September 4, 2013
General:
Rule 506 and regs
Interpretive:
I am the President of Bellingham Angel Investors, an angel group based in Bellingham
Washington. I write in regard to two issues final Rule 506 regarding general solicitation
and proposed rules to expand the scope of Regulation D and Form D. Most critically needed
is clarification of the "facts and circumstances" that would reasonably establish that an
investor is an accredited investor. I also urge the Commission withdraw its proposed
amendments to Regulation D and Form D, as these requirements would paralyze angel
investing and virtually shut small issuers out of the capital markets.
Our angel group has more than 35 members, all of whom are accredited investors. Angel
investors form the backbone of the startup economy. Collectively, our members have funded
more than ____ deals in start-ups and early-stage companies. Many of these companies have
gone on to raise additional capital and continue to positively impact the economy. Members
of Bellingham Angel Investors, as do members many angel investor groups, work closely with
entrepreneurs over long periods (often years) to provide essential "mentorship capital"
and support in addition to financial backing.
I recognize that the JOBS Act required issuers to take "reasonable steps to verify" that
investors are accredited when relying on Rule 506(c). However, "reasonable steps" should
not include disclosure of personal financial information by angel investors already
well-versed in the startup economy. Active angel investors are both accredited investors
and knowledgeable about the risks of angel investing. This combination of fact and
circumstances provides superior verification than the "check-the-box" method prohibited by
Congress. If angels are required to comply with cumbersome, intrusive and costly
requirements to provide private financial data (which is expressly privileged under the
laws of most states) to every startup in which we invest, we will find other areas of
investment that do not require such offensive compliance.
I request the Commission take two actions: (1) withdraw the proposed rules; and, (2)
provide guidance in regard to Rule 506(c). Such guidance can be as follows: If an issuer
verifies that the purchaser is (i) a member of an established angel group or is otherwise
actively engaged in the startup community and (ii) also provides written representation
that he or she is an accredited investor, the issuer will have met the verification
requirement of Rule 506(c)