March 1, 2007
I have started several successful business ventures in my lifetime. The last one required funding from qualified investors. Had these new, higher, limits on the level of assets and income to qualify to invest been in place, I doubt that this venture would have gotten off the ground.
Today, over 300 people have their jobs as a result of the business. Over the next ten years, at present levels, this business will have over $1 billion in sales. That business is Carfax, a service that some employees of the Commission may have used.
Regulators will only hear of the times when an investor who should have exercised better judgement lost his investment. These same Regulators will never know of the business ventures that do not get funding if they increase these limits and greatly reduce of people who are allowed to fund early startups. The economy will never benefit from any of their innovations, nor will anyone have jobs there, nor will any lives be saved by the drugs or treatments they are able to bring to market. Nor will government gain any tax revenues from the people whose investments are now worth far more.
The proposal in fundamentally flawed. It assumes that a person with more wealth or income has better judgement. Such a monumental assumption has no supporting evidence. It only damages the dignity of the law to make it pivot upon this pure conjecture or (even worse) upon deliberate and self-admitted elitism- that only the upper 1.3% of US households are judged worthy. I think this violates the spirit if not the letter of the Constitution's Equal Protection Clause.
At the very least, the proposed rules must allow a person who has already invested in a fund covered by this rule but who no longer qualifies to continue his contractual relationship with the fund.
It will be a disaster enough for Angel investors like myself to no longer be able to fund new startup ventures. It will be a massive disaster if existing Angels are forced to withdraw, that is if they can. If they cannot, does the Commission propose to nullify their subscription agreements? I hope not.
In my opinion, the limits should not be changed. (If the Commission has an issue with the dollar amount today, they should issue a rule that forbids the Federal Reserve from inflating the currency.) It is difficult enough for an entrepreneur like myself to find receptive investors who are also qualified under the existing rules. If this rule becomes final with higher limits, it will have a direct and negative impact on the future rate of business formation, employment and per capita income for the entire country.