Even if you didn’t excitedly pore over the new SEC rules as we did, you may have read highlights of how they will affect a business’s ability to raise capital. While these rules still only allow businesses to take investments from accredited investors, the SEC is currently accepting feedback on how to define an accredited investor.
Here are the questions they asked commenters:
- Are the net worth test and the income test currently provided in Rule 501(a)(5) and Rule 501(a)(6), respectively, the appropriate tests for determining whether a natural person is an accredited investor? Do such tests indicate whether an investor has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of a prospective investment? If not, what other criteria should be considered as an appropriate test for investment sophistication?
- Are the current financial thresholds in the net worth test and the income test still the appropriate thresholds for determining whether a natural person is an accredited investor? Should any revised thresholds be indexed for inflation?
- Currently, the financial thresholds in the income test and net worth test are based on fixed dollar amounts (such as having an individual income in excess of $200,000 for a natural person to qualify as an accredited investor). Should the net worth test and the income test be changed to use thresholds that are not tied to fixed dollar amounts (for example, thresholds based on a certain formula or percentage)?
This definition and the proposed rule changes will have a direct impact on the startup environment and the work that we do here at Slow Money NW. Some platform based organizations fear that the changes the SEC is considering will hurt the startup community as they do not take into consideration modern financing models. AngelList CEO, Naval Ravikant, submitted these comments and recommendations.
Care about the rules surrounding the higher bar that same-sex couples face to make angel investments? This is also an opportunity to have your voice heard on how to make these regulations more equitable.
Questions? Feel free to reach out to us at firstname.lastname@example.org.