attractive women seduce people into them oodles of stuff for free, including accepting their poor excuses. (I know this — I’m related to a few of these charmed gorgeous types). If they happen to be religious, they smugly call it God’s Grace and the “power of prayer”.Her life has been a cakewalk. Lots of relatives, all still alive, around to care for her kids and celebrate her. Living in a young state with lots of growth and job opportunities. The smugness rings very hollow. Dubya was the same. It’s rooted in no real accomplishments or travail.I want to see something truly personally challenging and genuine, something way tougher than skinning a moose. I had to bury both my parents at the same time. Give me a woman who’s tough enough to go through something really serious and personal — I know they’re out there. Then I might listen.I have to run now and rehearse for the two Palm Sunday services I’m singing in tomorrow. We’ll be praying. My personal prayer for Sarah Palin is that she gets a clue.

  121. fredwilson

    I know the author well. To call it unsourced is just plain wrong. The amount of reporting that went into that book is astounding

  122. JLM

    Damn, you’re going to have to speak more directly as all that subtlety is overwhelming me! LOLI agree completely w/ you in regard to GWB, a guy who would never have been heard of except for his last name. His old man is the genuine article but he also started on third base but put in the years of service to our country in a number of important positions. Of course, Laura is an impressive woman in her own right. You have to go to Midland, TX (which few people will do voluntarily) to get her.I feel what you say about the Saracuda and I am always loathe to ignore a woman’s instincts and intuition. The only two persons my wife ever told me not to do business with both turned out to be shitheads.I once was on the other side of a business deal from HC when she was an Arkansas lawyer @ the Rose law firm. She was actually quite personable and incredibly sharp. This was long before she had any political profile.I know exactly what you are saying as I know more than a few plantation bred Southern grown up sorority girl type women. Of course, I must admit to liking them all — perhaps because they all smell so good. [Hey, my azaleas are all blooming today.]I know what you mean about doing and living through tough things. At a point in time when I thought my life was safe, I had to go tell a Mom her son had been killed in action. To this day, I can still remember every second of that conversation.I suspect that most folks in public life today — who as a group are quite unaccomplished other than their political stuff — are a bit shallow.But I will be watching the ‘Cuda a bit more closely. Maybe close enough to catch her scent?

  123. fredwilson

    Nicely spoken Tereza. Her intellectual laziness is documented in Game Change and that is why I mentioned the book to JLM

  124. ShanaC

    Thank you for that comment. That is all.

  125. Tereza

    For me to work, it means I have a full-time live-in nanny.We pay her on the books and provide her health insurance. We do this because it is the right thing to do. She is a professional and deserves to be treated as a professional.I would not skimp with my kids, nor with someone’s livelihood. She’s been with us 6.5 years.Our accountant said he doesn’t know anyone else who pays their nanny’s health insurance.However, financially, it’s kicking our *sses and we really can’t afford it. It’s been very hard in the environment to live by our principles. (we’ve done it, but so difficult)I hope that healthcare reform will make it easier for us, and more people, to do the right thing. And in so doing help more women put their skills to work.

  126. JLM

    In fact, the crisis was created by exactly the opposite type of excess.Liar loans, no doc loans, teaser interest rates.There is nothing wrong w/ underwriting your own risk. It is when you are using OPM that things get messy.Investors should be able to underwrite their own risk.

  127. JLM

    It has never made sense to me that “after tax” dollars should be taxed a second time as some negative measure of “consumption”. If I have an 8-member family, should I be taxed more than a 3-member family?In my view, income should be taxed a single time — when earned and booked.Capital gains rates for most of our economic competitors are virtually zero.If you have worked hard to create a high income, why should one be penalized? Why is an opulent life style something that should be punished?Property on the other hand, should be taxed universally. In this manner, folks who opt to own a lot of real estate are taxed fairly for the services rendered to that real estate.Where this is all getting chaotic is the nexus at which the tax is being levied and the beneficiary of the taxes.Income — Federal as it is universal amongst the StatesProperty — local and primarily for educationSales — local and primarily for municipal governanceExcise — for separate enterprise funds such as roads, air travel, environmentVAT — a proxy for income but not a duplication

  128. Tereza

    Enjoy the breeze — nothin’ wrong with that. Just watch your back pocket!

  129. fredwilson

    How is he increasing them?

  130. JLM

    I think we are actually saying the same thing.That style of contemporary fresh political narrative, as manifested in all of the Woodward books, is commonly referred to as “unsourced” in the context that it is, in fact, more reportage than history and that it often paraphrases rather than quotes and that its sources for such paraphrasing are often another observer rather than the principle. And almost no attempt is made to verify quotes from individual speakers.Obviously, Sarah Palin did not review the quotes attributed to her and the book was certainly not made with her or other principles reviewing or commenting prior to publishing. That is the nature of the beast.A well written history would be footnoted as to sources, reference documents and have multiple sources.I do not mean to suggest that because something is “hearsay” it is not credible but it is not a triple sourced, check the quotes w/ the speaker, footnoted type of historical narrative. It was not intended to be such.In numerous public appearances the authors have made that clear time and again.

  131. JLM

    I am not so sure she was lazy as “drnking from the fire hose” and a bit overwhelmed.She sure has overcome her laziness if in fact she ever was.She is tour de force these days and I must say I admire the many charities she has assisted in their fundraising.

  132. Joe Wallin

    Fred, under the healthcare bill, Medicare taxes will apply to capital gains, including capital gains from sales of stock in startup companies.”The legislation would for the first time apply Medicare taxes to investment income received by these households, beginning in 2013. The 3.8 percent rate would apply to unearned income such as realized capital gains, dividends, interest, rents and royalties.”

  133. ShanaC

    We did that, it was called the roadshow of the height of the dotcom era. Having money doesn’t mean you are sophisticated enough to invest it. Two different problems.

  134. ShanaC

    Intellectual laziness is usually a sign of burnout or lack of passion. Your choice. I know plenty of people who “drink from the firehose” mostly due to age.Just saying…

  135. fredwilson

    She suffers from many of the same character traits you slam obama for.She’s a rookie too.Like I said, you win biggest with rookies but also lose biggestVeterans are a safer bet but don’t go deep as often

  136. Iggy

    “the party who holds the White House is almost irrelevant”? You’ve got to be kidding. It’s like saying that whoever are the LPs is almost irrelevant, under our current VC system GPs appropriate.Executive branch sets the agenda, pushes it through, EXECUTES, runs the “Government”, shut-down or not. Clinton’s White House played a great, and willing, a role in balancing budget. Bush rammed tax cuts, deregulation and Iraq War through.

  137. Tereza

    You betcha.

  138. fredwilson

    I’m glad to see that. I make millions in cap gains and I’d like some of those gains go to pay for healthcare for those who can’t afford it

  139. fredwilson

    Thanks for that explanation. I don’t mind the increase as I feel like I’ve been getting away with murder for years. The vast majority of my income comes in the form of cap gainsBut I get your point. Many entrepreneurs are not in my shoes and this is a bigger bite of their first big paydayI will raise this issue with the administration. I suspect obama meant what he said and that he will try to deliver on his promise in some other way

  140. Mark Essel

    Thanks for calling attention to this Michael, I was unaware (another proto-founder)

  141. kidmercury

    i sent this to charlie, thought i’d send to you as well:tax stats — how much do we really pay?:…and don’t forget what my boy ron paul says about income tax:…and of course, the most important tax of all…..the inflation tax! increase the money supply, devalue the currency, create incentives to put the new money in the housing bubble, the stock market bubble, and of course the war bubble. the stupid american slave i mean taxpayer will foot the bill with $2.75 a gallon gas (remember it was above $4 USD before hte crisis of 2008). hooray for inflation!