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First, let's kill all the angels: Congress takes aim.

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Re: First, let's kill all the angels: Congress takes aim.

#11

Post by gyardley »

Looks like whoever reposted John Mauldin's weekly newsletter chopped off the section that needs to be included to be allowed to repost it. Jerk move. Because John's newsletter is awesome - he's best when discussing the implications of skyrocketing sovereign debt - and because you might want to subscribe to it, here's what the article omitted:

You have permission to publish this article electronically or in print as long as the following is included:

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore

Re: First, let's kill all the angels: Congress takes aim.

#13

Post by SamAtt »

gojomo wrote: post #10

I want to know who, by name or agency, thinks raising the 'accredited investor' thresholds is a good or necessary step. Accredited investors aren't asking for this change. The participation of private investors (of any net worth) in regular equities was a non-factor in current financial troubles, or indeed any financial troubles of recent decades. If lessons from the recent crisis are what's motivating new net worth…

Accredited investors aren't asking for this change. The participation of private investors (of any net worth) in regular equities was a non-factor in current financial troubles, or indeed any financial troubles of recent decades.

Are you sure about that? Pre-IPO investment is a competition. There are hot startups and investors compete to invest in them. Beyond that everyone knows the early investors are the ones who make the most.

If I'm someone with a net worth of several million dollars and I'm viciously competitive I'd probably like these new rules because it forces people to come to me rather than to their Aunt Sally who has $100,000 stuffed away in a savings account somewhere.

Re: First, let's kill all the angels: Congress takes aim.

#14

Post by jacquesm »

SamAtt wrote: post #8
jacquesm wrote: post #7

Earlier quoted context omitted.

Angel investors do not typically compete with small business loans because these companies would not in a million years get money from a bank. Angels invest exactly in those that can not get money from banks because they are too high risk. Once a business is established and has a balance sheet with some assets on it you can start thinking about applying for a regular loan. For small businesses at the 'start-up' level…

I'm sorry but you're just wrong here. This is the first link that comes up on Google when you search for "Small Business Loan": http://www.merchantloans.com/ . The first item listed under that heading is "Start/buy a business or franchise" This About.com article ( http://sbinfocanada.about.com/cs/financing/a/getbusinessloan... ) starts by saying... "Sooner or later most small businesses need to get a small business l…

Yes, but hot dog stands are not the kind of things that we're talking about in this context. High tech, high risk start ups typically do not walk in to their bank managers office to get a few tens of thousands up to 100K loan to start their business, they're lucky enough to get an appointment in the first place.

Banks like to borrow where there is collateral, a typical tech start up will invest in people and a little bit of hardware. Typically that hardware will be worth 0 if the company should fold. A hot dog stand can at least be sold to the next guy that wants to try his luck.

Angels not investing in hot dog stands prove my point, they don't detract from it.

Banks will gain if they get more business because of this, since angels do not invest in to that kind of business the banks already have it, and the kind of investment that angels do will not be touched by banks.

Do you personally know of a high tech business that got its first capital from a bank ? Do you know of a high tech business that got its first capital from an angle or more than one angel investor ?

For me the score is exactly 0 for the first and 20+ for the second. (where I know one or more of the founders personally)

Re: First, let's kill all the angels: Congress takes aim.

#15

Post by gojomo »

SamAtt wrote: post #2

Worst...written...article...EVER! This is the point (found 2 pages or 954 words down the article) "There are three changes that should have a particular effect on angel investors, a catch-all category which includes everyone from friends and family members who invest in a startup, to unaffiliated wealthy individuals, to side investments made by venture capitalists acting on their own. "First, Dodd’s bill would requir…

Worst...written...article...EVER!

Though you found this via a blog post, its origin is an opt-in weekly investors newsletter. That newsletter isn't written to make quick points to hurried drive-by readers following links from social news sites.

Its primary audience is its regular readers, familiar with Mauldin's discursive style, slow build, and combination of multiple topics in one letter. He's providing a mind-meld, not a cliff's notes bullet list. It's good for his intended audience.

I hate to see valuable things criticized in absolute global terms ("worst... EVER") when in fact the criticism is really relative and local ("bad for my purpose of the moment"). For all its benefits, the web makes this problem worse -- because it's so easy to link/excerpt/republish/retitle removing the original context.

Re: First, let's kill all the angels: Congress takes aim.

#16

Post by gojomo »

SamAtt wrote: post #13
gojomo wrote: post #10

I want to know who, by name or agency, thinks raising the 'accredited investor' thresholds is a good or necessary step. Accredited investors aren't asking for this change. The participation of private investors (of any net worth) in regular equities was a non-factor in current financial troubles, or indeed any financial troubles of recent decades. If lessons from the recent crisis are what's motivating new net worth…

Accredited investors aren't asking for this change. The participation of private investors (of any net worth) in regular equities was a non-factor in current financial troubles, or indeed any financial troubles of recent decades. Are you sure about that? Pre-IPO investment is a competition. There are hot startups and investors compete to invest in them. Beyond that everyone knows the early investors are the ones who…

That's a reasonable game-theoretic point -- and another reason why I'd like to know their names.

I think the famous investors now rallying against these new rules can meet the new limits themselves, but know the industry as a whole will be hurt if they lose their $1-2.5mil net worth angel peers.

So if there's some subset of angels who like this for non-positive-sum personal-advantage, let's out them. (There may be none; this could so thin the field of hopeful startups they lose far more in dealflow than they gain in lessened competition. But let's see.)

Re: First, let's kill all the angels: Congress takes aim.

#17

Post by hugh3 »

SamAtt wrote: post #8
jacquesm wrote: post #7

Earlier quoted context omitted.

Angel investors do not typically compete with small business loans because these companies would not in a million years get money from a bank. Angels invest exactly in those that can not get money from banks because they are too high risk. Once a business is established and has a balance sheet with some assets on it you can start thinking about applying for a regular loan. For small businesses at the 'start-up' level…

I'm sorry but you're just wrong here. This is the first link that comes up on Google when you search for "Small Business Loan": http://www.merchantloans.com/ . The first item listed under that heading is "Start/buy a business or franchise" This About.com article ( http://sbinfocanada.about.com/cs/financing/a/getbusinessloan... ) starts by saying... "Sooner or later most small businesses need to get a small business l…

Banks don't compete with angel financing, because any business capable of getting a bank loan would be crazy to take angel financing instead.

Suppose your company gets a bank loan. If the company is successful it pays back the loan with interest; if it's unsuccessful it goes broke and pays back nothing. The bank thus really hates lending money to companies with a significant chance of failure.

Suppose your company gets an angel investment instead. If the company goes broke it still pays zero, but if the company is successful then they'll have to pay a lot more than the principal back. If you can get a bank to lend you money it's stupid to sell off part of your company at damn near any valuation.

Re: First, let's kill all the angels: Congress takes aim.

#18

Post by jordanb »

How many angel investors really have less than $2.3 million in assets?

If I had to guess, I'd say that the increase in the cap was to try to cut down on Wall Street shysters ripping off doctors and marketing VPs. People with less than two million in assets are probably not full time investors, but rather are working-wealthy. They have day jobs and they don't have staff accountants or lawyers.

But I could be wrong. Maybe this cap will have a negative impact on Angels. If so, the thing for Angel firms to do is contact your California senators, whose votes will be critical in the passage of the bill, and get an amendment

Re: First, let's kill all the angels: Congress takes aim.

#19

Post by SamAtt »

jacquesm wrote: post #14
SamAtt wrote: post #8

Earlier quoted context omitted.

I'm sorry but you're just wrong here. This is the first link that comes up on Google when you search for "Small Business Loan": http://www.merchantloans.com/ . The first item listed under that heading is "Start/buy a business or franchise" This About.com article ( http://sbinfocanada.about.com/cs/financing/a/getbusinessloan... ) starts by saying... "Sooner or later most small businesses need to get a small business l…

Yes, but hot dog stands are not the kind of things that we're talking about in this context. High tech, high risk start ups typically do not walk in to their bank managers office to get a few tens of thousands up to 100K loan to start their business, they're lucky enough to get an appointment in the first place. Banks like to borrow where there is collateral, a typical tech start up will invest in people and a little…

I don't buy that. Your whole argument is based around assets being worth enough to mitigate risk and they simply aren't. Taking the hot dog stand for example they're going to spend most of their money on merchandise and rent which aren't assets that can be repossessed. For those few assets that can be repossessed a bank has to go through petitioning a court to give them permission to repossess, then they have to pay someone to repossess the merchandise and then they have to pay to auction off the merchandise. That's a lot of money to spend for what amounts to some tables and a grill.

The same is true of most new businesses. Even those that create assets in their product (since the bank has to sell off something that people clearly weren't willing to buy from the original business).

As for high tech firms my whole point was that banks can't compete with Angel investors right now but if this law passes they'll have limited options which will push them towards the banks (which in turn is exactly what the banks want)

Re: First, let's kill all the angels: Congress takes aim.

#20

Post by krf »

gojomo wrote: post #10

I want to know who, by name or agency, thinks raising the 'accredited investor' thresholds is a good or necessary step. Accredited investors aren't asking for this change. The participation of private investors (of any net worth) in regular equities was a non-factor in current financial troubles, or indeed any financial troubles of recent decades. If lessons from the recent crisis are what's motivating new net worth…

Microsoft, Google, Yahoo, Apple, Oracle and all other large tech corporations benefit if the money to startups is cut off or diminished.

Getting rid of potential competition through legislation is a tried and true method.

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