Five Questions With: Jennifer Schwall

Jennifer Schwall is the executive director of the Cherrystone Angel Group, which recently received a national certification that aims to lessen the burden placed on entrepreneurs to prove accredited status of investors. The accreditation was granted by the national investment group Angel Capital Association, which designed it with the hope that it would satisfy relatively new regulations implemented by the U.S. Securities and Exchange Commission. Cherrystone, comprised of about 60 investors, was one of the first angel investment groups in the nation to receive the certification. Schwall talks about what it will mean for entrepreneurs and investors alike.

PBN: How does it feel to be one of the first angel investing groups in the nation to receive this ACA certification?
SCHWALL:
Cherrystone Angel Group is proud to be one of the first in the nation to receive the Established Angel Group (EAG) designation. We had to submit significant documentation, but the effort was worthwhile. We are pleased to be leaders in our field by adopting the certification method for our members.

PBN: What does the certification mean and why will it help aspiring entrepreneurs who’re seeking investors?
SCHWALL:
An angel group with the EAG certification indicates to entrepreneur issuers, their legal counsel and others that reasonable steps have been taken to verify the group’s members are accredited investors. The legal paperwork related to verification proof for 506(c) entrepreneurs is significantly reduced with this certification, making the deal process faster and less cumbersome for both the entrepreneur and investor. This certification will allow Cherrystone members to invest in these generally solicited offerings without compromising their personal financial information and more importantly, allow entrepreneurs to spend more time building their ventures and less time confirming accredited investor status. It also eliminates the need to engage third parties to verify angel investor financials/accreditation status.

PBN: How does it help your organization and the investors in your group?
SCHWALL:
EAG certification removes the burden of angels having to provide documentation of their wealth or income to issuers and other third parties for deals. Prior to receiving the certification, many of our members were concerned about participating in generally solicited offerings because of the documentation burden placed on them to confirm accredited status. This designation will allow our members to invest the same way they always have while also complying with the new SEC regulations.

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PBN: How much of the recently implemented SEC regulations does this certification satisfy?
SCHWALL:
EAG certification addresses SEC rules for “reasonable steps to verify” accredited investor status in generally solicited offerings (also referred to as 506(c) deals). This certification is a reasonable, private and approved way for angel investors to self-certify according to the Angel Capital Association (ACA). The certification was developed based on guidance from attorneys and discussion with the SEC. The SEC’s Keith F. Higgins, Director, Division of Corporate Finance, promoted use of a principles based methodology of which EAG is, in a written statement on the SEC website ( www.sec.gov). Additionally, EAG is supported as a reasonable approach by a growing number of attorneys.

PBN: What more could be done in the future to help streamline the connection between innovators and investors?
SCHWALL:
Mutual expectations and clearly communicated goals are important in any industry, and the early stage capital markets are no exception. Cherrystone has put tremendous effort over the past couple years in clearly communicating the types of deals we look for, the stage of investment we are interested in and the types of founders we like to work with. The more information we receive at the beginning of the process from the company, the better. It allows us to make a more informed (and usually faster) investment decision which allows entrepreneurs to get back to what they love – which in most cases, isn’t fundraising.

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