Angel investors in Rhode Island are adapting to the initial impacts of what they say are complex – and unfolding – new rules by the Securities and Exchange Commission, adopted to implement the Jumpstart Our Business Startup Act.
“There’s a lot to be determined as to how the new SEC regulations will impact the market with general solicitation,” said Cherrystone Angel Group Executive Director Jennifer Schwall. “The rules as they relate to angel investing will allow for startup companies to seek investment from the general public, as well as other capital resources.”
New SEC regulations, which went into effect in September 2013, allow startups to publicly solicit funding, but require the company to provide substantial documentation that their investors are accredited.
While private or “quiet” solicitation by a startup continues to allow investors to self-certify they are accredited, the approval for general solicitation has opened a wide door to funding opportunities and creates a changing landscape.
“With the proposed crowd-funding rules, startups can seek funding through new avenues, including announcing raises on Twitter and potentially seeking investment from the general public,” said Schwall. “Cherrystone is watching these new regulations closely and is interested in seeing how these new opportunities will be regulated.”
According to SEC regulations, an accredited investor must meet one of several requirements. However, the two main points of accreditation that are most applicable to angel investors are having a net worth of $1 million, excluding primary residence, or having an income exceeding $200,000 for each of the two most recent years, said Schwall.
“We have made some changes based on the new and proposed SEC regulations. We’ve asked our members to submit accredited investor certification annually, as well as asking our applying companies to declare if they are raising a quiet or general solicitation round,” said Schwall. “This allows us to determine what steps need to be taken to comply with the new regulations.”