The Art of Angel Investing = De-risking
The art of angel investing boils down to successful de-risking. There is a continual flow of new opportunities for individuals to convert savings into meaningful (both social value and significant financial return) investments. However, when the government steps in, the quality of its decisions is inevitably distorted by lobbying. When you pit David against Goliath, at least in Washington, David doesn’t fare as well as in the original story.
So we should not be surprised that the financial services industry (Goliath) continues to pour hundreds of millions of dollars into a permanent presence keeping Wall Street linked to K Street, not Main Street.
Congress passed a valuable piece of legislation with broad bi-partisan support called the JOBS Act (the abbreviation for – Jump Start our Business Start-ups). So far, it’s clear that this particular law is simply adding to the ongoing decline in the pace of US start-ups.
One simple byproduct of most laws is the increase in regulatory risk. Remember, angels DE-RISK investments, while today’s SEC is actually adding substantial regulatory risk to angel investing. Already, anecdotal evidence supports the charge that the law is actually making matters worse.
For example, Michigan hosts a vital program for start-ups called the Accelerate Michigan Innovation Competition. I’ve judged these events in the past and have found companies in which we’ve invested.
According to the web:
The Accelerate Michigan Innovation Competition is an international business competition designed to bring together later stage entrepreneurial companies with local, national and international investors.
Here’s the rub. According to many experienced attorneys, inviting investors to an event on the web means that all of the participating companies may be considered soliciting for investors. If they are, they have special reporting obligations to the SEC. It is not clear if this is indeed the case though and the next logical question of “so what” leads to long speculative discussions with lawyers. The point is simple: the impact of the new laws rather than jump-starting is doing just the opposite by adding regulatory compliance risk. This is BAD for everybody involved.
If the SEC seeks to help American investors by reducing risks of fraud or other losses that consumers failed to anticipate, they need to start addressing their own role in creating risks and reducing investor opportunities. Better to send the money to institutional managers who, on average under-perform the market.