When new laws, acts, and bills are introduced, there is always a chance the new measures may stifle a company with more red tape, but there is also the chance it could help companies out, while still helping consumers and investors, as well. H.R. 1219 is one such measure.
Essentially, what H.R 1219, also known as “Supporting America’s Innovators Act of 2017,” says is that it would increase the number of people who can invest in a venture capital fund before it has to register with the Securities and Exchange Commission from 100 to 250 people.
Alex Mittal, co-founder and CEO of FundersClub sums up the proposed changes nicely by stating, “The coming changes to the number of accredited investors permitted per venture capital fund or special purpose vehicle (SPV) means more people will be able to co-invest on the same opportunities. In some situations, this will enable more people to be a part of these opportunities with smaller minimum investment sizes, which can facilitate diversification in their portfolios. In other situations, this will lead to more capital going to startups and small businesses via private fundraisers. More capital isn’t necessarily needed for all private companies, but there are certainly overlooked and deserving companies in need of additional capital.”
So where do these numbers come from? Where did the original 100 come from, was there a logical reason for it? Turns out there really wasn’t. “The 100 number goes back to the passage of the Investment Company Act in 1940, where Congress picked 100 out of a hat. The venture capital industry did not even exist in 1940, nor did the tools of software or the Internet which make managing a larger number of investors within a fund trivial. Thus, that number has little to do with what makes sense in real life,” says Mittal. He goes on to say, “The 250 number is a step beyond 100, but not too big of a change to ruffle feathers. I predict this is just the beginning of a series of changes to update outdated legislation to match the modern world in which we live and have been living for decades.”
When asked about how it would benefit FundersClub, Mittal says, “We’ve been patiently building our online VC firm within the constraints of existing regulations, as well we should. However, we have always expected that the gravity of reality would lead to an evolution in regulations, and that has been unfolding in parallel. In a nutshell, these changes mean we will be able to welcome more qualified accredited investors to our community and make private company investing more accessible as we continue on our quest to discover, fund, and support the world’s best startups.”
The House of Representatives passed the increase present in H.R. 1219 with a strong bipartisan basis, with the next step being for the Senate to pass it. While nothing is guaranteed, there is a good chance this will go through without incident, especially considering that the Senate Banking Committee already passed an identical build.
This post is part of our contributor series. It is written and published independently of TNW.
This post is part of our contributor series. The views expressed are the author's own and not necessarily shared by TNW.