What is Senator Dodd Thinking about Small Business?

Senator Dodd's Financial Reform Bill is working its way through the Senate. Now I don't know many people who do not agree that we need some controls in place to ensure that the banking industry doesn't do the more of the same that helped created the crisis in 2008. Or that we really can't allow a business segment to be so big that failure is no longer an option and massive amounts of bail out money is required to stop a global financial crisis.

My problem is that there are two provisions in this bill that have nothing to do with the banking reform or that shore up issues that led to the financial meltdown. Both provisions target small business startups and how they are funded.

The first changes the one of the definitions of the Accredited Investor for an individual from one having a net worth of at least $1M to $2.3M. The first question that this change poses is "what is the relationship of early stage investing in by individuals, like Angels, and the need for banking reform?" Also, where did $2.3M come from? I mean the .3; why not $2.0M or $2.5M? What is the relevance of .3?

If this provision in part of the final bill, then it will be much harder for entrepreneurs to raise the early stage funds that most fledging companies, especially those that have the best potential for creating economic development and add jobs to the economy. Do we really want to negatively effect one of America's job creation machine?

The second provision affects entrepreneurs filing requirements when starting a company. In today's world, an entrepreneur who primarily uses accredited investors to fund their startup are not required to create and list filings with the government. Under this new provision, all companies will be required to file with the SEC which can add months to the startup time and require more initial capital to pay lawyers to create private placement memorandums otherwise they will have to file with each state where they intend to raise money. The real trick here is language that gives the SEC the right to classify a group of investments as one that should be regulated by the states; like early stage investments that would overwhelm the SEC with significantly more filings.

Oh yeah, the other provision will reduce the pool of available capital, which means that entrepreneurs will have to widen their funding search, which may cause them to search in multiple states, which will require more documentation state by state that will cost more initial capital to get documents done, ... I think you can follow how this plays out. Less business startups getting off the ground and less jobs created in the long term.

All this said, I still go back to my initial question, why does Senator Dodd think that creating early stage companies funded by Angel investors is somehow related to the Financial Reform needed in the banking industry? Somebody will benefit from this being passes. Since it is not the entrepreneur or small business, then who is lobbying for this? Who is pushing Dodd to have this included?

At a minimum, I believe these are bad provisions regardless of the merits of the overall bill.