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house Bill H.R. 4854

Should Fewer Venture Capital Funds be Subject to SEC Regulations?

Argument in favor

Allowing more VC funds to be free from SEC regulations will help those VC funds spend more on helping small businesses and startups and less on complying with regulations.

Josh's Opinion
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07/07/2016
Less government regulation will encourage investments in smaller businesses by making it less costly to invest
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07/07/2016
Stop stifling free enterprise at the grass roots.
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Susan's Opinion
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07/06/2016
The Government is a bloated pig that needs to be regulated with over site, fines and prison time for those that abuse their power!
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Argument opposed

This bill allows VC funds to escape SEC regulations that ensure that investors in the fund and businesses receiving funding are protected from potential abuse by the fund managers.

William's Opinion
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07/06/2016
This bill bypasses regulatory oversight for venture businesses and puts its decisions in the hands of unqualified insiders. A business with over a hundred investors is not a small business, and so this does little, if nothing, to help encourage business growth. Instead, it encourages corruption and disregard for the law among larger businesses already reaching market demand.
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SouthernGal's Opinion
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07/06/2016
Wall st & venture capitalists need more regulation, not less.
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Emerald's Opinion
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07/06/2016
This is fucking ridiculous. Shame on anyone who votes in favor of this. Its just more loopholes for larger companies.
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
  • The house Passed July 5th, 2016
    Roll Call Vote 388 Yea / 9 Nay
      house Committees
      Committee on Financial Services
      Investor Protection, Entrepreneurship, and Capital Markets
    IntroducedMarch 23rd, 2016

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What is House Bill H.R. 4854?

This bill changes how Venture Capital (VC) funds are defined. Specifically, it increases the number of investors that a VC fund can have before being classified as an investment company from 100 to 500. Investment companies are required to register with the Securities and Exchange Commission (SEC) and are subject to numerous regulations under the Investment Company Act of 1940.

Additionally, the bill redefines VC funds as groups that invest less than $10 million in a single company. Funds that invest more than $10 million in a company aren’t exempt from regulations and registering with the SEC.

The Investment Company Act of 1940 requires investment companies to do 5 things:

  • Register with the SEC;

  • Have a board of directors, of which 75% of the members are independent from the company;

  • Limit their use of certain investment strategies;

  • Maintain a certain percentage of their money for investors who want to leave the company;

  • Disclose their structure, financial condition, investment policies, and objectives to investors.

Impact

VC funds that have less than 500 investors; VC funds that invest more than $10 million in one company; businesses seeking funding from VC funds; the SEC.

Cost of House Bill H.R. 4854

A CBO cost estimate is unavailable.

More Information

In-Depth: Sponsoring Rep. Patrick McHenry (R-NC), in a press release supporting this bill and a bill on crowdfunding, said that his bills would help small startups survive:

“Today, small businesses--particularly those in rural America--face immense challenges raising capital as traditional lenders have greatly reduced small business lending. To confront this challenge, we must harness technology and encourage innovative forms of capital formation to fill the void. Crowdfunding and angel investing are two great examples.”

However, the North American Securities Administrators Administration (NASAA) stated in a letter to Congress that the bill would allow too many VC funds to escape regulations and SEC oversight:

“The bill would not only allow another investment vehicle to operate without regulatory oversight, but also allow an investment adviser that is not licensed or examined to manage funds raised from a pool of investors that would be five times the size of that currently permitted (i.e., 100 to 500).”


Of Note: Rep. McHenry introduced this bill in tandem with another bill which aims to make it easier for business to be crowdfunded on sites like Kickstarter. As of June 16, 2016, both of McHenry’s bills were reported by the committee, meaning they could reach a vote on the House floor.


Media:

Summary by: Chris Conrad

(Photo Credit: Flickr user Simon_sees)

AKA

Supporting America's Innovators Act of 2016

Official Title

To amend the Investment Company Act of 1940 to expand the investor limitation for qualifying venture capital funds under an exemption from the definition of an investment company.

    Less government regulation will encourage investments in smaller businesses by making it less costly to invest
    Like (5)
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    This bill bypasses regulatory oversight for venture businesses and puts its decisions in the hands of unqualified insiders. A business with over a hundred investors is not a small business, and so this does little, if nothing, to help encourage business growth. Instead, it encourages corruption and disregard for the law among larger businesses already reaching market demand.
    Like (15)
    Follow
    Share
    Wall st & venture capitalists need more regulation, not less.
    Like (7)
    Follow
    Share
    This is fucking ridiculous. Shame on anyone who votes in favor of this. Its just more loopholes for larger companies.
    Like (5)
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    Share
    It's hard to not be sarcastic posting these messages.
    Like (4)
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    Stop stifling free enterprise at the grass roots.
    Like (4)
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    We need more regulations in the financial sector to make sure people are not being taken advantage of.
    Like (4)
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    Only in a world controlled by lunatics does this make any sense. In the real world of citizens & the global economy, it is pure folly. Given the enormous power of large amounts of money have in the US economy, to let more financial organizations operate without adequate regulation is to give a free hand to evil: greed for power & money never end well for anyone but the people who amass the most of both. Don't any of the Members have enough storage space left in what we euphemistically refer to as your brains to remember the financial disaster of 2008? Do we really need another financial meltdown to make you feel like you have served your already financially insecure constituents? I survived the last financial meltdown because I'm fortunate enough to own my home outright & had adequate financial resources to not have been forced into bankruptcy. I'm single & retired so I could cut my grocery bill by 80%, forego all medical appointments that involved a copay, turn off my AC & sweat through 3 Florida summers, quit driving except for absolute necessity & basically go to ground for 3 years. It wasn't fun. Mostly it makes me hate all of you who support the type of financial idiocy that it brought about. You are courting it again. I would rather vote for a cat than any of you fools! I encourage everyone I know to do the same! CATS ROCK! (You don't)
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    Helping small businesses and start ups is wonderful but why allow VCs to skirt regulations?
    Like (3)
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    The Government is a bloated pig that needs to be regulated with over site, fines and prison time for those that abuse their power!
    Like (3)
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    This bill makes loopholes far too accessible.
    Like (3)
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    This is just a way for people to shelter money and encourage predatory venture capitalism
    Like (3)
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    Another attempt to end run existing laws that regulate venture capitalists and their impact on the economy. It is a bad idea.
    Like (2)
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    Over 100 investors is not a VC. This is just another loop hole for big companies.
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    The investment markets have repeatedly proven that they cannot exist without adequate supervision. We need more small organizations, not more businesses giants.
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    Reckless
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    I don't trust any of the slime on Wall Street
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    I need more input as to exactly why the increase from 100 to 500. Looks like a back door way of closing small VC Institutions? Who may seek higher returns on investment capital while allowing fledgling companies a chance to provide the public with new products.
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    Hell no!
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    NEVER AGAIN. We got screwed once. I want ALL PRECAUTIONS TO BE IN PLACE , so they don't get away )through some loophole) we dont get fucked over again. Just my opinion
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