Will New Regulations Clip Super Angels’ Wings?

By Karen Axelton

Have you heard of “super angels”? While regular angel investors put money into small businesses individually or in groups, super angels also manage other people’s investments in startups. In recent years, super angels have become a more important source of financing for small businesses as traditional capital sources have dried up.

But the Securities and Exchange Commission has proposed new financial regulations that could hamper super angels, VentureBeat reports—and that would be bad news for small businesses.

The proposed new regulations would require venture capital funds to be subject to public information reporting requirements for the first time. While experts cited by VentureBeat say this change wouldn’t have a detrimental effect on overall VC financing, it would hurt super angels—currently the fastest growing part of the VC industry.

Super angels typically run very lean and mean with a tiny staff; in fact, many outsource their back office functions altogether. Because the proposed reporting requirements will require compiling and maintaining lots of additional data, super angels would most likely have to revise their back offices and add staff, boosting their administrative overhead.

However, if the proposed rules are adopted in their current form, most traditional VC funds would be exempt based on the Investment Advisers Act of 1940. The good news: The SEC is seeking commentary from the public to ensure that any proposed regulation conforms as closely as possible with the standard industry standard practices that currently exist. This may be a sign that the commission will seek not to disrupt the effectiveness of super angel investors.

You can learn more about the proposed rules and how to submit comments at the SEC website.

This entry was posted on Thursday, December 23rd, 2010 at 10:30 am and is filed under Capital Access, Venture Capital. You can follow any responses to this entry through the RSS 2.0 feed.


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