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house Bill H.R. 79

Should it be Easier for Startups to Pitch Their Plans to Angel Investors?

Argument in favor

For startups to grow and create jobs they need access to capital early in the process. This bill would accomplish that by making it easier for them to connect with investors through a commonsense, bipartisan reform.

Benjamin's Opinion
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01/09/2017
I think the biggest thing is making conduits for funding more well known and transparent. Developments of these types shouldn't only be limited to high cost of living areas of the country, easier access and easier ability to enter the pipeline for potential funding could help activate economic development in many more corners of our country.
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jameslj's Opinion
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01/10/2017
Good start. Long-term this entire regulation should be abolished.
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Craig's Opinion
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01/11/2017
Small businesses are a strong part of our nation and can use all the help they can get
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Argument opposed

This bill muddies the waters surrounding the SEC’s definition of accredited investors, and as a result it diminishes important investor protections. Plus the SEC already allows an exemption for certain pitch events.

Gil's Opinion
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01/10/2017
There is no clear justification for or against this proposed legislation, either from the perspectives of the investor, the entrepreneur, or the general public. The problem to be solved is not clearly identified, described or quantified. It is hard to asses the impact the proposed legislation would have on the problem if it exist.
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CPMonroe's Opinion
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01/09/2017
There are already rules - and exemptions - for Angel Investors. Loosening regulations concerning any type of investments, especially when ROI's (returns on investments) are involved, serves to bypass the SEC & IRS. It's bad enough that unregulated monies flow into our political process & news organizations. Do you want US businesses taken over by foreign interests as well?
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Docheatherb's Opinion
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01/12/2017
I feel like the "Main Street Growth" tag is a bit of a gimmick here. The law specifies that this is for companies with market capitalization of $1B or less in the small business trends reference listed. This isn't a bill designed to help someone start a chimney cleaning business or a new dry cleaning shop in town. It feels more like a loophole bill. I would agree that startups that have the potential to create jobs should be supported, but startups by nature are risky so if the risk hasn't been fully disclosed to investors and proper due diligence isn't being pursued and the start up fails, who does that help?
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What is House Bill H.R. 79?

This bill would make it easier for startup businesses to attract investments from angel investors  under the Securities and Exchange Commission’s (SEC) Regulation D. 

It would allow small companies looking to raise funds through the sale of equity or debt securities (like stocks or bonds) to be exempt from advertising requirements at pitch events sponsored by angel investor groups where:

  • Presentations or communications are made by or on behalf of the issuing company;

  • The advertising doesn’t refer to any specific offering of securities;

  • The sponsor doesn’t offer investment recommendations or advice to attendees;

  • The sponsor doesn’t receive compensation for the event, which would require them to register as a broker or dealer or as an investment advisor;

  • No specific information related to a securities offering is communicated (other than information about the number and type of securities to be offered).

Regulation D governs private placements, which are the sale of securities to a select number of accredited investors, and exempts small companies from having to register their securities with the SEC. It looks to restrict participation in private placements to accredited or sophisticated investors who meet requirements related to net worth, income, and business or investment experience that gives the investor financial awareness of the risks associated with their investment.

This legislation would only affect Regulation D with respect to presentations and communications with prospective investors, but not purchases or sales of securities.

Impact

Startup companies; potential investors, particularly angel investor groups; and the SEC.

Cost of House Bill H.R. 79

The CBO estimated in the 114th Congress that enacting this bill would cost less than $1 million, which would be offset by the collection of fees so the net effect on the federal budget would be negligible.

More Information

In-Depth: Sponsoring Rep. Steve Chabot (R-OH) introduced this bill to allow startups to showcase their business plans and connect with potential investors at events that are currently restricted:

“When entrepreneurs are looking for ways to access the capital they need to get started, they look at every avenue available to them. If we’re going to help open doors for the next generation, we need to take the same approach. Clarifying the law to give entrepreneurs and investors more certainty and opportunity is a step in the right direction.”

In the 114th Congress, this legislation was passed by the House Financial Services Committee by a vote of 44-13 and has the bipartisan support of 11 cosponsors — including seven Republicans and four Democrats. The House as a whole passed it 325-89 in late April 2016, but the Senate never  considered it.

Speaking for the lawmakers who opposed this bill was Rep. Maxine Waters (D-CA), who wrote that it may undermine investor protections related to the “verification of accredited investor status” for purchasers of the securities being discussed.


Of Note: In 2014, a total of 316,600 angel investors funded 73,400 companies to the tune of $24.1 billion in the U.S. alone, creating over 264,000 jobs.


Media:

Summary by Eric Revell
(Photo Credit: Flickr user Startup Stock Photos)

AKA

HALOS Act

Official Title

To clarify the definition of general solicitation under Federal securities law.

bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
      senate Committees
      Committee on Banking, Housing, and Urban Affairs
  • The house Passed January 10th, 2017
    Roll Call Vote 344 Yea / 73 Nay
      house Committees
      Committee on Financial Services
    IntroducedJanuary 3rd, 2017

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    I think the biggest thing is making conduits for funding more well known and transparent. Developments of these types shouldn't only be limited to high cost of living areas of the country, easier access and easier ability to enter the pipeline for potential funding could help activate economic development in many more corners of our country.
    Like (56)
    Follow
    Share
    There is no clear justification for or against this proposed legislation, either from the perspectives of the investor, the entrepreneur, or the general public. The problem to be solved is not clearly identified, described or quantified. It is hard to asses the impact the proposed legislation would have on the problem if it exist.
    Like (75)
    Follow
    Share
    There are already rules - and exemptions - for Angel Investors. Loosening regulations concerning any type of investments, especially when ROI's (returns on investments) are involved, serves to bypass the SEC & IRS. It's bad enough that unregulated monies flow into our political process & news organizations. Do you want US businesses taken over by foreign interests as well?
    Like (22)
    Follow
    Share
    I feel like the "Main Street Growth" tag is a bit of a gimmick here. The law specifies that this is for companies with market capitalization of $1B or less in the small business trends reference listed. This isn't a bill designed to help someone start a chimney cleaning business or a new dry cleaning shop in town. It feels more like a loophole bill. I would agree that startups that have the potential to create jobs should be supported, but startups by nature are risky so if the risk hasn't been fully disclosed to investors and proper due diligence isn't being pursued and the start up fails, who does that help?
    Like (17)
    Follow
    Share
    Good start. Long-term this entire regulation should be abolished.
    Like (11)
    Follow
    Share
    Small businesses are a strong part of our nation and can use all the help they can get
    Like (10)
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    One of the major concerns of this bill is protections for the investor, and I feel as if some of that concern is misplaced. Many people who invest in startups already have large amounts of disposable income so I see little need to worry too much about them. I'd much rather make it easier for more small businesses to compete with larger corporations who can already leverage their outside investors.
    Like (5)
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    I work at a startup myself and understand the challenges many startups face. Additionally, it makes it more fair for people who may not be considered "accredited" investors to participate in opportunities that would previously be closed off to them.
    Like (4)
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    The current regime works very well. No need to fix what isn't broken, especially when this could compromise the prophylactic, shareholder-protective effect of Regulation D.
    Like (3)
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    Anything that creates jobs that creates value for customers should not have restrictions; this even less so. Getting started is the hardest part; let those willing to risk their funds on friends and family to do so.
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    Free up the opportunities. Free up communication between start-ups and potential investors. If the best argument against this is "investor protection," to that I say that it's not your job to protect me from myself. If there is a problem with the ability of start-ups and investors to get connected and to communicate, I'd love to try solving it with more freedom instead of less.
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    This should not be your focus right now please vote no on this bill.
    Like (2)
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    I don't agree with the passing of this bill
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    In principle, democratizing financial opportunity is a step in the right direction. Unfortunately, as written, this also opens the door for significant fraud. Companies that would like to raise capital from a widened pool of angels (aka less experienced investors & people with less disposable income) should also be held to higher disclosure standards. That way, a new class of investors are given the information needed to make an informed decision.
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    Will help entrepreneurs trying to get a start in business.
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    We need more entrepreneurs if these start up business are restricted then the door needs to be opened and access available. Small business have it rough, I'm for helping the small business.
    Like (2)
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    Businesses should be able to arrange for funding in whatever manner facilitates their interests legally.
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    This bill needs better defined mechanisms, and seems like it could easily be misapplied to circumvent SEC rules.
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    Good plan
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    Consumer protection is important, so I am against this as written, but not in spirit. I am a big fan of another change where the SEC's opened up crowdsourcing for equity. It will probably need tweaking as time goes on, because it will be hard to open this door without letting fraud in with it which is why it was so hard to pass in the first place. However, if I can put in 25$ to buy a share of stock in a mom and pop startup bakery for example, it could be the biggest boom to small business growth the world has ever seen in the long term perspective.
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