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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.

#21

Post by InclinedPlane »

krf wrote: post #20
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.

Google uses startups for hiring inflow, I doubt they want to choke them off.

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

#22

Post by anamax »

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…

> Small Business Loans are the #1 way that people start businesses in this country (no one Angel invests in a hot dog stand

Even if SBA loans are the number 1 way people start biz (Canada isn't the US), they're not the way people start biz that have new products or services.

No, you can't repossess the rent paid by a hot dog stand or its inventory, but a hot dog stand is fairly low risk. We know that people will buy hot dogs, so the only question is whether the applicant can manage to not screw up the cooking, can sell, can manage, and has a decent location.

Quora isn't going to get an SBA loan.

And, while I like hot dogs as much as the next guy, Quora and its ilk make a bigger difference.

There doesn't seem to be any shortage of the sort of things that the SBA funds.

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

#23

Post by hga »

gojomo wrote: post #16
SamAtt wrote: post #13

Earlier quoted context omitted.

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 no…

See SamAtt's comment on other reasons "famous investors" are against this; the new net worth limits are arguably the least worst part of this, depending on how viciously the other parts play out.

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

#24

Post by jacquesm »

SamAtt wrote: post #19
jacquesm wrote: post #14

Earlier quoted context omitted.

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…

So, if I read you correctly you think that when angels no longer take the 'market' that banks will suddenly become interested in this kind of loan ? Do you see banks taking equity in start-ups ? Do you see start-ups that right now can't get money from banks but can get money from angels in this new environment suddenly getting bankloans ?

I really do not see that happening, if they could get their loans - at any condition - from banks today they would. The banks and the angels are not in competition because banks can't compete, they are not in competition because they don't want to compete.

If they would angels wouldn't stand a chance.

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

#25

Post by anamax »

jordanb wrote: post #18

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. Ma…

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

Wealth seems to follow a power law, so there are probably over 2x as many at $1M as there are at $2M.

> 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.

How about some evidence that this is actually occurring?

Heck - how about some evidence that "Wall Street shysters" are even trying to get money from angels?

Note - Madoff was running a completely different racket, one well within the purview of the SEC, and they didn't catch on for decades. (He was supposedly stock picking.)

> If so, the thing for Angel firms to do is contact your California senators,

Angels don't have firms. Yes, there are some groups, but most angels aren't in them.

Most folks affected this don't even know that it's something that they should be concerned about because they haven't done the angel thing yet. This means that they never will, and the folks who they would have funded likely won't get funded.

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

#26

Post by jacquesm »

hugh3 wrote: post #17
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…

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 ge…

> 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.

Exactly.

The only loop hole where banks are involuntary partners in funding a start-up is when a person uses their credit cards to fund their start-up. If the start-up fails (and they often do) it can put you in a world of trouble though.

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

#27

Post by anamax »

jordanb wrote: post #18

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. Ma…

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

There are actually two criteria, assets (not including residences and some other things) and income.

The current income threshold for single people is $200k/year. For married couples, it's $300k/year.

Both are reasonably common among techsters in SV.

Double those thresholds and potential angels are a lot less common.

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

#28

Post by hugh3 »

jacquesm wrote: post #26
hugh3 wrote: post #17

Earlier quoted context omitted.

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 ge…

> 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. Exactly. The only loop hole where banks are involuntary partners in funding a start-up is when a person uses their credit cards to fund their start-up. If the start-up fails (and they often do) it can put you in a world of trouble though.

Ah yes, in that case the bank is lending money to the individual, not the company, and thus has a more reasonable expectation of getting paid back.

Of course any entrepreneur who borrows money they can't afford to pay back in order to invest in their business is a doofus.

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

#30

Post by chancho »

InclinedPlane wrote: post #21
krf wrote: post #20

Earlier quoted context omitted.

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.

Google uses startups for hiring inflow, I doubt they want to choke them off.

Starving startups of cash makes them easier to buy.
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