[hnsummary]

Article Summary:

Buried inside of the new banking bill is a provision that will raise the requirements to be an accredited investor. The new bill is proposed by Chris Dodd, the senator from Connecticut. The requirements are increasing from $1m in net worth or $250k in annual income to $2.3 million in net worth or $450k in annual income. Angel investment will also have to undergo a 120 day SEC review.

http://hnsummary.com/2010/03/30/get-the-anti-startup-and-ant...

[credo]

My understanding is that the $1M requirement was signed into law by Reagan in the early 80s.

$2.3M is that amount adjusted for inflation.

You can make a case that the $1M limit was too low (at the time Reagan signed the bill), but imo it doesn't make sense to argue that - in general - any limit should not be adjusted for inflation

[gridspy]

However the costs to launch a business have also decreased in the mean time, as have the size of angel investments.

[jbooth]

The thing is, they're not just dealing with startups -- they're also dealing with fraudulent ventures calling themselves startups.

[aliston]

Are there really that many angel investors that fall within the 1M to 2.3M net worth range? My initial gut reaction is that this seems to be a bit of an overblown issue. In the bay area at least, virtually anyone with a home on the peninsula probably has a net-worth of around 1M. If the average angel investment is around 100K (not scientific, just a hunch), someone with a net worth of 1M would be investing 10% of their net worth in a really risky investment venture... I would think, therefore, that most angel investors have a significantly higher net-worth in that case.

[anamax]

> In the bay area at least, virtually anyone with a home on the peninsula probably has a net-worth of around 1M.

You're forgetting that most of those folks also have hefty mortgages, so their net ownership of their houses is considerably less than the value of their house. (I doubt that the median price of houses in the valley is high enough that "virtually all" are worth >$1M.)

However, none of this matters because the definition of "net worth" used for determining whether someone is an "accredited investor" specifically excludes many things, including residences.

There's a huge drop-off from $1M to $2M in assets, no matter how defined. These things obey power laws.

[rosser]

Even if the overwhelming majority of potential angels were worth more than the new base threshold, the 120-day SEC review period remains deal-breaker enough.

[blasdel]

The bill does not set new requirements at all! It just explicitly authorizes the SEC to adjust the income & net-worth requirements for inflation. The SEC was already empowered to alter the requirements independently of legislation, but has never done so.

The figures quoted are pulled out of their hat -- they just took the old figures and adjusted for the last 30 years of inflation since they were set. Nothing in the bill says the SEC has to do that.